SIKKIM CONVERTING INTO PHARMA HUB

Sikkim turns into a pharma hub


By Writankar Mukherjee


Early this year, when Mumbai-based pharma major Unichem Laboratories was planning to expand its capacity, it was in a fix. The company’s existing plants at Goa, Ghaziabad and Baddi were already running at full capacity and acquiring additional land in these places would have meant a pretty high investment. At that point of time, the company started to evaluate Sikkim as another potential destination.

Bingo! It took very little effort and time for Unichem to decide on its next manufacturing hub. It was Sikkim. The tax incentives which this hilly state offered on the table was quite attractive and easily comparable to the so-called pharma-hub, Baddi, at Himachal Pradesh. Unichem at one shot decided to invest Rs 30 crore to set up an ultra-modern formulation plant. The plant is now expected to be operational in a couple of months.

Today, Sikkim is home to as many as 14 major pharma companies, which have significant investments in the state. These include the who’s who of Indian pharma sector — Cipla, Sun Pharma, Zydus Cadila, Alembic, IPCA, Alkem Lab, Intas Pharma, Torrent Pharma and of course, Unichem. Industry grapevine suggests even the likes of Lupin is also evaluating the state.

Believe it or not, Sikkim — which is the least populous state in the country and the second-smallest after Goa — has already attracted pharma investment upwards of Rs 2,500 crore. After Gujarat, Goa and Baddi, Sikkim is now attracting the most attention. This could have big implications, considering the fact that the country is the world’s fourth largest producer of pharmaceuticals by volume.

"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 Ramesh Kumar, who heads the Cipla plant at Sikkim. The Cipla unit is spread over 12 acres and has gone on stream since April 2008.

Mumbai-based drug major Sun Pharma completely buys the view. The company has plans to convert its Rs 50-crore Sikkim plant, which became operational since April this year, into a major manufacturing base. Sun Pharma manufactures solid oral finished dosages (read tablets and capsules) of its popular brands like Glucored, Gemer and Cardivas.

"Since the Sikkim plant is expected to be an important supply point for our Indian finished dosage business, going forward, it will be manufacturing a part of our top products too," exclaims a Sun Pharma spokesperson.

The company is also finding labour, power and overall cost of manufacturing to be lower in Sikkim as compared to states like Gujarat and Maharashtra.

Sikkim’s attractiveness lies in the multitude of tax benefits it has on offer. The inclusion of Sikkim under the Centre’s ‘North East Industrial and Investment Promotion Policy, 2007’ in April 2007 did the trick. As part of this, all new units as well as existing units which go in for substantial expansion in Sikkim will be eligible for incentives for a period of ten years from the date of commencement of commercial production. Check out some of the incentives.

There’s 100% excise duty exemption on finished products manufactured there, 100% exemption on income tax, capital investment subsidy of 30% on the
investment in plant and machinery, interest subsidy at 3% on working capital loan and even reimbursement of 100% insurance premium. On the top of it all, Sikkim also offers attractive freight subsidy.

"The benefits which we get in Sikkim are truly attractive and in some cases even better than that in Baddi. However, the freight benefit may not have a huge impact on the pharma industry as freight cost in the domestic market accounts for just 1-2%," says Unichem Laboratories vice president (finance) Rakesh Parikh.

The scale of benefits at Baddi, such as excise, had eventually come down. In fact, the pharma sector made a beeline for Baddi around 2004-05 to cash in on the tax incentives. As many as 180 pharma units had since then set up base in Baddi. Can, then, Sikkim match up to Baddi?

While the likes of Sun Pharma feel it is still early days to truly compare Sikkim and Baddi, no one is willing to completely write off the state’s potential. "Even if we forget the excise benefits at Sikkim as such benefits are now also available in several states, the biggest draw for the state is its ten-year income tax holiday. This could mean a lot for profitable companies like us," claims Parikh.

However, a section of the industry feels the state needs to work on certain grey areas to emerge as a major pharma cluster. "Infrastructure is still the biggest concern in Sikkim. However, the good news is that the government is now emphasising on this. The state is also addressing the power situation. The recent announcement of constructing the rail link in Sikkim will provide a further fillip," says Cipla’s Kumar.

Agrees Daara B Patel, the secretary-general at Indian Drug Manufacturers’ Association (IDMA) — the apex body of Indian pharma companies. "Certain vital factors are still missing in Sikkim. The state government needs to come up with a dedicated policy to support the pharma industry. Plus, there are issues with availability of skilled workers which again the state government can address by setting up training institutes," Patel says.

Be that as it may, analysts feel the Indian pharma companies always prefer to flock together. It had happened in Goa, Baddi and now Sikkim should not be an exception. More so, since the big guns have already tested the waters. The state has another latent edge — the Silk Route of India or the Nathu La Pass. The industry believes this could act as a shortcut for the Indian industry to tap the highly potential Chinese and CIS countries.

The pitch seems to be perfect for the next-phase expansion. "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 scored trumps. If Sikkim can effectively market itself and the benefits it offers, there can be no reason why it cannot emerge as the next Baddi," adds a senior executive of a Gujarat-based pharma company, which has invested in the state.

Source:ET