Gujarat seems poised to regain its lost share in India’s pharmaceutical production with firms choosing the state over tax havens for setting up new manufacturing facilities thanks to Good and Services Tax (GST). For pharma industry, GST has significantly narrowed the manufacturing cost difference between regions that offer incentives and states like Gujarat.
The rush for new plants in Gujarat is evident from the fact that Food and Drug Control Administration (FDCA), Gujarat, has approved constructions of 155 new pharmaceutical manufacturing facilities-entailing fresh investments worth Rs 3,000-3,800 crore, in the state since July 2017 when GST came into force. These proposed plants, majority them currently under construction, are mainly for manufacturing drug formulations apart from medical devices and bulk drugs. “With tax incentives, the manufacturing of pharma products in tax havens -- Himachal Pradesh, Jammu and Kashmir, Uttaranchal and Uttarakhand -- was 35% cheaper than states that did not offer exemptions. The cost benefit, however, has substantially reduced after GST,” said HG Koshia, Food and Drug Control Administration (FDCA), Gujarat.
“As a result, scores of pharma companies are looking at Gujarat, which has a conducive environment and infrastructure for making quality drugs,” he added. Many drug firms had put their expansion plans on hold as they were waiting for clarity on tax slabs under GST. As per industry players, the manufacturing cost difference between exempted and non-exempted states is not more than 2%. “Besides, the tax incentives in hilly states are also expiring during the period 2017 to 2020,” added Viranchi Shah, chairman, Gujarat State Board, Indian Drug Manufacturers’ Association (IDMA).
Gujarat is set to increase its share in India’s pharmaceutical production once these plants go on stream. “At present, Gujarat has share is 31%-32% in India’s Rs 2 lakh crore plus pharma market. The share is expected to rise 40-42% over the next five years,” added Koshia. Soon after the tax holidays were announced starting with Himachal Pradesh in 2003, exodus of pharma units to tax havens brought Gujarat’s share down from peak 42% to less than 25% in the first decade of this century.