Govt rolls out fiscal incentives for bulk drug makers to reduce dependence on China

The government expects the scheme to benefit up to 136 manufacturing units.

May 28, 2020 / 07:47 PM IST

The government has made 53 bulk drugs eligible for a production-linked incentive (PLI) worth Rs 6,940 crore, in a move aimed at reducing the country's dependence on Chinese raw materials in pharmaceutical manufacturing.

The government expects the scheme to benefit up to 136 manufacturing units, generating incremental sales of Rs 46,400 crore and significant additional employment generation over the next eight years.

Financial incentives will be given to eligible manufacturers of identified critical bulk drugs on their incremental sales over the base year (2019-20) for a period of six years. All 53 critical bulk drugs are based on 41 key starting materials (KSMs) or drug intermediates. Around half of the bulk drugs are manufactured using the fermentation process.

For instance, a manufacturer who wants to produce Pencillin-G key starting material (KSM) locally using fermentation, with a minimum capacity of 5,000 metric tonnes and an investment of Rs 750 crore, would be getting Rs 120 crore per annum.

The payout will be staggered over six years, ending in FY28. In the first four years, 20 percent is paid based on incremental sales, followed by 15 percent in the fifth year and 5 percent in the final year.

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Pencillin-G KSM is used in making critical anti-bacterials such as amoxicillin, sulbactam, piperacillin plus tazobactam, cefixime and cephalexin.

For chemically synthesised KSMs like DCDA, which is used for manufacturing Metformin API, the payout would be much less at Rs 10 crore per annum. Metformin is a widely prescribed first-line drug to treat diabetes.

Land cost will not be considered as investment.

The government would allow only one manufacturer to apply initially for one of the eligible products. However, if no application is received for any eligible product, the same applicant may be eligible for other products.

The incentive is for production meant for domestic consumption and not for exports and products should be manufactured with complete backward integration.

The government plans to complete the entire exercise of selecting the beneficiaries in less than 10 months.

Bulk drug and intermediate parks

The government also announced two bulk drug parks and one intermediate park with a proposed investment of Rs 1,000 crore each. The DoP will enter into agreements with respective state governments for the development of these parks. Around 70 percent of the project cost, or Rs 1,000 crore, whichever is less, shall be borne by the DoP.

The state government may, if required, sign MoUs with private companies for the execution and maintenance of the park.

The minimum area of land required for each park shall not be less than 1,600 acres with minimum usable land of 800 acres.The cost of the land will be excluded from the total project cost of the park, and states have to provide a single-window for all the required clearances for the manufacturers located in the facility. However no fermentation facility will be permitted in the park.
Viswanath Pilla is a business journalist with 14 years of reporting experience. Based in Mumbai, Pilla covers pharma, healthcare and infrastructure sectors for Moneycontrol.
first published: May 28, 2020 07:45 pm

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