India’s over dependence on China for supply of APIs and bulk drugs is a serious threat to ‘Make in India’. PSUs could be the key to break free of the dragon and expedite the lion’s strides
This September marks the third anniversary of the ‘Make in India’ initiative, launched by Prime Minister, Narendra Modi in 2014 to develop India into a global design and manufacturing hub. This nation-building endeavour seeks to raise the manufacturing sector’s contribution to 25 per cent of the GDP by 2020 and make India not only self-reliant but also a global leader.
A game changer…..
In December 2014, an action plan for three years was charted to boost investments in 25 sectors, including pharma. Nirmala Sitharaman, then the Minister of State (Independent Charge) in the Ministry of Commerce & Industry, had informed that the government would emphasise on four areas: policy initiatives and new processes; robust infrastructure; focus sectors; and new mind-set/ approach.
Since then, the pharma sector has witnessed a slew of measures to aid the Make in India initiative (See Box 1). Reportedly, these steps have resulted in the growth of the sector by 15.1 per cent from $27 billion in FY2014-15 to $31 billion in FY2015-16. Pharma exports increased by 9.7 per cent in FY 2015. (Source: http://www.makeinindia.com/article/-/v/sector-survey-pharmaceuticals)
…..APIs could play spoilsport
Yet, this is only one half of the story. The other half reveals a bleaker angle, that of India’s disproportionate dependency on Chinese APIs.
Last year, the National Security Advisor had raised a red flag on the over-dependence on China for the supply of essential drugs and APIs. Mansukh L Mandaviya, Minister of State for Chemicals and Fertilisers, had informed in a Rajya Sabha session that India’s API imports from China accounted to Rs 13,853.20 crores in 2015-16, or 65.29 per cent of the total API imports of Rs 21,216.91 crores.
Industry associations too have been raising this issue for quite some time now. Harish Jain, Secretary, Karnataka Drugs And Pharmaceuticals Manufacturers Association (KDPMA) informs, “Our dependency on APIs and intermediates from China is huge. KDPMA has been pushing for the growth of an indigenous API industry for more than a decade now and we have been flagging the issue at various forums.”
China’s low price advantage has been the main reason for India’s dependence on the neighbouring country. However, strained political relations between the two nations, the Doklam standoff to cite the most recent example, have brought home the realisation that it is time to reduce this dependence as it could lead to a potentially volatile situation and grave risks as far as access to essential medicines are concerned.
Moreover, this situation could also seriously derail ‘Make in India’ initiative’s progress and render a severe blow to its chances for success. An Associated Chambers of Commerce & Industry of India (ASSOCHAM )-Sathguru joint study, earlier this year had urged the need for “Make in India for India” in API manufacturing to benefit from lost market share, diminish India’s dependence on China and ensure self-reliance and sustainability.
An urgent need to rev up API production….
Taking cognizance of this fact, the government is mulling over setting up specified pharma zones to boost domestic manufacture of APIs, based on the recommendations of an inter-ministerial committee, headed by Secretary, Department of Health Research to revitalise API production in India.
The industry too has sent in their suggestions to revive API production in India.
Daara Patel, Secretary, IDMA, informs, “Earlier, 2015 was earmarked as the ‘Year of APIs’, but there was no major improvement in the situation. In the past, there was no single agency which would be responsible to ensure that necessary steps were taken and proposals monitored to ensure that progress was made. In order to have meaningful progress towards self-reliance, we feel that an Inter-Ministerial Committee may be formed headed by Department of Pharmaceuticals as the nodal agency to drive the mission forward. It would be much easier for industry bodies like IDMA to co-ordinate with one nodal government body in our endeavour towards achieving self-sufficiency.”
He adds, “We had provided a list of APIs and key starting materials to the government that could be indigenously revived. Various scientific institutions like DST, DBT, CSIR, ICMR etc., can be encouraged to work in synergy with industry on R&D relevant for best procedures of production. PSUs can be revived to manufacture some selected and very essential critical drugs such as penicillin, or their large manufacturing plants leased to speed up production of these APIs. This would go a long way towards achieving self-reliance.”
Recently, IDMA submitted an action plan for APIs to CDSCO. (Check: http://www.expressbpd.com/pharma/latest-updates/idma-presents-action-plan-for-apis-to-cdsco/388967/)
Sunil Attavar, President, KDPMA, suggests, “Pharma parks will be favourable for the industry. APIs are a risky and very capital intensive industry with heavy investments required in setting up the units. If there can be shared services in a park like common effluent treatment plants, common testing centres, common energy generation etc., it will help the industry to save on costs and become more competitive. Also, having a park helps share best practices, it will also aid in ease of doing business as many agencies will come together at site.”
