Decoding the skirmish over revised Schedule M

Recent regulatory changes have underlined the fissure between the large and mid- MSME segments of the pharma sector. The most recent evidence of this fissure is the representations of the pharma MSME sector to the Prime Minister’s Office (PMO) and to state governments to defer the implementation of the Revised Schedule M of the Drugs Act 1940 that was amended by the Ministry of Health & Family Welfare vide Notification GSR 922 (E) dated December 28 last year.

On January 25, the SME Pharma Industries Confederation (SPIC) wrote to the Prime Minister reasoning that the new Schedule M and price control are incompatible, as they will lead to shortages of drugs on the National List of Essential Medicines (NLEM). 

The association also predicts that supply of medicines to Pradhan Mantri Jan Aushadhi Kendras (PMJK) would also dry up in a year’s time, as less than 20 per cent MSEs would survive after implementation of the Revised Schedule M. The remaining 20 per cent would be unable to produce medicines for PMJK or most of the NLEM medicines because the production cost post implementation of the Revised Schedule M would be higher than the permitted MRPs.

The SPIC letter claims that 80-90 per cent MSEs have a turnover of below Rs.10 crore, as they are not based in states which enjoyed tax holidays from 2003 to 2017. These companies did not have the 30 per cent advantage of their counterparts in tax holiday states and are therefore nowhere near the Rs.250 crore slab mentioned in the Notification. The letter alleges that such turnovers are prevalent in only 2000 units in the erstwhile tax holiday states for whom the Notification is appropriate.

As per the SPIC letter, the recent risk based joint inspections also proved that 90 per cent of pharma units do not comply with the previous Schedule M, and therefore questioned its upgradation. The conclusion is that the ‘amendment is motivated by Big Pharma and vested interests – who claimed to be leaders of MSMEs. Their real motive is profiteering by closing down MSMEs to create pre 1960 conditions when prices of medicines was highest in India and shortages were common.’

The letter concludes, that if affordable medicines especially for the poor have some significance in the country, pharma MSMEs and their capacity to produce affordable drugs needs to be preserved and hence the New Schedule M should be kept in abeyance for MSEs having less than Rs.10 crore turnover outside the erstwhile tax holiday states.

Earlier, The Tamil Nadu Pharmaceutical Manufacturers Association (TN PMA), representing 150-odd micro and small drug manufacturing companies of that state, had made a similar request in a letter to the Union Health Minister and to the Drug Controller General of India (DCGI).

Acknowledging the need to upgrade to global MGP standards, the TN PMA asked for three years to implement the Revised Schedule M. They then approached the state government to take up their concerns with the central government about adoption of the Revised Schedule M.

A Punjab-based pharma Special Purpose Vehicle (SPV) Pundrug Research Foundation, comprising 10 pharma companies in Punjab, has also petitioned the PMO that if the government does not extend the timeline for pharma companies to comply with the Revised Schedule M, there may be multiple closures, leading to the shut down of their common facility due to lack of users.

In the representation to the PMO dated January 9, 2024, Jagdeep Singh, Chairman, Pundrug Research Foundation pointed out that if the Revised Schedule M Notification is implemented within one year as stipulated, it would wipe out more than 130 units out of 140 units in Punjab simply because units in Punjab bore the brunt of tax holiday in the neighbouring hill states for 14 years from 2003 to 2017. Therefore he stated that the promoters of the SPV are unwilling to proceed (to deploy the grants received) ‘unless the timelines for implementation are spread between 5-10 years for units outside the erstwhile Tax Holiday States which includes Punjab.’

These representations underline the widening divide between the large and mid/small size pharma companies. In fact, these associations are predicting that the implementation of the revised Schedule M could spur shut downs, consolidations and mergers among the MSME pharma sector.

Both sides are vital parts of India’s pharma sector, one serving export markets, the other serving the domestic markets with affordable quality medicines. As we wait for the Interim Budget 2024-25, it is not likely that Finance Minister Nirmala Seetharaman will make any big changes in the last budget before the Narendra Modi government readies itself for elections later this year. More incentives for R&D and local manufacturing as well as simplifying compliances to improve ease of doing business sums up the basic pre-budget wish list for the pharma sector. In addition, the government will need to engage with and incentivise both large and MSME pharma companies, especially in an election year. While the temptation would be to merely placate the sector and then ignore it, we only need to look back two-three years, to the start of the COVID pandemic, to convince us that a healthy pharma sector is necessary for a healthy population.