The revival of pharma MSMEs

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Effective implementation of the recently launched MSME Support and Outreach Programme could prove to be the catalyst for the sector’s progress By Swati Rana

Tthe Modi government recently launched the MSME Support and Outreach Programme to boost the growth of the sector in India. Under the programme, the government has made various announcements and deliverables that focus on access to credit, access to market, hand holding and facilitation support measures etc. for the MSME sector.

Bhavin Mehta

Bhavin Mehta

The 12 point agenda

With the launch of the programme, the government has also announced 12 point agenda for MSMEs. In its announcement, Prime Minister Narendra Modi said, “To resolve the issue of cash cycle in MSMEs, all companies with a turnover more than `500 crores, must now compulsorily be brought on the Trade Receivables e-Discounting System (TReDS). Joining this portal will enable entrepreneurs to access credit from banks, based on their upcoming receivables.”

1) Launch of 59-minute loan portal to enable easy access to credit for MSMEs. In principle approval of loans upto `1 crore through the portal. Portal link through GST portal.

2) Two per cent interest subvention for all GST registered MSMEs, on fresh or incremental loans. Increase in interest rebate from three to five per cent for exporters who receive loans in the pre-shipment and post-shipment period.

3) Companies with turnover more than `500 crores to be compulsorily brought on the Trade Receivables e-Discounting System (TReDS) to enable entrepreneurs to access credit, based on upcoming receivables.

4) Central Public Sector Undertaking (CPSUs) units to make mandatory procurement of 25 per cent instead of 205 from MSMEs.

5) CPSUs to make mandatory procurement of three per cent from women entrepreneurs out of 25 per cent mandatory procurement.

6) CPSUs to compulsorily be part of Public Procurement Portal GeM- Government e-Marketplace. CPSUs to get their vendors registered on GeM portal.

7) 20 hubs and 100 spokes in the form of Toolrooms for Technological Upgradation to be established across the country with a fund allotment of ` 6000 crores.

8) Clusters for pharma MSMEs to be supported with 70 per cent Government of India assistance.

Chandrajit Banerjee

Chandrajit Banerjee

9) Only one annual return to be filed for eight labour laws and 10 Union regulations to simplify government procedures.

10) Computerised random allotment for visits to firms by Inspectors to simplify government procedures.

11) Environment clearance and consent to establish unit to be merged into a single consent. Return to be accepted on the basis of self-certification.

12) Ordinance has been promulgated to enable entrepreneurs to correct the minor violations under the Companies Act through simple procedures rather than to approach Courts.

A welcome move

The industry is very positive about this move and believes that it would be instrumental in reviving the sector’s progress and dealing with its bottlenecks. The industry stakeholders have already begun to take steps to implment this programme effectively.

Eshwara Reddy, DCGI has urged the pharma companies in Aurangabad, Pune and Baddi to share their units details for an intervention by Department of Pharmaceutical. In his letter, he stated, “As you are aware PM has launched a historic MSME support and outreach programme on November 2, 2018 to strengthen the ecosystem for MSMEs by providing easy access to credit marketing and coverage of employees under social security schemes. Three districts namely Aurangabad, Pune in Maharashtra and Baddi in Himachal Pradesh which has concentration of pharma industries have been identified for trageted sectoral interventions by the DoP.”

Dinesh Dua

Dinesh Dua

SR Vaidya, Chairman, MSME Committee, IDMA further informs, “On the basis of the performance in the above mentioned regions, the same will be extended to other districts in the country where there is a pharma nucleus.”

Benefits of MSME support and Outreach programme

Chandrajit Banerjee, Director General, CII says, “The progressive 12-point agenda for MSME announced by Prime Minister addresses the right pain points for the small enterprises sector which provides livelihood to millions of households in the country. The online portal launched for providing credit in less than an hour is a visionary initiative to make funds available to the sector at a time when it is facing a major liquidity crunch. Coupled with increase in interest rate subvention, it will provide much-needed impetus to the sector. The 12 steps would strengthen productivity, improve administrative processes, and infuse technology for the MSMEs. Taken together, the innovative measures will have far-reaching impact on the health of the MSME sector and enable it to emerge as a potent instrument for growth of the overall economy. We compliment Prime Minister on a comprehensive and strategic program to revitalise MSMEs as a dynamic engine of inclusive growth.”

“The Modi government’s announcement to provide loan of Rs 1 crore in an hour to the MSMEs will definitely boost the industry. Lack of adequate funds has always been a bottleneck for this section. Easy access to the loans will help not only in the operations of the sector but also provide capital to its R&D centres, where SMEs can play a strong role. The current government is emphasising in faster introduction of generic drugs into the market which will also benefit the Indian pharmaceutical companies going forward, opined Mehta.”

Dua highlights, “Speedy loan approval & disbursal will help the industry immensely for which the rate of interest needs to be brought down to about five to six per cent P.A. GST registered MSME to get  two per cent rebate for loan up to `1 Crore is an excellent decision. Interest subvention for preshipment for exports from  three to five per cent will also help exporting units in SME sector. SME cash flow will get corrected to some extent to (TReDS). With launch of Ayushman, sourcing of pharma products by PSU sector from MSME will up to 25 per cent  and will massively help matters. Women entrepreneurs in pharma industry will help them through by 3 per cent sourcing by govt. as mandatory. Govt. e-market place will get greatly expanded for SME’s through Ayushman. Although it is yet to be established as to how much SME in pharma industry will benefit from Rs. 6,000 Crores package for upgradation of MSME but it seems that MSEM sector in pharma will benefit significantly. Ease of doing business specifically for pharma company in India is a short in the arm very significantly but details of this scheme are yet awaited. Self certification of environment clearance, if implemented in letter & spirit, will be a great relief. Filing of one annual return instead of 8 state & 10 central govt. for taxes labour will ease MSME productivity very significantly.
He says, “In our considered opinion besides exports incentives like MAI and a lot of significant help to SME industry in particular facilitated through Pharmexcil, a part of Ministry of Commerce as also various schemes by DoP will help SME in pharma industry to do well besides 12 points of change by PM.

