Pharmaceutical Industry in India - Small and Medium Enterprises

Small and Medium Enterprises

As promising as the future is for a whole, the outlook for small and medium enterprises (SME) is not as bright. The excise structure changed so that companies now have to pay a 16% tax on the maximum retail price (MRP) of their products, as opposed to on the ex-factory price. Consequently, larger companies are cutting back on outsourcing and what business is left is shifting to companies with facilities in the four tax-free states - Himachal Pradesh, Jammu & Kashmir, Uttaranchal and Jharkhand.Consequently a large number of pharmaceutical manufacturers shifted their plant to these states, as it became almost impossible to continue operating in non tax free zones. But in a matter of a couple of years the excise duty was revised on two occasions, first it was reduced to 8% and then to 4%. As a result the benefits of shifting to a tax free zone was negated. This resulted in, factories in the tax free zones, to start up third party manufacturing. Under this these factories produced goods under the brand names of other parties on job work basis.

As SMEs wrestled with the tax structure, they were also scrambling to meet the July 1 deadline for compliance with the revised Schedule M Good Manufacturing Practices (GMP). While this should be beneficial to consumers and the industry at large, SMEs have been finding it difficult to find the funds to upgrade their manufacturing plants, resulting in the closure of many facilities. Others invested the money to bring their facilities to compliance, but these operations were located in non-tax-free states, making it difficult to compete in the wake of the new excise tax.