Gujarat-based pharma companies are turning homewards, as their honeymoon period in the tax-free havens of hill states like Himachal Pradesh and Uttarakhand ends in March 2010.
“We have not done the right thing in shifting our units to hill states, and will now concentrate on our production units in Ahmedabad.” said I A Modi, chairman of Cadila Pharmaceuticals Ltd, which had shifted production worth Rs 250 crore from Ahmedabad to its Samba facility near Jammu in 2006.
Gujarat had seen exodus of many pharmaceutical units to tax-exempted states such as HP, Uttarakhand and Sikkim, as pharma is a cost-sensitive business. The state’s share in national pharma production, once 42 per cent, fell below 20 per cent after the pharma tax-free zones were formed.
Lack of adequate manpower and power cuts have been a cause of worry for the pharma companies who have shifted to places like Baddi in HP, said an industry source.
“Pharma production in Gujarat is picking up now. We hope by the end of this year, the state’s share would reach around 35 per cent of national pharmaceutical production, which is around Rs 90,000 crore,” said Chirag Doshi, secretary, Indian Drug Manufacturers’ Association.
The graph, he said, is back on its upward curve for the past two years, for two reasons. One, the deadline for tax exemption in most hill states is nearing the deadline. Two, the excise duty is now down to 4 per cent from 16 per cent in 2006-07, so the hill states are not as attractive, he told pharmaquest.biz on the sidelines of a pharma event in Ahmedabad.
“Gujarat did see a migration of units in the pharma sector. However, the reversal has already started. We have been able to re-capture one third of India’s drugs and formulations market,” Jaynarayan Vyas, the state government’s minister of health and family welfare had said recently.
Today, Sikkim is home to as many as 14 major pharma companies, with significant investments in the state. These include units by Cipla, Sun Pharma, Zydus Cadila, Alembic, IPCA, Alkem Lab, Intas Pharma, Torrent Pharmaceuticals and Unichem.
The attractiveness of the hill states lie in the multitudes of tax benefits they have to offer. These include excise duty exemption on finished products, income tax exemption and capital investment subsidy on investment in plant and machinery, among others. This led to nearly 180 pharma units flocking to Baddi, making it a pharma manufacturing hub. As for Sikkim, it was included in the ‘North East Industrial and Investment Promotion Policy, 2007’, as a part of which all new units and existing ones going for expansion in the state get a fulll exemption from income tax and excise duty, apart from a 30 per cent subsidy on investment in plant and machinery, together with interest subsidy at 3 per cent on capital loan and even reimbursement of 100 per cent insurance premium.
Industry sources indicated that once the tax-related policies in Special Economic Zones (SEZs) become clear, export oriented units like Zydus Cadila would look at concentrating more on Gujarat-based SEZs.
Most pharma companies are in the process of setting up SEZs, where one can avail tax benefits. This is another reason for the homeward move of the state’s pharma majors.
A slew of SEZs for the pharma industry have been planned by various players like Zydus Group, J B Chemicals, Dishman Pharma and Cadila Healthcare. Together, they aim to draw investment of Rs 10-15,000 crore in the next couple of years, according to industry sources.
Dishman Pharma is planning to invest Rs 500-600 crore in its SEZ over the next five years that would be developed by Dishman Infrastructure Ltd (DIL) with an investment of Rs 400 crore.
“Work on the first phase will start in the first week of January and will take 15 months to complete,” J R Vyas, managing director of Dishman Pharma said. The company plans to build four facilities for contract manufacturing in the first phase. Torrent Pharma would invest Rs 350 crore to set up a facility at the Dahej SEZ and has started work on land development. This SEZ is a 50:50 joint venture between the Gujarat Industrial Development Corporation (GIDC) and ONGC. Already, 28 companies have finalised their plans for setting up manufacturing units in the area.
Cadila Pharma has plans to set up around seven to eight units in the coming PhaEZ near Ahmedabad over the next six years, with an estimated investment of around Rs 600-700 crore. About 30 units, involving investment of Rs 1,500-3,000 crore, are expected to come up in the PhaEZ Park.
Zydus Infrastructure has filled up Phase-I of its SEZ with nine units at an investment of Rs 200 crore. The 49.5 hectare SEZ already has a few operational units like Oxygen Bio, Fischer Scientific and Femicare. The company is now looking at developing the 67-hectare Phase-II of the SEZ. Besides a few joint venture units, Zydus Cadila is aiming to invest Rs 100 crore for manufacturing transdermal patches and various injectables.