The controversy over value-added tax has taken a toll on domestic pharma players with growth declining significantly in the first five months of calendar 2003.

The sector witnessed just 2.2 per cent growth in January-May compared with 11.8 per cent growth in the same period last year, according to the ORG Marg data.

Cumulative industry sales for the January-May 2003 period, as per the retail chemist audit conducted by ORG Marg, stood at around Rs 7,357 crore (Rs 73.57 billion) against Rs 7,055 crore (Rs 70.55 billion) in the same period in 2002.

The first calendar quarter this year witnessed sales of Rs 4,234 crore (Rs 42.34 billion) against Rs 4,120 crore (Rs 41.20 billion) last year. The sectoral growth last fiscal stood at 8.3 per cent.

The first quarter of the calendar year was even worse with the industry clocking a growth rate of 0.7 per cent against 11.4 per cent in the corresponding January-March period last year.

Drugmakers are, however, expecting 6-7 per cent growth during the second half of the year.

Industry players and analysts attribute the drop in growth figures, particularly for the month of March, to the value-added tax controversy that erupted post budget. This was followed by the truckers strike which added fuel to the fire.

Moreover, according to analysts, though there has been a healthy volume growth for the period under consideration, growth in terms of value has suffered primarily on account of excessive competition.

"The realisation per unit has taken a beating due to intense price competition with proliferation of brands."

A senior executive at Lupin said, "We have observed some buoyancy in the industry recently. On a conservative estimate, we expect the industry to grow by around 6-7 per cent in the next six months on a MAT basis. A strong positive variable is the current buoyancy in the economy - a good monsoon and higher GDP growth would mean higher spend on medicines. However, domestic prices would continue to be under pressure because of competition and price regulation."

Analysts tracking the pharma sector said that the growth momentum that is expected to catch in the coming months appear to be sustainable. The focus would continue to be on the export market.

The Rs 20,000 crore (Rs 200 billion) Indian pharma industry is the fifth largest in the world in terms of production and accounts for 2 per cent of the overall global production. Formulations constitute around 80 per cent of the total market in India.