He further recommends:
- There should be fast track approval and push to build capacity that is twice the country’s next five years requirements
- Use the land available with the PSUs to be earmarked for APIs with the help of private partnership
- State governments should be incentivised to set up mega parks with pre-approved environment clearances
Madan Mohan Reddy, Chairman, Pharmexcil, at an industry event, said, “Pharmexcil is in talks with the government and the industry to manufacture some of the top 100 molecules that are currently being imported to help reduce the dependency on imports.”
….but, not without PSUs?
Thus, several steps are underway to rejuvenate API production in India but one oft-repeated suggestion from different quarters to become self-reliant in APIs involve reviving PSUs. For instance, Department Related Parliamentary Standing Committee on Commerce, in its report on ‘FDI in Pharmaceutical Sector’ said, “They (pharma PSUs) need to be revived, re-strengthened and made dynamic and healthy so that generic medicines and vaccines are produced in larger quantities and made available to the masses at reasonable prices.”
Yet, in December 2016, a Union Cabinet meeting chaired by Prime Minister Narendra Modi, decided to close down two of the oldest pharma PSUs like the Indian Drugs and Pharmaceutical Limited (IDPL) and Rajasthan Drugs & Pharmaceuticals Limited (RDPL). The government also gave the go ahead for the strategic sale of Bengal Chemicals & Pharmaceuticals (BCPL) and Hindustan Antibiotics Limited (HAL) after selling their surplus land.
This decision has evoked mixed reactions and many believe that at a time when the government is trying to make ramp up access to affordable medicines, closing down PSUs is an ill-advised move.
Dr GS Grewal, Consultant Physician and Former President, Punjab Medical Council, Member Core Committee, Alliance of Doctors for Ethical Healthcare in India (ADEH), Ludhiana conveys his viewpoint with very strong words, “It’s totally illogical to close down these PSUs, instead of modifying the work culture and enforcing discipline. It’s like you have infection and instead of controlling it, you amputate a part of the body. On one side we are talking of Make in India, on the other we are handing over PSUs to private players”.
He also highlights the vital role PSUs have played in the past to tackle various public health emergencies, “The PSUs provided the opportunity for India to produce cheap bulk drugs which benefitted not only our country but also several other developing countries. Their participation in the national health programmes is remarkable. Even during the plague outbreak in Surat a few years back, the IDPL played a major role in supplying Tetracycline for bulk use. Even WHO has applauded the role of PSUs. They can directly control the pricing of drugs. However, the problem is that instead of controlling corruption, the government is targeting PSUs It gives an indication that individual companies/ players are more competent to run the industry than our own trained bosses, which is a very serious concern.”
Dr Arun Mitra, National Senior Vice President, Indian Doctors for Peace and Development (IDPD), and Member Core Committee, ADEH says, “We totally disagee with the decision to close the PSUs in the pharma sector. Without PSUs, cheap bulk drugs will remain only a dream.”
Bejon Kumar Misra, Founder, Patient Safety and Access Initiative of India Foundation, however offers a different point of view. He says, “Loss-making PSUs needed to be closed much earlier than said as they are a burden on the citizens. These decisions should have been taken much earlier rather than waiting for years to hide the misuse and misappropriation of public funds. We, as citizens, pay taxes for social development and good governance. Investments made by government on PSUs like IDPL and HAL were relevant at one point of time and there is an urgent need to encourage growth but not at the cost of profit or efficiency.”
However, he also believes that appropriate and timely steps could have helped make PSUs sustainable. He says, “There are several audit paragraphs by CAG on PSUs in terms of mismanagement but our elected representatives never take cognizance of such reports and rather try to defend the officials responsible for such misuse of public funds. As a last resort, they try to close down the units at the cost of the tax payers, without any kind of deterrent action on the officials.”
Leveraging the true potential
Nevertheless, like many other pharma and healthcare experts, Misra too is of the opinion that if leveraged effectively, PSUs can change the game and boost API production in India.
He states, “PSUs in the pharma sector can play a mentoring role by creating state-of-the-art manufacturing processes and adopting science and innovation to encourage R&D. Moreover, they can play an important role in manufacturing of APIs or intermediaries required in the formulation business. This can make India self-reliant and competitive rather than depending on external sources, especially from overseas. API production dwindled only because of poor quality and a non-competitive environment. PSUs can also create centres of excellence for good manufacturing and distribution practices to trigger healthy competition based on global best standards.”
Nilaya Varma, Partner and COO, Infrastructure, Government and Healthcare (IGH), KPMG in India, also points out, “PSUs play a significant role to direct the economy in a positive direction by achieving desired socio-economic objectives. With the advent of ‘Make in India’ initiative, the public pharma sector can play a key role in manufacturing drugs and raw material indigenously. By the end of 2017, the government is planning to push the count of Aushadhi Kendras to 3,000, from the current 2,149, across India. With such significant investment in providing affordable medicine, PSUs are likely to play a potent role in manufacturing drugs and APIs, helping to reduce the dependency on imports.”
