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Tax benefit brings Gujarat back in favour with drug cos

Tax benefit brings Gujarat back in favour with drug cos
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First Published: Tue, Jan 20 2009. 12 56 AM IST
Updated: Tue, Jan 20 2009. 12 56 AM IST
Mumbai: Gujarat, the traditional centre of gravity of the pharma business in India that had lost out to states such as Himachal Pradesh, Goa, and Uttarakhand in the past few years, is regaining lost ground on the strength of tax cuts announced in last year’s budget.
Pharma firms, including around 100 small- and medium-sized ones, are planning manufacturing facilities in two pharma parks in the state at a total investment of Rs1,000 crore.
At the new Gujarat Techno Pharma Park in Changodar near Ahmedabad, at least 35 units are nearing completion. And 71 firms have agreed to set up shop in a Gujarat Industrial Development Corporation (GIDC) park, said R.S. Joshi, executive secretary, state chapter of industry lobby the Indian Drug Manufacturers Association (Idma).
In addition, Ahmedabad-based biotech firm Intas Biopharmaceuticals Ltd has agreed to set up a Rs100 crore manufacturing facility in Samand.
The new GIDC park is jointly promoted by the government of Gujarat and the state chapter of Idma, while the Gujarat Techno Park is a private venture.
Apart from the small and medium enterprises, other companies putting up factories are Cadila Healthcare Ltd, Triokka Pharma Ltd, Lincoln Pharmaceuticals Ltd, Osho Pharmaceuticals Ltd, Sunish Pharmaceuticals Ltd, Medico Pharmaceuticals Ltd, Peri Pharma Ltd and Medwin Pharma Ltd.
Gujarat, which once accounted for at least half of all pharmaceutical exports, saw this proportion decline between 2000 and 2004 when drug firms shifted to Himachal Pradesh, Uttaranchal, Jammu and Kashmir and Goa to avail of incentives.
In last year’s Union budget, however, the government changed laws governing excise duty (a tax levied on manufactured goods) and this has made many companies look to Gujarat, which with its established cluster of pharma firms, access to ports and availability of power, remains a prime location for manufacturing, according to analysts.
“Under the new excise duty structure, the units at the so-called duty-free regions are paying 4% more duty compared with the units outside as they cannot use the 4% Modvat claim on raw material,” said Deepak Padia, former president of Idma (Gujarat) and chairman and managing director of Osho Pharma.
In last year’s budget, the Central government had exempted certain lifesaving drugs as well as bulk drugs used in the manufacture of such drugs from excise duty, while reducing customs duty on several other essential drugs to 5% from 10%.
Acceding to a demand from the pharma industry, the government had also reduced excise duty on all drugs to 8% from 16%.
Analysts say that one reason why companies are making investments in manufacturing facilities even as the economy slows is the potential for low-cost off-patent drugs in the rural markets. The analysts add that this segment of the market is being targeted by companies that are finding it difficult to continue operating in the specialty drugs segment under the new product patent regime that India moved to in 2005.
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First Published: Tue, Jan 20 2009. 12 56 AM IST