Small and medium enterprises (SMEs) in the pharmaceutical industry have of late been earning quick and huge revenues from Contract Research and Manufacturing Services (CRAMS). This growing area has tremendous potential not only in domestic market but also in the globally. Most of the SMEs will not only survive but also thrive as the Indian crams market is estimated to touch the $900 million – mark by 2010

Problems & Prospects

  • The small-scale industry sector plays a key role in the Indian economy today.
  • SSIs account for almost 40 percent of country's industrial production,
  • 35 percent of direct overall exports and employment of 20 million.
  • The capital investments on plant machinery by units are considered as the main criteria for distinguishing between the large and small industries.
  • The Indian SMEs, especially in the pharmaceutical sector, are slowly maturing and are now, in a state of transition. From small and unknown units, they are striving towards becoming bigger and better players, by upgrading their facilities to be Schedule M compliant.
  • The SSI units in India's pharmaceutical industry, numbering over 18,000 units, account for hardly 25 percent of production and exports, whereas 250 large and medium scale drug units control almost 75 percent of pharmaceutical production and exports.
  • As many as 811 small scale pharma units in the country have implemented revised Schedule M norms so far after the State Drug Control Authorities enforced the provisions, with Gujarat leading the list with 407 units.
  • SMEs are mainly into contract manufacturing and supply to state and central government hospitals
  • CRAMS is quick revenue for SMEs.
  • Sidbi offers technology upgradation scheme and the Credit Link Capital Subsidy Scheme (CLCSS scheme). Additionally, they can also apply for bank loans and subsidies amongst other things. Sidbi offers up to Rs 1 crore under the technology upgradation scheme as a part of the loan, with 15 percent subsidy.
  • SSI units have excellent opportunities in the changing world. They should focus on their core competencies and should try to leverage from that. Instead of looking at all the segments, they should  focus and specialize in some areas. Instead of looking at marketing a product all around, focus on the local region.

Problems

SME's problems can be classified into following categories—

  1. Internal : With regards to internal problems, they are associated with management issues. SMEs need to channelise and manage their resources in a much better manner. This will happen if they focus on a few things instead of trying to do many. They could also do better by improving their finance management skills and their marketing management skills, both of which are crucial for the survival of the company.
  2. External : More support is required from the government. There are innumerable initiatives undertaken by the government already. But in reality, when you come to the brass-tacks, there is hardly anything concrete that is happening. Money is being allocated to SMEs, but it is not trickling down. As a result, the government comes to believe that the corpus is being under-utilised. For instance, there are reports that the Deputy Chairman of Planning Commission, indicated that the Rs 600 crore allocated under the CLCSS scheme has not been utilised, and hence, they are seriously thinking of discontinuing the scheme. 16 percent excise duty on MRP has given a tremendous blow to SMEs as they have lost their contract manufacturing jobs to units in excise free zones. There is no level-playing field here, and hence we have appealed to the government to bring down the duty to eight percent from the current 16 percent. This will not only bring more projects to them, but will also help curb their exodus to excise-free zones.
  3. Human resources : Human resources is a big problem. Big pharma companies attract talent from SMEs by offering incentives like allocation of shares and other perks. SME players cannot afford to pay big salaries to their employees and are hence losing them to big players. Secondly, the IT and ITES industry has also impacted the remunerations in pharma in general and henceforth SMEs in particular. Its impact is more pronounced in the SME segment whose affordability is much lesser than the larger players.

Prospects

SMEs are the growth drivers of the pharma industry. There is so much of talent, potential and competence, which, if they (the entrepreneurs and the government as well) are able to channelize and leverage on, can work wonders.  India is at par with international players in the global scenario as the formulations industry has come of age. So now, as the Indian pharma gears up to sell to the world, SMEs have, in front of them an immense opportunity. Each SME can focus on at the most five countries and meet their requirements by supplying good quality and affordable medicines. There may be 10 top companies, but there are 7,000 small companies and each one has its own capacities. There will be a tremendous multiplier effect in play and if channelised appropriately, they will surely become the growth driver of the industry.