Sikkim, a potential destination for pharma cos

Our Mumbai, Bangalore BureausThursday, February 10, 2011, 08:00 Hrs  [IST]

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.