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P.T. Jyothi Datta

Mumbai , June 25

SMALL and medium enterprises (SME) in the pharma sector may have to learn new tricks in the trade, come July.

Shifting manufacturing base or changing tack to exports are just some of the survival strategies being mulled, in a desperate bid to prevent shutting shop.

Small entrepreneurs had taken loans from banks to meet the good manufacturing practices (GMP) norms that come into effect this July. But the process of investment got upset, as the Centre's new norm on levying excise on maximum retail price (MRP) skewed the business environment in favour of doing business from tax-havens such as Himachal Pradesh (HP) and Uttaranchal.

The current policy measure to develop remote regions is flawed, as large companies have flocked only to HP and Uttaranchal, says one small entrepreneur. How many have moved to Jammu and Kashmir and the North-eastern States, he questions.

Mr Veeramani, also a representative of the SME community agrees. The Centre should intervene and set right the imbalance before it is too late, he says. Maharashtra, Andhra Pradesh, Gujarat, Tamil Nadu and Karnataka are directly impacted by the SMEs' dilemma and naturally, state authorities are concerned.

No one disputes the creation of industrial assets in backward areas to generate employment and revenues. But such a policy "should not act as an instrument for creation of new assets at the cost of existing assets, new employment at the cost of existing employments," said the Andhra Pradesh Chief Minister, Dr Y.S. Rajasekhara Reddy, in his letter to the Prime Minister, Dr Manmohan Singh.

The tax incentives in States such as HP, J&K and Uttaranchal "provide a comparative cost advantage of more than 30 per cent over other states... If someone puts a new factory, they will recoup the entire capital expenditure in less than three years and the remaining seven years is free," the letter states.

"We don't have the marketing muscle or the financial power to shift. The Centre's tax incentives have created an imbalance of a different kind," rues Mr Sethuraman, of the Federation of South Indian Pharmaceutical Manufacturers Association

As customers indirectly tell small units to shift to tax-free zones, small entrepreneurs are saddled with bank loans, a dwindling business and labour that they are unable to sustain, he says, voicing a collective concern.

Entrepreneurs focused on domestic business are now forced to look at the export market to prevent closing down. But that is not easy, as intense competition reduces earnings through exports, says Mr P.K. Gupta, with the Haryana Pharmaceutical Manufacturers Association.

It is not the fear of competition, says Mr Mehul Shah of Encube Ethicals. SMEs were investing to meet the GMP norms. And then the MRP-based excise duty directive skewed the odds, he says.

Contrary to expectations, the Union Budget 2005 too did not reduce the excise duty on drugs from 16 per cent to 8 per cent. This would have reduced the difference in the cost of medicines made in the different regions, says Mr Veeramani.

(Concluded)

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