5 minute read 15 Jun 2021
PLI scheme in pharmaceutical industry

PLI scheme for the pharma industry likely to boost India’s bulk drug security

By Suresh Nair

EY India Indirect Tax Partner

Partner with the Indirect Tax Practice and global trade, also works closely with the life sciences, chemical, consumer and retail sectors. Enjoys reading and cricket.

5 minute read 15 Jun 2021

The new scheme announced by the government is expected to offer a total of INR 15,000 crore in incentives for the identified pharma products.

Production-linked incentive (PLI) schemes are a cornerstone of the government’s push for achieving an Atmanirbhar Bharat. The objective is to make India’s domestic manufacturing globally competitive and to create global champions in manufacturing. As we are aware, in the Union Budget 2021-22, the Finance Minister announced an outlay of INR 1.97 Lakh Crores over five years for the PLI Schemes in 13 key sectors. The thrust to reinforce India as the pharmacy of the world is evident from the PLI schemes for this sector.

The Indian government announced a production-linked incentive (PLI 1.0) scheme on 21 July 2020 aimed at boosting India’s bulk drug security. This covered identified Active Pharmaceutical Ingredients /Key Starting Materials /Drug Intermediates. The financial outlay for the said PLI scheme was INR 6,940 Cr.

With the aim to further encourage the pharmaceutical industry to enhance its manufacturing capabilities, diversify the product mix to complex generics, patented drugs, going up the value chain, bringing investment and creating global champions out of India, a new scheme was notified by the government on 3 March 2021 (PLI 2.0) and its operational guidelines have since been announced on 1 June 20211.

The new scheme is more extensive in its coverage as compared to PLI 1.0 and is expected to offer a total of INR 15,000 crore in incentives to the selected applicants for the identified pharma products.

Target groups for PLI 2.0

The manufacturers of pharmaceutical goods registered in India will be grouped based on their Global Manufacturing Revenue of pharmaceutical goods in (FY) 2019-20 (hereinafter referred to as GMR). 

Group

Criteria

No. of applicants

Incentives (INR)

A

Applicants having GMR >= INR 5,000 Cr.

11 (maximum 4 Foreign MNCs)

11,000 Cr

B

Applicants having GMR >= INR 500 Cr but < INR 5,000 Cr.

9 (maximum 4 Foreign MNCs)

2,250 Cr

C

Applicants having GMR < INR 500 Cr. *

35 (Minimum of 20 MSMEs and 5 for in vitro diagnostic medical devices for eligible applicants)

1,750 Cr

*Within Group C, a sub-group for MSMEs has been carved out and a minimum of 20 MSMEs will be selected (subject to sufficient eligible applicants) – this is a welcome step for the MSME sector to participate in the said scheme.

The product categories covered in the Scheme and rate of incentive on their incremental sales (over base year FY 2019-20) is summarised as follows:

Category

Target Segments

Rate of incentive

FYs 2022-23 to 2025-26

FY

2026-27

FY

2027-28

1

  • Biopharmaceuticals
  • Complex generic drugs
  • Patented drugs or drugs nearing patent expiry
  • Cell based or gene therapy drugs
  • Orphan drugs
  • Special empty capsules like HPMC, Pullulan, enteric etc.
  • Complex excipients
  • Phyto-pharmaceuticals
  • Other drugs as approved

10%

8%

6%

2

 (Those not covered in PLI 1.0)

  • Active Pharmaceutical Ingredients (APIs)
  • Key Starting materials (KSMs)
  • Drug Intermediates (DIs)

10%

8%

6%

(Drugs not covered under Categories 1 & 2)

  • Repurposed drugs
  • Autoimmune drugs, anti-cancer drugs, anti-diabetic drugs, anti-infective drugs, cardiovascular drugs, psychotropic drugs and anti-retroviral drugs
  • In-vitro diagnostic devices 
  • Other drugs as approved 
  • Other drugs not manufactured in India

5%

4%

3%

Key expenditures to be considered for eligible investments:

  • New plant, machinery, equipment and associated utilities.
  • Research and Development (R&D)
  • Transfer of Technology (ToT) agreements
  • Product registration
  • Factory building & associated infrastructure (limited to 20% of plant & machinery)

One key ask of the industry was to include R&D expenses, product registration-related costs, which have been considered in this scheme. This is expected to benefit participants. 

Selection criteria

There are different selection criteria for Group A, B and C. As compared to PLI 1.0, it is interesting to note that the same has been delinked from the investment proposed to be made for the said scheme – only exception being MSME (excluding in vitro medical devices) where there is a criterion of total investment committed under the scheme. Otherwise the selection criteria will be based on legacy data of gross manufacturing investment in India, number of ANDA/NDA as on 1 April 2021, R&D expenditure as detailed in the operational guidelines. 

Selected participants in the scheme will be eligible for incentives on incremental sales of pharmaceutical goods based on yearly threshold criteria of minimum cumulative investment and minimum percentage growth in sales as prescribed in the scheme. 

Way forward

As the application window for PLI 2.0 is scheduled to close on 31 July 2021, it is advisable to evaluate whether such expansion/entry into new product segments could stand the test of business feasibility and the likely benefits that could accrue to the company.

Given the enhanced budgetary outlay and increased product coverage under PLI 2.0, this may be an exciting opportunity for the pharma Industry to be part of the Atmanirbhar Bharat vision of the government.

1. Source: File No. 31026/60/2020-Policy dated 1 June 2021

Summary

The scheme provides the pharma industry with a unique opportunity to participate in the government’s visions of self-reliant India and become competitive in the global market.

About this article

By Suresh Nair

EY India Indirect Tax Partner

Partner with the Indirect Tax Practice and global trade, also works closely with the life sciences, chemical, consumer and retail sectors. Enjoys reading and cricket.