Pharma MSMEs seek government intervention to tackle shortage, price increase of raw materials

The pharma MSME segment informs that COVID-19 has impacted it adversely and they are facing the brunt in the form of a decrease in demand, shortage of working capital, non-availability of finance/funding by financial institutions, shortage of input materials, exorbitant increase in raw material cost, cancellation of export orders, logistic problems, non-availability of manpower etc. So, the MSME segment of the pharma industry is seeking the government authorities’ intervention to deal with the challenges.

B R Sikri, Chairman, FOPE, highlighted, “The factors that have compounded the issue are the unavailability of APIs and an exponential increase in their prices. It is well-known that the pharma industry depends on China for APIs. About 70 per cent of the APIs required is sourced from China in addition to other KSMs used by the industry. In addition to APIs and KSMs, prices of other input materials such as plastic, PVC, diesel, IPA, aluminium, PET bottles and other packaging materials have gone up un-proportionately. However, the industry cannot pass on the increase to the consumers as a major section of drug formulations/medicines comes under Drugs Prices (Control) Order, 2013 where retail prices are capped. Moreover, if a formulation becomes unviable due to these factors, its discontinuation for production and sale attracts penal provisions under DPCO, 2013. The DPCO 2013 caps the prices of finished formulations, but has no control over the prices of API and other input materials used in the manufacture of finished formulations. On the export front, the MSME segment is facing cancellation of export orders due to disruption caused by COVID-19 and also because foreign buyers are averse to increase in prices due to escalation in the cost of input materials.”

“FOPE had taken up this issue with the government for a proportionate increase in the prices of finished formulations or ensuring the availability of APIs at the pre-COVID-19 level. Unfortunately, nothing happened so far,” informed Sikri.

Harish Jain, Secretary, Karnataka Drugs and Pharmaceutical Manufacturers Association expressed, “Pharma industry, in last few months, post lockdown is badly affected by a sudden increase in prices of key inputs and their scarcity. SMEs are especially affected since due to working capital constraints inventory levels are usually low. The industry is facing issues to honour contracts like Government tenders, exports and contract manufacturing.”

Jain further added, “Availability also has become an issue, which is forcing many SME to work. If the situation is not controlled on a war footing, it may lead to a scarcity of medicines. Already many Government tenders are seeing default as well as lack of suppliers which, is affecting poor patients. Over and above that Industry is not able to increase the prices due to restrictions imposed by DPCO.”

Aparajita Lark, MD, Lark Laboratories and VP, FOPE said, “There is an unprecedented increase in all inputs for pharma products manufacturing. To list a few examples, foils and PVC which was Rs 87 per kg has gone up to Rs 167 per kg. Prices of empty capsules of all sizes, eg, size 0 have risen from Rs 85 to Rs 125. Propylene glycol, a solvent used in all liquid formulations, has increased from Rs 70 per kg to Rs 500 per kg, price of bottles and caps increased have also increased by 10 per cent. These are creating financial trouble for manufacturers. The sudden rise in the raw material prices is significantly affecting the MSME players therefore there is a need for the authority to intervene and provide the solution.”

She further added, “The skyrocketing prices of input material cost is making it difficult for us to manage current orders and also book new orders. It is largely affecting MSMEs because they work on low margins. If it continues then companies may not be able to continue production which will lead to a shortage of medicines in the market.”

Sikri further explained, “The other key factor for stress on this segment is the inverted duty structure on APIs and finished formulations. The APIs attract 18 per cent GST whereas finished formulations are taxed at 12 per cent resulting in accumulation of ITC, which has not been refunded by the respective State Governments, putting immense pressure on the working capital of the units and liquidity squeeze. The issue was taken up with the Government but remains unresolved so far.”