A bunch of regulatory and administrative issues is scuttling the growth of pharma exports, according to the federation of pharmaceutical and allied products merchant exporters (FPME). The association has flagged the concerns to finance ministry, the Central Board of Indirect Taxes and Customs and other government bodies on the challenges being faced by the exporters.
According to the expoters, section 43B(h) of the Income Tax Act, which came into effect in April 2024, has severely impacted the cash cycle of exporters. This section mandates the companies to pay their suppliers registered as micro, small and medium enterprises (MSMEs) within 45 days to qualify for tax deductions.
“The cash cycle of exporters are different from domestic companies. Our biggest advantage as exporters is that we allow for longer payment cycle (up to 180 days) to our customers. So there’s a mismatch in when we get paid and when we are required to pay our suppliers. We have written to the finance ministry twice (in July and September) to exempt exporters from this rule. We are planning to send a fresh letter to the ministry ahead of the next year’s annual budget,” said a FPME spokesperson.
The spokesperson said that the 45-day deadline is unrealistic because the production and transit time usually takes 50-60 days in the pharma industry. In addition, dollar availability is a challenge in many Latin American and African countries which further delays the payments.
The other big issue is the lack of transparency at the customs points. For instance, the customs agents ask for certificate of analysis (CoA) and good manufacturing practices (GMP) besides the purchase bills. Many of the merchant exporters buy finished goods through local distributors (of manufacturers) who don’t have these documents available for specific drugs. FPME spokesperson said that there are no norms that mandate exporters to present CoA and GMP certificates to get customs clearance.
“While the customs agents have the right to raise objections, we are asking CBIC to maintain transparency in questionable cases,” said the spokesperson.
Experts said that the regulatory hurdles are making it easier for countries like Sri Lanka, Bangladesh, Dubai and Turkey to give a tough competition to Indian pharma exporters. “Bangladesh is fast becoming the global pharma hub, and challenging India’s title as the ‘pharmacy of the world’,” said a pharma analyst.
In April-October 2024, the pharma exports stood at $17 billion, a growth of 8% to over the corresponding period last year.
