The production-linked incentive (PLI) schemes announced by the Government of India (GoI) for key raw materials such as bulk drugs and formulations, with a total incentive outlay of Rs. 210 billion will help the country become Aatmanirbhar. As per ICRA note, it will reduce import dependence and boost domestic production of high-value products; and increase the value addition in exports. High value-added pharma products are generally R&D intensive and difficult to manufacture and these include products such as complex generics, patented products, and biologics among others. Further, the GoI has also announced the promotion of the bulk drug parks scheme with a financial outlay of Rs 30 billion for three select states, which will provide infrastructure assistance to the active pharmaceutical ingredient (API) players.
According to Gaurav Jain, Vice President, ICRA, “The Phase-I of the PLI scheme (announced in July 2020 and approvals accorded through April 2021) for API players focuses on reducing the increased dependence on imports for four target segments, by setting up greenfield plants with prescribed minimum value addition. As per industry estimates, India imported approximately Rs. 250 billion worth of key starting materials (KSMs), drug intermediates (DIs) and APIs in FY2020, with 65-70 per cent of such imports from China. ICRA expects the imports from China to reduce by approximately 25-35 per cent once such capacities are fully commercialised”.
The PLI-II scheme (announced in February 2021) focuses on the production and diversification into high-value pharmaceutical products (formulations/ KSMs/ DIs/ APIs/ Others) with a thrust on exports. The PLI scheme covers R&D expenses incurred for product development as part of the eligible investments in addition to provision to change the initially committed product mix up to five times during the scheme’s tenure. This will provide the much-needed flexibility for R&D-based investments, given the risks associated with successful product commercialisation. With the total approved outlay of Rs 150 billion across categories to be disbursed over the FY2023-FY2028 period, the scheme is expected to generate incremental sales of Rs 2.94 trillion (including exports of Rs 1.96 trillion) over the six-year scheme period.
“Overall, ICRA expects the above measures to strengthen the business profile of R&D-based Indian pharmaceutical companies and thus an increase in the scale of revenues through foray into production of high value-add pharmaceutical products, along with backward integration for input materials and reduce import dependence. With the entire capital expenditure being reimbursed by the GoI in the form of PLI over the period of the scheme, it will lead to an increase in scale and market share for select Indian pharmaceutical companies, while ensuring a steady domestic supply of key input materials,” Jain reiterated.