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India’s pharmaceutical small and medium-sized enterprises (MSMEs) are staring at an unprecedented existential crisis that could lead to the mass closure of nearly 6,500 manufacturing units before long.
According to Shyam Sundar Damani, managing director of Quality Pharma Products Pvt Ltd in Dibrugarh in Assam, the government’s push for revised Schedule M (Good Manufacturing Practices) compliance aims to elevate Indian drug standards to global benchmarks, but it fundamentally ignores the ‘job work’ (contract manufacturing) model that sustains 70 per cent of the MSME sector. This critical policy gap pairs mandatory high-cost quality upgrades with stagnant service rates, creating a financial non-viability that threatens to wipe out the backbone of India's generic drug industry.
Talking to Pharmabiz, Damani said the contradiction at the heart of the current policy framework mandates a 30 per cent to 50 per cent increase in capital and operational expenditure for small manufacturers but leaves the fundamental economics of contract manufacturing unaltered. For these units, which account for approximately Rs. 75,000 crore of India’s domestic market, the deadline for compliance is a looming death warrant. With only 21.53 per cent of eligible MSME units having submitted upgrade plans within the deadline, industry projections suggest that 60 per cent of firms may be forced to shut down operations due to inability to finance the required Rs. 10-15 crore in-facility upgrades.
He opined that the ‘Job Work Conversion Rate Problem’ is a 12-year disconnect from economic reality. Under the Drug Price Control Order (DPCO), the National Pharmaceutical Pricing Authority (NPPA) continues to enforce conversion costs that have remained largely unchanged since 2013-2014. For instance, the rate for manufacturing plain tablets remains stuck at approximately Rs. 9.22 to Rs. 12.78 per 1,000 tablets, despite cumulative inflation of 65 percent to 70 per cent and skyrocketing energy and labour costs. This static pricing regime has effectively turned profit margins negative for units now required to service heavy loans for GMP compliance.
Current government support mechanisms, such as the RPTUAS and SPI schemes, are described by Damani as valuable but critically incomplete. These subsidies address only a fraction of capital costs and fail to touch the increased operational burden. Most MSMEs are already overburdened with existing cash credit and cannot infuse further capital. Damani argues that adding massive new debt without a corresponding increase in revenue creates a classic ‘Economic Trap’, where firms are destined to default on bank loans and face NCLT (national company law tribunal) insolvency proceedings.
Rather than focusing on reimbursement-based subsidies that face low uptake and create dependency, Damani advocates for a more sustainable assured pricing mechanism for job work conversions. He emphasizes that it is counterproductive for the government to subsidize compliance if the underlying fixed rates prevent a factory from achieving operational profitability even after it has upgraded. A revision of these rates to align with 2024-2026 data is essential to ensure that compliant units remain solvent.
He further explains that the consequences of this policy gap extend far beyond the manufacturers themselves. A mass closure of small pharma firms would trigger immediate drug shortages in government procurement channels, which rely heavily on these cost-effective units. Furthermore, it would result in mass unemployment affecting hundreds of thousands of workers, including those in indirect roles like packaging and logistics.
Damani calls for an urgent review of job work conversion rates under the DPCO to include the new costs of compliance and operational inflation. Without such synchronization, the very policy intended to strengthen India's ‘Pharmacy of the World’ status may instead lead to its structural collapse. By establishing an assured pricing mechanism, the government can help MSMEs survive the transition to revised Schedule M.
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