PLI Scheme for Pharmaceuticals Industry in India

The Department of Pharmaceuticals in India has launched a Production Linked Incentive (PLI) Scheme with the goal of diminishing the country's dependence on imported critical bulk drugs, which include Key Starting Materials (KSM), Drug Intermediates (DI), and Active Pharmaceutical Ingredients (API). This initiative aims to stimulate domestic manufacturing by encouraging the establishment of new greenfield plants that exhibit a minimum level of value addition within India.

The Indian pharmaceutical industry is widely recognized as the third largest worldwide in terms of volume. It has established a strong market presence in advanced economies such as the United States and the European Union, primarily due to its production of affordable generic medicines. However, despite its accomplishments, the Indian pharmaceutical sector heavily relies on imports for essential raw materials, particularly bulk drugs required for medicine production.

The import dependence for certain critical bulk drugs can reach staggering levels of 80 to 100%. To address this significant reliance and bolster self-sufficiency, the PLI Scheme has been introduced. Its core objective is to incentivize the establishment of new manufacturing facilities within India that will produce these critical bulk drugs domestically. By setting up greenfield plants and ensuring a minimum level of value addition takes place within the country, the scheme aims to reduce the dependency on imports and strengthen the domestic manufacturing ecosystem for pharmaceuticals. The PLI Scheme in the pharmaceutical sector seeks to enhance India's capabilities in producing essential raw materials and APIs, ultimately fostering greater self-reliance in the pharmaceutical industry. By promoting domestic manufacturing and decreasing import dependence, the scheme aims to establish a more sustainable and resilient pharmaceutical ecosystem within India.

Some Key Features of the Scheme are:

• The scheme specifically targets the production of Active Pharmaceutical Ingredients (APIs), Key Starting Materials (KSM), and Drug Intermediates in order to enhance domestic manufacturing capabilities and reduce dependency on imports in the pharmaceutical sector.
• The primary goal of the scheme is to boost India's manufacturing capabilities in the pharmaceutical sector through increased investment and production. It aims to drive product diversification towards high-value goods, thereby expanding the range of pharmaceutical products manufactured in the country.
• The scheme will encompass pharmaceutical goods in the following categories:
  Category 1: Bio-pharmaceuticals, Complex generic drugs, Patented drugs or drugs nearing patent expiry
  Category 2: Active Pharmaceutical Ingredients (APIs), Key Starting Materials (KSM), Drug Intermediates
  Category 3 (Drugs not covered under Category 1 and Category 2): Repurposed drugs, Autoimmune drugs, Anti-cancer drugs, Anti-diabetic drugs, Anti-infective drugs, Cardiovascular drugs, Psychotropic drugs, Anti-retroviral drugs, In-vitro diagnostic devices, other drugs as approved, other drugs not currently manufactured in India.
• The scheme aims to incentivize the production of these pharmaceutical goods, encouraging domestic manufacturing, reducing import dependency, and promoting self-sufficiency in the Indian pharmaceutical sector.

Calculation of Incentives:

• Under the scheme, the total quantum of incentive, including administrative expenditure, amounts to approximately INR 15,000 crore. This incentive allocation is distributed among different groups as follows –
  a.    Group A (INR 11,000 crore) - This category includes applicants with a Global Manufacturing Revenue equal to or exceeding INR 5,000 crore.
  b.    Group B (INR 2,250 crore) - This category comprises applicants with a Global Manufacturing Revenue between INR 500 crore (inclusive) and INR 5,000 crore.
  c.    Group C (INR 1,750 crore) - This category consists of applicants with a Global Manufacturing Revenue below INR 500 crore. Within Group C, a sub-group will be established specifically for the Micro, Small, and Medium Enterprises (MSME) industry. This sub-group recognizes the unique challenges and circumstances faced by MSMEs in the pharmaceutical sector.
• The incentive rates for incremental sales of pharmaceutical goods covered under Category 1 and Category 2 are as follows:
  a.    From FY 2022-23 to FY 2025-26: The rate of incentive is 10%.
  b.    For FY 2026-27: The rate of incentive is 8%.
  c.    For FY 2027-28: The rate of incentive is 6%.
• Similarly, for pharmaceutical goods falling under Category 3, the incentive rates on incremental sales are:
  a.    From FY 2022-23 to FY 2025-26: The rate of incentive is 5%.
  b.    For FY 2026-27: The rate of incentive is 4%.
  c.    For FY 2027-28: The rate of incentive is 3%.
• These incentive rates are applicable on the incremental sales (above the base year) of pharmaceutical goods, encouraging manufacturers to increase production and sales within the specified timeframes. The declining rates of incentives over the years are designed to gradually transition and align with the growth and stability of the pharmaceutical industry.

