500 drug makers moving to northern states

Baddi in Himachal Pradesh is on way to become the new pharma capital of the country. Close to 500 drug units from Maharashtra, Gujarat and Andhra Pradesh (their traditional base) are moving their production units, catering to the domestic market, to the tax-free zones in Himachal Pradesh, Uttaranchal and Jammu & Kashmir.

Industry analysts estimate that 200-odd large and medium units from these states have already moved to Baddi in Himachal Pradesh since 2004. Another 300 units are moving to Uttaranchal and Jammu & Kashmir, making these locations account for over 65 per cent the country's Rs 45,000 crore (Rs 450 billion) worth pharma production.

"The export units will, however, continue at the traditional locations due to international regulatory issues," an analyst said.

Baddi, according to an investment review by the Himachal industry ministry, has received an investment of over Rs 1,000 crore (Rs 10 billion). More than Rs 900 crore  (Rs 9 billion) is being invested by 20 leading Indian pharmaceutical companies.

M Venkateswarlu, deputy drug controller (west zone), said, "So far, 275 new pharmaceutical units have been registered in and around Baddi alone. About 50 of these projects are investing between Rs 25 crore  (Rs 250 million) and Rs 100 crore  (Rs 1 billion) each. This migration will cause not only big revenue loss to the state governments but also has drastic socio-economic implication."

Around 15 per cent of the 500 migrating units are moving their entire base, while the rest are shifting partially. Pharma MNCs such as Novartis and Pfizer are also moving and planning new outsourcing arrangements.

The exodus to the northern states is a fallout of excise duty incentives and income tax holiday offered there.

The maximum retail price (MRP)-based excise duty (16 per cent on the printed MRP for drugs) has reduced the margin for the drug makers, especially for those companies involved in contract manufacturing. Similarly, the 10-year tax holiday would significantly help bigger companies to make up for their falling profits.

Recent amendments in the value added tax (VAT) collection rules in Maharashtra has worsened the scene for the drug units based here. Mumbai-based major companies led by Wockhardt, Cipla, Lupin, Sun Pharma, Alkem, Aristo, Nicholas Piramal and a few others have already set up their plants at Baddi.

Kewal Handa, managing director, Pfizer, said that the industry has made several representations to the state government to review the hostile tax rules. "We are waiting for the state government's response as the new rules will neither benefit the industry nor the state. Pharmaceutical companies will be forced to shift their base," he said.

In Gujarat, the scenario is even worse. Cadila Healthcare (Zydus), Torrent, Alembic, Intas and a few others are in the process of moving to the northern states.

N C Dalal, chairman, Indian Drug Manufacturers Association (Gujarat chapter) said that he has taken up the matter with chief minister Narendra Modi.

Major players from Andra Pradesh -- Dr Reddy's, Natco Pharma, Aurobindo and several others have moved to the new location.

J&K is the destination for half a dozen major companies including Nestor, Lupin, Glenmark Sun Pharma, etc.