Indian Drugmakers to Shift Manufacturing to Low-Tariff Zones

Indian drugmakers are increasingly shifting manufacturing operations to low-tariff states elsewhere in the country, as new price-related excise costs begin to discourage export production in wealthier regions. Local reports indicate that the trend is growing across the industry, as drugmakers seek ever-greater cost advantages amid stiffening international competition and shrinking margins in the domestic market.

Many smaller Indian drugmakers that have already shifted to remote, low-tariff states such as Himachal Pradesh and Uttaranchal are currently seeking contract manufacturing orders. The segment has been impacted by the new export pricing regime, and may only achieve the necessary economies of scale in lower-cost zones of the country. Medium-sized producer Wockhardt recently pledged to withdraw from contract manufacturing entirely, but has built a new GMP-compliant facility in Himachal Pradesh. Micro Labs, Zydus Cadila and Alembic are also reported to have moved operations to the northern state.

However, despite the promise of 100% rebates on income taxes and excise duties, the new tariff-free zones pose a number of challenges. Underdeveloped infrastructure, and a widespread requirement to recruit at least 65% of staff locally may increase initial costs, an unpleasant prospect for many of India's increasingly pressurised smaller and medium-sized producers.