SMEs likely to play important role in pharma growth story: Report

The small and medium enterprises (SMEs) are expected to play a significant role in the growth story of the country’s pharma sector as they contribute 35-40 per cent to the industry in terms of production with a turnover of about Rs 35,000 crore.

“Small and medium scale units have played a crucial role in the growth story of the Indian pharmaceutical industry and form an integral part of the sector,” India Micro, Small and Medium Enterprise Report 2013 said here.

It added, “The Indian pharmaceutical industry is highly fragmented and estimated to have 9,456 units in the SME segment, which account for around 87 per cent in production by volume and 40 per cent by value.”

Exports of pharmaceuticals products from India increased from $6.23 billion in 2006-07 to $8.7 billion in 2012-13, a combined annual growth rate of 21.25 per cent.

The Ministry of Commerce has targeted Indian pharma sector exports to reach $25 billion by 2014 at an annual growth rate of 25 per cent.

In terms of number of units and employment generation, the SME sector is at the forefront. They also support 48 per cent of the country’s pharma exports, the report said.

Backbone of pharma industry

The country’s pharmaceutical sector derives its strength from the SME sector, as it forms an essential part of the supply chain for the larger players.

There are more than 24,000 registered units, which meet 70 per cent of the country’s needs. Clearly, MSMEs operating in the domestic pharma sector are recognised as the backbone of the industry.

By and large, they operate in the local market, and mainly manufacture formulations which relate to medicines of mass consumption and therefore have a huge market. To a great extent, survival of these units would depend on how well and quickly these companies are able to adapt to the changing business scenario, the report said.

In India, SMEs are mainly focusing on manufacturing and niche marketing. Contract Research and Manufacturing (CRAMs) and Biopharma have emerged as areas of high relevance to the MSME sector. It is recognised that the MSME units can effectively meet the two major public expectations viz. cost effective and affordable medicines of given framework of excellent manufacturing process, technology, regulatory compliance, distribution system and prices.

On the export front, pharmaceutical SMEs in India have traditionally been less focussed on exports in comparison to large domestic firms. However, now they have become preferred partners for the supply of active pharmaceutical ingredients (APIs) and finished dosages for Indian as well as foreign pharmaceutical firms, the report said.

Hurdles faced by SMEs

MSMEs are often ignored on many occasions. As a result, many of them are today facing a survival crisis.

Stringent regulations, lack of financing options, little or no global exposure, poor public image and increasing competition from other low cost nations are some of the crippling factors facing this sector, said R.B Smarta, Managing Director, Interlink Marketing Consultancy.

According to him, “there has been a lack of focus by development institutions and financial institutions. On the funding side, bankers seem to have lost focus due to globalisation and norms like the Non Performing Assets (NPA).

“There is going to be a big void of new entrepreneurs entering the sector. The want of focus also results in losing people to IT and non-specific marketing. Similarly, there is a need for establishing and sharing of common facilities like treatment plants and testing facilities.”

High Product Registration fee in other developing economies is one of the deterrents to export by SMEs. The industry representatives suggest that the pharma policy on export should provide for a transaction subsidy for the registration fee.

The industry recognises the problems faced by the SMEs, but believes that they have to equip themselves without waiting for external assistance though it suggests that Government initiatives can only be supportive.

“Inspite of the stiff competition by thousands of local and national level companies, there are still many opportunities to earn huge profits, the report said.

Government support to SMEs

At present, the government is providing tax deduction to promote R&D, but according to industry experts, this is not sufficient.

Gaurav Khungar of KPMG said, “SMEs can play a strong role in the R&D area. The sector has been asking for various kinds of fiscal incentives and tax sops in order to stimulate investments in innovations and R&D beyond the current tax deduction.

“The tax reduction demands of SMEs are to the tune of 150 per cent on R&D spend, as the current percentage is not enough to stimulate investments in this arena.

“The Government has initiated multiple reforms such as the cluster development programme, technology upgradation fund, credit link capital scheme, amongst others, which have rendered success.

“However, the huge unorganised sector of Micro Small Medium Enterprises (MSME) seeks scaling up of intervention from the Government.

“There’s a pressing need for the state governments, local governments to join hand with the Central government and work towards increasing the presence of MSME’s in the eco system”, Ministry of Micro, Small and Medium Enterprises, Secretary Madhav Lal said.