Eshwar Reddy

Eshwar Reddy

Steps to tap its true potential

Thus the programme comes as a much needed respite for an industry.  This, in turn, will help the pharma sector leverage the
innovative opportunities in the generics pharma market, both domestic and globally.

Speaking on the opportunities, Dua says, “In spite of all constraints, there are several opportunities available in SME sector in pharma such as tax deduction to promote R&D upto 200 per cent of the investment. However, much more is needed to promote R&D on the lines of western countries, China, Japan, and Oceania. To name a few: cluster development programmes for effluent treatment plants (ETP), tech upgradation and QMS; Credit link upgradation system should be vigorously pursued and offered to the industry.”

But he is als optimistic about the sector’s future in times to come as there are some steps being taken to revive the growth in the sector. He points out that while the Prime Minister of India, Narendra Modi has recently rolled out an excellent package for SME which will also benefit pharma sector; several large companies are incentivising their Top and Senior Management to become entrepreneurs through captive consumption thereby avoiding their capexes whilst helping ‘SME sector started by professionals’ to get credit through ‘Buy Back’ arrangements which is doing very well in Andhra and Telangana regions. But, a lot more needs to be done by top 100 pharma companies in India to leverage such entrepreneurial help.

S R Vaidya

S R Vaidya

The Government of India has also initiated various necessary steps to support to SMEs, especially in building better infrastructure through various incentives and facilities. There is a steep increase in the cost of land, machinery and equipment and the project cost for upgradation works out to about `4 to 5 crores. Hence, Department of Pharmaceuticals has stepped in to support and recently announced the Pharmaceutical Technology Upgradation Assistance Scheme (PTUAS) to provide interest subvention for soft loans of `4 crores at six per cent for GMP compliant, medium scale, bulk drug and formulation manufacturing facilities and extended it to SSIs. Another scheme introduced earlier for SSIs, called the Credit-Linked Capital Subsidy Scheme (CLCSS) for extending soft loans of `1 crore.

Effective implementation: Key to progress

Thus, while there are efforts being taken to revive the growth in the sector. However, success would depend on their implementation. As Reddy says, “Conceptually, the schemes are good but the implementation is often not as per expectations. So. the government needs to focus and work on the proper implementation of the MSME programme and scheme launch from time to time for the upliftment of the sector, then only these programmes will be successful and sector will grow.” But, the sector is hopeful of a turnround in its fortunes. With the implementation of the recently announced scheme, it will take a quantum jump and add to the current 12 per cent P.A. CAGR growth of pharma in India.


Pharma MSMEs: The story so far

The MSME sector is one of the major generators of employment and a significant contributor to the overall growth of the country’s economy. Dinesh Dua, Chairman, Pharmexcil throws more light on the current scenario of the sector and informs, “The MSME sector contributes `20 lakhs crores to Goods & Services, contributing to 40 per cent of GDP of India. Similarly, in India pharma industry about 60 per cent of the manufacturing is contributed by MSME’s within an annual turnover of approximately `60,000 crores or $9 billion which is an integral part of predominantly formulations and to an extent API industry more so for intermediates. The industry is extremely fragmented with approximately 24,000 units in MSME’s sector accounting for 70 per cent of production by volume and 50 per cent by value on ex factory basis. Pharma Exports of $ 20 billion and domestic is $18 billion. SMEs contribute to almost 90 per cent to domestic formulation and about 50 per cent to exports.”

P Eshwar Reddy, Executive Director, BDMA also empasises that SMEs in India have a crucial role in creating employment, providing support services , and undertaking contract manufacturing for big units in their respective sectors and points out that major manufacturers of APIs are from small, medium and large units  depending on products, technology, scale of operations and so on.

But, they have been struggling for quite some time because of various reasons. Bhavin Mehta, Director, Kilitch Drugs (India) elaborates on some of them and says, “Major challenges faced by the SMEs are lack of proper industrial infrastructure, compliance with environmental laws, Regulatory stringencies. Besides financial constraints, the SME segment is also challenged to make its presence known amongst its global competitors. One big challenge faced by SMEs include the lack of awareness about regulatory compliance of various regions, stringent quality norms, ever changing technology in the drug making procedures, meeting international standards requirements.”

Dua points out that pharma SMEs are currently are facing the same crises as overall SME sector post demonetisation & GST. Lack of financing options, particularly from PSBs and NBFCs, more so post RBI structures, has almost taken SME industry to a point of extinction and unless immediate and expedient measures are taken, 50 per cent of SMEs may not survive.”

Vaidya also says, “SMEs contribute 35-40 per cent in terms of production, with a turnover of about `70,000 crores and above in the pharma sector. Despite such significant contribution to manufacturing output and about 40 per cent to exports, the SME sector in India has been allocated only 8 to 10 per cent of the total credit flow by the country’s banking and financial institutions leaving a large funding gap. Since the credit flow to SME sector is cumbersome, venture funds and NBFCs have used this opportunity by opting for innovating funding models and rating frameworks to lend to this sector.”

Vaidya adds to this information and states, “There were more than 15,000 manufacturers but over a period of time and due to the repercussions of the implementation of Schedule M, the numbers has considerably diminished owing to non availability of capital to be infused into the operations. Now, there are around 7000 SMEs in India now and many of them have been started by pharmacy graduates. ”