Eligibility

• Applicants for the scheme will undergo a selection process based on predefined objective criteria. These criteria will evaluate factors such as the applicant's experience, capacity for scaling up operations, and ability to innovate. The specific details outlining the selection criteria will be provided in the scheme guidelines. These guidelines will provide a comprehensive explanation of the criteria that will be used to assess and select eligible applicants for participation in the scheme.
• The participants chosen for the scheme will qualify for incentives on incremental sales of pharmaceutical goods based on yearly threshold criteria, which include minimum cumulative investment and minimum percentage growth in sales. These criteria will establish the requirements that participants must meet to be eligible for incentives on their incremental sales. The scheme aims to incentivize participants who make significant investments and achieve substantial growth in sales, promoting expansion and progress in the pharmaceutical sector.

Overall Challenges Involved

As recipients of the production-linked incentive (PLI) scheme in the pharmaceutical sector, there are several challenges that participants may encounter. These challenges include -

• Participants need to make substantial investments in establishing new greenfield plants or expanding existing manufacturing facilities. This could pose financial challenges for some companies, especially smaller players in the industry.
• Increasing production to meet the incremental sales targets can be a complex task. It requires careful planning, efficient supply chain management, and overcoming potential production bottlenecks to ensure smooth operations.
• Participants must adhere to regulatory standards and quality requirements. This may involve implementing robust quality control measures, conducting thorough testing, and maintaining compliance with Good Manufacturing Practices (GMP).
• To stay competitive and qualify for incentives, participants need to focus on research and development (R&D) activities, including product innovation and process improvements. This requires investment in R&D infrastructure, skilled manpower, and technological advancements.
• Participants need to navigate the rapidly evolving pharmaceutical market, which includes factors such as changing consumer preferences, competition, and market volatility. Adapting to market dynamics and staying ahead of industry trends is crucial for sustained growth.
• Ensuring a robust and reliable supply chain for raw materials and components is vital. Participants may face challenges related to sourcing quality inputs, managing logistics, and optimizing inventory levels.
• Compliance with various regulations, including intellectual property rights, patent laws, and export-import regulations, is essential. Participants must stay updated with changing regulations and ensure compliance to avoid legal and regulatory complications.
• The pharmaceutical industry is highly competitive on a global scale. Participants may face intense competition from both domestic and international players. Developing a competitive edge through product differentiation, cost efficiency, and quality is crucial.
• Recruiting and retaining skilled professionals, including scientists, researchers, and technicians, can be a challenge. Access to a talented workforce with expertise in pharmaceutical manufacturing is essential for successful implementation of the scheme.
• Keeping up with technological advancements is necessary to enhance productivity, improve manufacturing processes, and adopt innovative technologies. Participants must invest in upgrading their technology infrastructure and adopting digital solutions.

In conclusion, the Production Linked Incentive (PLI) scheme for the pharmaceutical sector in India presents significant opportunities and incentives for participants to boost domestic manufacturing, reduce import dependence, and promote innovation in the industry. By targeting critical bulk drugs, APIs, and pharmaceutical goods, the scheme aims to enhance India's self-sufficiency and strengthen its position as a global pharmaceutical hub. Through the scheme, participants can benefit from financial incentives based on incremental sales and meet the predefined criteria for eligibility. However, participants must also navigate various challenges, such as making substantial investments, scaling up production, ensuring compliance with regulatory standards, and competing in a dynamic market.


To learn more about how to pitch for the PLI scheme, the process of application, disbursement of incentives, the key obligations of the recipient- CLICK HERE.