Role of SME’s and Initiatives taken by PHARMEXCIL Mr. Nipun Jain Chairman SME Panel PHARMEXCIL MD, M/s PHARMCHEM

SME Pharma Industry - Overview There are 10,563 licensed drug manufacturers in India. The combined strength of SME pharma sector is 9,456 units SME share is 87% in production by volume and 40% share by value in the market

Current Situation SME’s remain neglected, even after providing quality medicines at competitive prices. Myth: medicines at lower prices cannot be of good quality Distorted Media reports are planted by multinationals.

Is Quality an Issue with SME ? No unit is licensed to manufacture drugs and medicines without being GMP compliant Indian GMP standards are more stringent than most developed countries No facts in Media reports that India is source of 40% spurious medicines in the world In reply to Question No. 68 DT 17.10.2008 of Lok Sabha only 0.29% samples were found to be spurious

SME Pharma Sector – Export Potential India is exporter of Drugs & Pharmaceuticals for USD 8 billion every year and the export market has a potential to grow from 15 – 30% every year if there is right synchronization of the various departments of Government of India Total production of Drugs in India is Rs 85,000 Crores. The SME Pharma sector produces 87% of the drugs in volume and has 40% share value wise The Ministry of Commerce is specially promoting exports of Drugs to focus countries of Africa, Latin America and CIS. And the Ministry of Finance is giving a stimulus of 3% incentive in Focus Market Scheme or Focus Product Market Scheme

Problems of SME Pharma Sector with Public Sector Banks The public sector banks are refusing refinancing of L/C D/A and ECGC covered D/A exports specially to SME sectors on the ground of “High risk category of the country and volatile international situation”. PSU Banks agree to give export credit to SME only if they provide extra collateral security and are harassing SME units by delaying proposals of export finance and making fictitious barriers. The SME Pharma Exporters then have to export through Multinational Companies or International Trading Houses which makes our Exports costly and uncompetitive.

Problems of SME Pharma Sector with Public Sector Banks (Contd.) In reply to starred question no. 164 on DT 9th March 2007 the Honorable Minister for Finance has stated in Lok Sabha that “No export refinancing will be denied and any such case has to brought to the Chief Executive of the Bank and have instructed Banks to be liberal and very helpful in providing export credit.” Exim Bank – When contacted their standard reply is that Line of Credit is fully utilized and nothing is left for SME sector. The Govt. should reserve 50% of the Line of Credit of Every Country for SME Exporters

Problems of SME Pharma Sector with Public Sector Banks (Contd.) We want the Government to remove this policy difference with the RBI and banks, so that SME Pharma exports are not denied export credit to all developing & focus countries identified by the government. and can grow to the full potential of 30% annually. The banks have a policy of debt equity ratio of 4:1. In this the export refinance to L/C D/A (FBN) and FBP D/A ECGC covered exports are included. This policy restricts exports specially of SME sector, which has low equity base. The government should remove this inclusion of FBN, FBP refinancing covered by ECGC from its exposure to boost exports The CCLS Scheme gives only 15 lacs as maximum subsidy where as it needs minimum Rs 10 crores today to set up a Viable SME Pharma Unit.

Problems of SME Pharma Sector with Public Sector Banks (Contd.) The CCLS Scheme only gives Subsidy for Plant and Machinery and where as WHO GMP requires substantial investment in the infrastructure changes. The PSU Banks should give soft Loans for Infrastructure changes @ 6%p.a. Or better give Dollar Denominated Loans at Libor Rates + 200 basis point The credit in PCL is not available in USD and the rate of interest is very high i.e is 8% in PCL. Whereas the rates of libor is around 1%. Multinationals can avail Dollar Loans where as SME’s are being denied on one pretext or another

Problems of SME Pharma Sector with Public Sector Banks (Contd.) The bank do not open back to back L/C . They want more collateral security from SME’s Bank downgrade SME units rating in case their export supplies are to African countries because they are High Risk Countries

Intiative By PHARMEXCIL We have requested Ministry of Commerce to call for a Joint meeting with RBI, Banking Secretary and PSU Bank to address the following Issues No denial of export credit by PSU banks nor asking for extra collateral or delay in providing export credit. Non – inclusion of FBN and FBP D/A (export refinancing) under total exposure norms and increase the Ratio from 1:4 to 1:8 Term loan to be provided @ of 6% for upgradation. CCLS subsidy to be provided upfront by PSU banks as given in the policy. Line of credit of Exim bank to be reserved by 50% for SME sector. Credit in PCL to be made available in Dollar terms at libor rates. Opening of back to back L/C to be immediately given by PSU banks. No down grading of SME units if exports to African countries.

Problem faced by SME’s Exporters in Customs Problem in Customs relating to release of Shipping Bills EP Copy and cancellation of bonds after export Cancellation of bank guarantee Delay in processing export papers Unnecessary queries on export documents

Problem faced by Exporters in DGFT Problem relating to issuing of Advance License or DEPB or Focus Market Scheme Redemption of Advance Licenses Fixation of Norms - SION Unnecessary queries or delay tactics which leads to higher transaction cost.

Initiative taken by PHARMEXCIL Participation in Public Grievances Committee of Customs region wise Participation in Public Grievances Committee at DGFT and JT. DGFT offices Participation in Norms fixation committee at DGFT to fix norms of SION Capacity building programs such as one in Ahemdabad. Future programs in other cities to create awareness in SME’s regarding their rights as well as imparting information to them

Various benefits of Govt. Schemes through PHARMEXCIL MDA Schemes – refund of air fare / exhibition expenses subject to maximum ceiling region wise – Rs 1 lac to Rs 0.80 lac MAI Schemes – refund of registration charges upto 50% upto Rs 50 lacs per year Incentives on printing of brochures, packaging material, warehousing, cluster management.

THANK YOU Mr. Nipun Jain Chairman SME Panel PHARMEXCIL MD, M/s PHARMCHEM