A self-reliant pharma industry

• The production-linked incentive scheme needs to be modified in order to attract the industry.
• The pharmaceuticals industry is a key sector for the Atma Nirbhar Bharat programme.

Objectives of PLI scheme for pharmaceutical industry

• Phase-I: Reduce import dependence on active pharmaceutical ingredients (APIs), drug intermediates (DIs) and key starting materials (KSMs).
• Attract a lot of interest as countries had begun to adopt measures to reduce their dependence on China for APIs.
• The response to this scheme did not meet expectations.

Current Scenario

• A total of 239 applications were received in two rounds from an industry of over 3,000 firms. * 61 were selected, 11 beneficiaries withdrew from the scheme, the number reduced to 50 as on December 9, 2021, against the maximum number of 136 beneficiaries.
• No beneficiary was identified in five of the 41 products notified for the scheme.

Creating confidence among investors

• A working paper of the Institute for Studies in Industrial Development (ISID) shows that India needs a strategy, not just a scheme, to realise the objective of reducing import dependence.
• PLI scheme requires modifications and Other complementary measures also need to be put in place for India to become self-reliant in APIs, DIs and KSMs.
• Cheaper imports from China are critical for maintaining their global competence in the export of formulations,
• But investors will face investment uncertainty if the proposed measures do not ensure the price competitiveness of domestic production.
• More than half the turnover of this industry is from exports. 
• Imports from China are cheaper by 35-40% compared to indigenously produced products. 
• So, any strategy aimed at achieving self-reliance should focus on achieving price competency in production.
• 3 areas where PLI scheme requires modifications:

1. Technology plays a very crucial role in reducing import dependence, without appropriate technology APIs/DIs/KSMs manufacturers in India can not beat Chinese counterparts in pricing. This PLI scheme doesn't have a technology component.
2. Scheme also insists on new manufacturing facilities, which doesn’t make business sense for firms which have idle capacities. Many firms used to produce these products and have wound up production as cheaper imports began to flow from China.
3. The history of development of the indigenous pharmaceutical industry in India shows the significance of an industrial policy that is in tandem with trade and science and technology policies. This PLI scheme remains a standalone measure, it is not connected to other relevant policy measures.

Challenges ahead

• 3/4 of the production of pharmaceuticals in India is by MSMEs. 
• Large private sector firms have been interested in formulations, not APIs. 
• APIs are sold with their chemical names and without branding, large firms have no interest in their production.
• The production of APIs by large firms is largely for captive consumption. 
• The focus of the PLI Phase-I scheme is on large firms. 
• It seems like policymakers are interested in taking advantage of deficiencies associated with the scale of operations by encouraging large firms. 
• But it is equally important to include smaller firms which are into the KSMs/DIs/APIs business in a major way.

Way Ahead

Involving public sector enterprises

• In spite of the two rounds of applications, no beneficiary was identified in 5 antibiotics products.
• It appears that 4 of the 5 products - Neomycin, Gentamicin, Tetracycline and Clindamycin base are APIs that are not used much by the industry.
• Such APIs may be of great significance for public health. 
• Public sector enterprises (PSEs) should be tasked with the production of APIs and their KSMs and DIs. 
• The lead role PSEs played in the development of an indigenous pharmaceutical industry in India can never be forgotten.