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Financial Aspect: Manufacturing Active Pharmaceutical Ingredients in India

Financial Aspect: Manufacturing Active Pharmaceutical Ingredients in India

The scheme will provide financial incentives on the incremental sales (over Base Year) of pharmaceutical goods and in-vitro diagnostic medical devices to selected applicants based on pre-defined selection criteria. The incentives will be paid for a maximum period of 6 years for each participant depending upon the threshold investments and sales criteria to be achieved by the applicant. The total quantum of the incentive for the scheme is Rs 15,000 crore. SIDBI is the Project Management Agency for the Scheme.

Since few slots remained unfilled for certain products, applications were invited again with the last date of submission as 31.08.2021. Total 24 applications were received.

Cost of production

The setting up of these 8 plants will lead to total committed investment of about Rs.151.12 crore by the companies and employment generation of about 1,951. The commercial production of these plants is projected to commence from 1st April, 2023 onwards. Low cost of production and R&D boosts efficiency of Indian pharma companies, leading to competitive exports. Indian drug & pharmaceutical exports stood at US$ 24.60 billion in FY22 and US$ 24.44 billion in FY21.

With this, the total applications approved under both rounds aggregate to 50 applicants with committed investment of Rs 4,498.38 crore and employment generation of about 10,743. Setting up of these plants will make the country self-reliant to a large extent in respect of these Bulk drugs.

In June 2021, Finance Minister Ms. Nirmala Sitharaman announced an additional outlay of Rs. 197,000 crore (US$ 26,578.3 million) that will be utilised over five years for the pharmaceutical PLI scheme in 13 key sectors such as active pharmaceutical ingredients, drug intermediaries and key starting materials.

Domestic investments

  • The Indian pharmaceutical industry generated a trade surplus of US$ 15.81 billion in FY22
  • The Indian Pharmaceuticals industry plays a prominent role in the global pharmaceuticals industry. India ranks third worldwide for production by volume and 14th by value.
  •  the biological method of synthesis segment is expected to grow at a rate of 13.21% during the forecast period owing to the growing demand for vaccines, monoclonal antibodies, recombinant proteins, biosimilars, among others
  • The Union Cabinet has given its nod for the amendment of existing Foreign Direct Investment (FDI) policy in the pharmaceutical sector in order to allow FDI up to 100% under the automatic route for manufacturing of medical devices subject to certain conditions
  • Sun Pharma and SPARC entered into a license agreement for commercialization of phenobarbital for injection in the US.

Major companies operating in the Indian Active Pharmaceutical Ingredients Market are

  • Teva API India Limited
  • Pfizer Ltd.
  • Ipca Laboratories Limited
  • Dr. Reddy’s Laboratories Ltd.
  • Sun Pharmaceutical Industries Limited
  • Cipla Limited
  • Lupin Limited
  • Aurobindo Pharma Limited
  • Aarti Drugs Ltd.
  • IOL Chemicals and Pharmaceuticals Limited
  • Marksans Pharma Ltd.
  • Divis Laboratories Ltd.
  • Granules India Limited
  • Laurus Labs Ltd.
  • Solara Active Pharma Sciences Ltd.

Foreign Direct Investment (FDI)

  • FDI inflows in pharmaceutical sector (in both pharmaceuticals and medical devices) was Rs 12,097 crore in the financial year 2021-22.
  •  During current financial year of 2022-23 from April 2022 to September 2022, FDI inflows has been Rs 8,081 crore.
  •  Further, the Department of Pharmaceuticals has approved 21 FDI proposals worth Rs. 4,681 crore for brownfield projects during 1st January 2022 to 30th November 2022.
  • Pharmaceutical is one of the top ten attractive sectors for foreign investment In India. 100% foreign investment is allowed under automatic route in Medical Devices.
  • Foreign investments in pharmaceutical greenfield projects are allowed upto 100% under the automatic route and for brownfield pharmaceutical projects, foreign investment beyond 74% to upto 100% Government approval is required.
  •  After abolition of Foreign Investment Promotion Board (FIPB) in May 2017, the Department of Pharmaceuticals has been assigned the role to consider the foreign investment proposals under the Gov-ernment approval route.
  •  Apart from this, the Department considers all FDI proposals of pharmaceutical sector arising out of Press Note 3 of 2020 dated 17.04.2020 wherein investors/ultimate beneficiaries in the proposals are from the land sharing bordering countries of India.
  • This sector has attracted significant investments over the years. In FY20, foreign investments in the medical devices sector increased 98% YoY to Rs. 2,196 crore (US$ 301.01 million), as against Rs. 1,108 crore (US$ 151.87 million) in FY19. FDI inflow in the medical and surgical appliances sector stood at US$ 2.71 billion between April 2000-June 2022.
  • The Department of Pharmaceuticals has approved 17 FDI proposals worth Rs. 1,512 crore under the brownfield pharmaceutical projects in the year 2020-21 (upto December 2020)

Loans offered by banks

The government is eyeing innovative credit products such as funds against Intellectual property rights (IPR) as it looks to increase flow of credit to the pharmaceuticals sector. It has set up a working group to look into financing issues of the sector.

Besides representation from the finance and chemicals and fertilizers ministries, the group will have officials from leading pharma firms and banks including the State Bank of India.

Loan given by ICICI bank for pharmaceuticals
Cash Credit

  • Working capital as cash-credit facility (with charge on current assets)
  • Facility for a period of 12 months
  • Floating interest rate. Interest levied only on amount utilized.
  • Flexibility of paying a minimum amount every month.

Working Capital Demand Loan– This can be offered from 50% to 80% of the overall Working Capital limit with a special pricing and 100% utilisation over the term of the Demand loan. This is a unique product and offers considerable cost saving.

Kaushal Sharma

Kaushal Sharma is a Research Intern at Tatvita-Analysts. He is pursuing Masters in Economics from Symbiosis College.

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