The formula for success?
However, it is undeniable that PSUs have faced several problems in the past and continuing the same way is an unviable option. (See Box 2) This means that significant investment and efforts are needed to make them self-sustainable and profitable.
As Varma states, “PSUs have significant potential in India, however, some measures are needed to revive these companies, allowing them to become financially sustainable, and contributing to the ‘Make in India’ campaign.”
He also lists down his action plan to revive PSUs:
Assessment and judicious disinvestment: Many PSUs are under a lot of debt, and therefore, divestment of available lands can help with the repayment of debt for their smooth functioning, in future. The efficient working of these pharma PSUs can determine India’s self-sufficiency in drug production.
In addition, this approach can lead to an increase in public–private partnerships. For example, the government is planning to set up steel plants on surplus land of PSUs by forming partnerships with private sector players to double the steel production capacity to 300 million tonnes by 2030.
Strengthening HR policies: PSUs have been facing challenges in hiring best talent owing to their low remuneration compared to market standards. To hire best talent in public sector, PSUs can introduce incentive-based performance targets to increase motivation and efficiency amongst employees. In addition, revision of employees’ remuneration packages; introduction of trainings/ skill building; and social security measures can determine attraction and retention of industry experts in the current competitive market scenario
Listing of profitable PSUs: Another revival approach could be the start of PSU listing process. The companies having positive net-worth, no accumulated losses and earned profit in the three immediate preceding years can be considered eligible for listing. Through listing, these central PSUs can raise fresh equity
Utilising surplus cash to revive low performing PSUs: Some of the low-performing PSUs that are incurring losses could be supported by the profit-making PSUs. Initiatives by the government to revitalise the loss-making and closed plants through joint ventures of profit making PSUs, would leverage the existing land and infrastructure of the PSUs rather than selling or divesting the existing set-ups. This would not only contribute towards increasing the indigenous production and support ‘Make in India’, but would also generate employment in the country.
Participation in the government procurement tenders: PSUs can be allowed to participate in government procurement contracts. For example, involvement of pharma PSUs in procurement contracts, where tenders by the central and state governments are centrally procured. The participation of these PSUs in national drug tender would increase competition and improve the market dynamics. The initiative would also determine the procurement of drugs or other products at low prices and local production in the country.
Efficient utilisation of R&D budget: One of the key measure for reviving PSUs would be efficient utilisation of R&D budgets, primarily to commercialise or improve the technology proposition. The union government is already taking initiatives and made R&D mandatory for all profit-making Central Public Sector Enterprises (CPSEs) in 2011. The government has also tightened up the standards for the review of PSUs, where they would not only be assessed on their R&D budget, but also on tangible outcomes — for example, improvement in process or technology. Such measures would increase the efficiency and enable smooth operation of PSUs, helping them lend their support to the ‘Make in India’ initiative.
Misra also shares his recommendations and says, “There is an urgent need to revive all the PSUs in the pharma sector in collaboration with the private sector and research institutions. PSUs should facilitate in building the capacity of the small and medium scale pharma industries and look for fresh investors to join hands with the PSUs in a shared and equitable manner without any strife for control or dominance.”
He adds, “Selection of the human resource is paramount and there should be least interference from political and bureaucratic executives. We should attach PSUs with scientists and successful managers along with adequate financial support but with strict monitoring of expenses by financial and management experts. The board members of PSUs have to be strong committed persons with social development as entrepreneurs. The road map is simple. Invite leaders of the industry to take up the challenge and allow creativity to prevail.”
Mitra suggests, “Modernisation of PSU units as per present day technology is needed, which in turn requires government funding. There is a need to have accountability in all sectors, public or private.”
Time to act
Thus, the industry offers several pertinent suggestions to bring PSUs back on track and leverage its potential to gain self-reliance in APIs and bulk drugs.
A Parliamentary Standing Committee on Commerce’s recent report admitted, “the manufacturing sector has grown only by an average of 1.6 per cent in the last five years till 2015-16.” PSUs can also help the government in nullifying this accusation by ramping up the numbers in the manufacturing sector.
Tackling unemployment is another major benefit of making PSUs work. In 2017, a report from UN’s International Labour Organisation (ILO) on global trends revealed, “Unemployment in India is projected to increase from 17.7 million last year to 17.8 million in 2017 and 18 million next year. In percentage terms, unemployment rate will remain at 3.4 per cent in 2017-18.” This situation too can be reversed to a certain extent by making PSUs profitable and viable, not just in pharma but across other sectors as well.
It is time to create an effective action plan with all stakeholders’ participation to break away from the Chinese dragon’s hold over India’s pharma industry and PSUs, if revived effectively, can be a major weapon to win this battle. Only then would we be able to make the lion roar!
(With inputs from Usha Sharma)