Sikkim, a pristine hill state synonymous with travel and tourism, could turn out to be the next pharmaceutical hub. Situated amidst the verdant Eastern Himalayas, the state has already attracted an investment of over $400 million (Rs 2000 crores) from 22 major pharma companies in the last three years. Marquee companies like Cipla, Sun Pharma, Zydus Cadila, Alembic, IPCA, Alkem Lab, Intas Pharma, Torrent Pharmaceuticals and Unichem have reportedly set up their units in the state.
Sikkim – the new pharma buzz
Many pharma companies and their ancillary units have migrated from Baddi in Himachal Pradesh and Uttarakhand to Sikkim, as the excise duty exemption given to these states will soon expire. In order to avail tax benefits for the next ten years, several pharma companies have opted to migrate to Sikkim. Besides tax incentives, low manufacturing and labour costs and a pollution – free environment have also proved to be the key attractions for these pharma companies.
“Twenty years ago, Baddi was just a dusty town. There was no industry and a dearth of opportunities for locals. The tax holiday announced in 2003 transformed Baddi into Asia’s largest pharma hub which eventually became one of the biggest industrial centres in North India. But with the tax holiday likely to end, the scenario is changing. Now, pharma companies have made a beeline to Sikkim to avail the excise benefits,” informs J Jayaseelan, Chairman of the Tamil Nadu chapter of Indian Drugs Manufacturers Association (IDMA).
Sikkim, which offers 100 per cent excise and income tax benefits in addition to freight subsidy, provides continuous support to set up new plants with other facilities. By 2018, the state will become a full-fledged pharma hub in the North Eastern region, predict industry experts.
A senior official from Commerce and Industries Department, Government of Sikkim, while speaking to Express Pharma, on condition of anonymity said, “Today, Sikkim is home to as many as 22 pharma companies, out of which 16 are big firms, one is medium and five are small scale firms. These include the who’s who of the Indian pharma sector such as Cipla, Sun, Zydus Cadila, Alembic, IPCA, Alkem, Intas, Torrent, Unichem and Micro Labs.”
According to the official, North-East Industrial and Investment Promotion Policy (NEIIPP) 2007 has played an active role to attract pharma investments in the state.
“Many pharma companies have set up shop because of the big tax advantages as earning is at a faster pace due to tax savings. Apart from pharma companies, ancillary units like packaging, access to raw materials, components, machinery, have also set up their base. We are now working to make the state more conducive for pharma units, so that it can become a major pharma destination in the next two years,” the official stated.
Giving an industry view point, Suresh Pareek, Managing Director, Ideal Cures, a company manufacturing and exporting pharma excipients and ready-to-use coating systems, said, “Logistically, Guwahati is the most ideal location for pharma companies, but due to insurgency issues, it did not develop. Though Sikkim has issues of air and rail connectivity, the state offers a conducive work environment. Currently, 30 pharma plants have their presence in the state. A few have started their facilities, while others are yet to be operational.” Ideal Cures is also currently setting up a large facility, which is likely to be operational by January 2017.
Role of NEIIPP
The steady increase of pharma investments in Sikkim is easy to understand if one considers the policies at play. In 2007, the Government of India had approved a package of fiscal incentives and other concessions for the North East Region, namely the North East Industrial and Investment Promotion Policy (NEIIPP), which was a boon for pharma companies and ancillary units in the region. The Centre, however, suspended NEIIPP in December 2014 and it will expire by March 2017. Suspension of NEIIPP will be a major hurdle for the North Eastern states, particularly for the pharma industry, as many big companies have invested and are in the process of further investing in the state. However, the Union Finance Ministry, in its notification, said that existing units undertaking ‘substantial expansion’ between December 1, 2014 to March 31, 2017 (the date when NEIIPP expires) will continue enjoying excise duty exemption for a period of ten years, it also mentioned that new units registered during the same period would be also eligible for the excise exemption.
Under NEIIPP, which came into force from April 1, 2007, with a validity of ten years, industrial units in the North East region are eligible for 30 per cent capital investment subsidy, income tax subsidy, excise duty exemption (varying from goods to goods), and reimbursement of insurance premium paid on capital assets, among others. Industrial units can enjoy these benefits for a period of ten years.
A notification from the Union Finance Ministry states, “Doubts have been raised regarding the availability or otherwise of central excise duty exemption under notification No.20/2007 dated 25.04.2007 to new units or units undertaking substantial expansion after 1.12.2014 in the North Eastern region including Sikkim pursuant to the suspension of fresh registrations under NEIIPP. The matter has been examined by the Ministry of Finance in consultation with Department of Industrial Policy and Promotion (DIPP). It clarified that new units or units undertaking substantial expansion shall continue to be eligible for excise duty exemption.”
“Although the Centre’s notification has brought clarity among the industries, NEIIPP should be restored for ease of trade in the North Eastern region,” informs RS Joshi, Chairman, Federation of Industry and Commerce of North Eastern Region (FINER), the premier trade and industry body of the North East.
“Any industrial unit, which will start its operation on or within March 2017, will get tax exemptions. If big pharma companies can start production before March 2017, they will be eligible for tax benefits for the next ten years i.e. till March 2027. But, since there is less time available for new units to come up, so we have asked for extension of time. The government is yet to give any clear signal,” says Joshi.
Joshi further says, “Suspension of NEIIPP is a matter of great concern as the policy was helpful to attract investment for ‘Make in North – East’ and its continuation is a must to make ‘Make in India’ initiative successful. Suspension of NEIIPP will badly affect all North Eastern states.”
“Sikkim has benefitted by the NEIIPP policy 2007. With a large industry base of pharma and ancillary units, the state has been able to provide more employment and create new jobs. Ultimately, the state government is reaping the benefits. If NEIIPP is suspended, industrial development will come to a halt,” cautions Pareek.
Thus, many experts are of the opinion that the government should rethink its decision to discontinue with NEIIPP. They also recommend implementing more effective financial mechanisms, introducing industry-friendly polices and an increased focus on infrastructure development to sustain and propel Sikkim’s growth as a pharma hub.