Revival mantras for MSMEs

Precious things come in small packages (think diamonds)

20160229ep02Precious things come in small packages (think diamonds). But this logic doesn’t seem to hold for Micro Small and Medium Entreprises (MSMEs). Even though the sector received a salute from the Centre, from none other than the Minister of State for Commerce and Industry Nirmala Sitharaman. Giving away the CHEMEXCIL awards, the minister acknowledged that SMEs would play a vital role in the growth of exports of chemicals.

While the CHEMEXCIL awards span basic chemicals, dyes and cosmetics, her pronouncement should logically hold true for pharma SMEs. Why then do pharma MSMEs feel that they are not getting their fair due?

It is true that key announcements like the API policy are yet to see the light of day. But it is equally true that many MSMEs still resist upgrading their systems and processes, tagging technology updates as a cost rather than an investment.

There is some truth in both sides of the argument. As various experts rightly point out in our latest cover story (February 16-28, 2016: ‘In need of renewed focus’), several mid to small size pharma players could end up missing the ‘Make in India’ bus if both sides do not refocus their energies in the right direction. Further delay could have long-term repercussions on the industry as a whole.

In fact, the ‘Make in India’ initiative is not a new mantra for the pharma sector. Mid and small sized units have been the main sourcing partners of large companies. The supply of high quality ingredients at competitive prices has been the hallmark of the Indian API industry, which in turn allowed their clients to sell formulations at competitive prices across the world.

But today, most API manufacturers find that they are unable to compete with nations like China who are able to undercut them on prices of many ingredients, thanks to the sops they receive from their governments.

Pharma MSMEs thus find themselves cornered on many fronts. As SR Vaidya, who chairs IDMA’s SME Committee puts it, with price control on one hand and more stringent norms, it is a tight rope walk to satisfy the government, regulators as well as consumers/ patients.

The first concern is that even if MSMEs are open to upgrades, the rate of technology obsolescence has shrunk from one decade to five years. As Bhavin Mehta, Director, Kilitch Drugs points out, they now find themselves in a never ending race to upgrade and stay ahead of competitors from neighbouring countries.

Secondly, regulators in India too are setting higher standards. For instance, as former Deputy Drug Controller (India) Dr D Roy analyses, the proposed revision of Schedule M of India’s Drug & Cosmetics Rules intends to bring it more in line with WHO GMP norms by closing the many gaps that exist in its current form.

And thirdly, the span of drug price control is expanding. This triple whammy of increasing capital expenditure, higher regulatory benchmarks and decreasing margins could see many MSMEs bite the dust, warn industry insiders.

But MSMEs with strategic vision will see opportunities in these challenges. For instance, upgrading to WHO GMP norms will definitely entail upfront initial expenses of training personnel, putting in place the necessary equipment but Roy reasons that the long-term benefits of putting in place a more ‘transparent and unambiguous’ GMP system are far greater. Training of staff to understand the nuances of new GMP norms too will pay off rich dividends in the long run. Industry associations have been trying to nudge their members, encouraging them to see the bigger picture.

For instance, SV Veeramani, President, IDMA reasons that upgrading to WHO GMP standards, would open up more export markets as well as make them more attractive contract manufacturing partners for both Indian as well as global pharma MNCs.

But the government must play a more active role. Both Veeramani and Viranchi Shah, Vice Chairman of IDMA’s Gujarat Chapter, underline the need for soft loan schemes to support technology upgrades as well as preference in government procurement tenders which would help set off the cost of upgrades.

Besides upgrading the hardware, the ‘human ware’ too is in dire need of upgrades. The talent pool in the pharma sector is far from being as deep or wide as desired and this could well turn out to be the biggest stumbling block.

Will the upcoming budget bring cheer to the pharma MSME sector? And beyond the budget do both sides have any choice but to find common ground?

Viveka Roychowdhury

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First published on: 17-02-2016 at 17:53 IST