GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
A self-reliant Pharma Industry: Critical Analysis of PLI Scheme
Context: The pharmaceuticals industry is a key sector for the Atmanirbhar Bharat programme.
The objective of the Phase-I Production-Linked Incentive (PLI) scheme in this sector was to reduce import dependence on active pharmaceutical ingredients (APIs), drug intermediates (DIs) and key starting materials (KSMs).
What has been the response to the PLI Scheme for Pharmaceutical sector?
This scheme was expected to attract a lot of interest as countries had begun to adopt measures to reduce their dependence on China for APIs. However, the response to this scheme did not meet expectations.
A total of 239 applications were received in two rounds from an industry of over 3,000 firms. Of these, 61 were selected.
As 11 beneficiaries withdrew from the scheme, the number reduced to 50 (by Dec 2021) against the maximum number of 136 beneficiaries as mentioned in the guidelines.
No beneficiary was identified in five of the 41 products notified for the scheme.
What are areas where this PLI scheme requires modifications to make it a success?
Self-reliance with Price Competency in Production
More than half the turnover of this industry is from exports. Imports from China are reported to be cheaper by 35–40% compared to indigenously produced products.
Investors will face an investment uncertainty if the proposed measures do not ensure the price production in production. Therefore, they continue to depend on China’s imports so as to safeguard their market position.
Also, without appropriate technology, APIs/DIs/KSMs manufacturers in India will not be in a position to beat their Chinese counterparts in pricing who has advantage of scale of operation. This PLI scheme doesn’t have a technology component.
So, any strategy aimed at achieving self-reliance should focus on achieving price competency in production.
Utilizing Existing capacities
This scheme also insists on new manufacturing facilities, which doesn’t make business sense for firms which have idle capacities.
Many firms used to produce these products and have wound up production as cheaper imports began to flow from China.
Permission to utilise existing but inoperational or underutilised facilities for production will elicit a better response.
Coherent Policy Landscape
The history of development of the indigenous pharmaceutical industry in India shows the significance of an industrial policy that is in tandem with trade and science and technology policies.
This PLI scheme remains a standalone measure; it is not connected to other relevant policy measures.
India needs a strategy, not just a scheme, to realise the objective of reducing import dependence.
Promote Small Firms
Nearly three-fourth of the production of pharmaceuticals in India is by MSMEs.
Historically, large private sector firms have been interested in formulations, not APIs. As APIs are sold with their chemical names and without branding, large firms have no interest in their production.
Policymakers are interested in taking advantage of efficiencies associated with the scale of operations by encouraging large firms. But it is equally important to include smaller firms which are into the KSMs/DIs/APIs business in a major way.
Involving Public Sector Enterprises
In spite of the two rounds of applications, no beneficiary was identified (or no application was received) in five products, which are all antibiotics.
In such cases, public sector enterprises (PSEs) should be tasked with the production of APIs and their KSMs and DIs.
