The multitude of tax benefits offered by hilly states had lured pharma companies to states like Himachal Pradesh and Uttarakhand. In fact, the pharma sector made a beeline for Baddi in Himachal Pardesh since 2004-05 to cash in on the tax incentives, making it a pharma manufacturing hub. However the scale of benefits at Baddi , such as excise, had eventually come down.
At the same time the tax benefits offered under ‘North East Industrial and Investment Promotion Policy (NEIIPP), 2007 in the northeast region is increasingly attracting many pharma companies to this region. Under the NEIIPP announced by Department of Industrial Policy and Promotion, all new units and existing ones going for expansion in the north-east region will get a full exemption from income tax and excise duty, apart from a 30 per cent subsidy on investment in plant and machinery, together with interest subsidy of three per cent on capital loan and a reimbursement of 100 per cent insurance premium. Consequently, many companies are now shifting manufacturing units from Himachal Pradesh to Sikkim, the tiny hill state in the Eastern Himalayas and the second smallest state in the country.
Sikkim today is giving a tough competition to the so called pharma hub Baddi. By the end of 2009 it had already attracted an investment of Rs. 2500 crore. Apart from the numerous tax benefits it has to offer, Sikkim also offers attractive freight subsidy. Another more important advantage is the availability of land in Sikkim. while the paucity of land for expansion is a major stumbling block impacting the growth trajectory of the Indian pharmaceutical industry, Sikkim being the least populous state in the country, has abundant land to offer.
Sikkim, bestowed with abundant natural resources, is now home to as many as 14 major pharma companies. These include units by Cipla, Sun Pharma, Zydus Cadila, Alembic, IPCA, Alkem Lab, Intas Pharma, Torrent Pharmaceuticals and Unichem. Some of these companies have invested over Rs 2000 crore in the last three years.
The peaceful and conducive geographical climate for production with least government interferences make Sikkim an attractive destination. The cheap labour cost, availability of power and the overall low cost of manufacturing in Sikkim are other advantages of the state. Now, the state is also developing infrastructure to meet the needs of the industry.
"Sikkim is a peaceful state and has huge potential for the manufacturing sector. There is minimal interference by the state government. It’s true the state took some time to develop and attract the pharma companies. But now it is surely at a tipping point," says a pharma company official.
Bullish on its formulations business, Ahmedabad - based pharma major Torrent Pharmaceuticals Ltd is all set commission its Rs125 crore Sikkim facility within the first quarter of next fiscal. With the Sikkim facility coming on stream, the company's formulation capacity will touch close to 10 billion tablets and capsules.
The Karnataka - based pharma companies Micro Labs which had set up a unit in Baddi and Bal Pharma which had set up a unit in Uttaranchal, to avail of tax benefits , have also made an entry to Sikkm. Micro labs has invested Rs. 200 crore here and the commissioning of the unit,which will require about 600 people, is slated by the end of the year.
According to Micro Labs officials, fiscal benefits alongwith with the objective to help the development of backward regions and the need to diversify geographically in manufacturing have led us to consider the region. However, we are aware of the huge challenge of logistic management and availability of skilled workforce.
Jatish N Seth, secretary Karnataka Drugs and Pharmaceutical Manufacturers Association and director Srushti Pharmaceuticals said, “Sikkim is the next destination for pharma manufacture and the biggest attraction is the tax incentives announced by the government to attract investments to special category states. However, locations like Baddi is still attractive for large pharma.”
Despite the fact that it may be easy to set up a facility at this location, the paucity of right personnel will be a serious hassle. Unlike Baddi which has a close proximity to Chandigarh where National Institute of Pharmaceutical Education and Research (NIPER) is situated, the situation in Sikkim is completely different where the environment is one of indolence which could eventually put away manufacturers , said some of the industry observers.
“ It will be difficult for the small and medium-sized companies to consider this location as an alternate manufacturing point going by the distance and accessibility from southern India. Another challenge is to get trained workforce for the plant operations or the labour for the shop floor. The region which receives a major chunk of the revenue from tourism poses a huge problem to get the right workforce to handle knowledge- intensive sectors like pharma production,” pointed out Seth.
According to some experts, Sikkim can emerge as a major pharma cluster if some vital issues are ironed out. For this the state government needs to come up with a dedicated policy to support the pharma industry and infrastructure bottlenecks need to be cleared at the earliest.
Though the infrastructure is still the biggest concern in Sikkim, the government is now taking steps to rectify the problems. The state is also addressing the power situation. The recent announcement of constructing the rail link in Sikkim will provide a further fillip, they point out
They also point out poor marketing is a handicap which the East has perennially been suffering from and Sikkim is no exception. And it is here that Baddi had gained. If Sikkim can effectively market itself and the benefits it offers, there can be no reason why it cannot emerge as the next Baddi, they point out.