Production Linked Incentive

The Ministry of Chemicals and Fertilizers (Department of Pharmaceuticals), Government of India has introduced a new scheme, vide notification no:31026/16/2020-Policy dated 02 June 2020^[1], namely, “Production Linked Incentive Scheme” (‘The Scheme’) for promotion of domestic manufacturing of critical Key Starting Materials (‘KSM’)/Drug Intermediates (DI) and Active Pharmaceutical Ingredient (APIs). The government, with an aim to attain self-reliance and drug security, has agreed to provide incentives to boost domestic manufacture of 53 KSM/DI/API, basis recommendations of a Technical Committee. The broad contours of the scheme are given below.

Overview of the Scheme

• The Scheme has been announced by Government of India in order to promote the pharmaceuticals industry and ensure availability of drugs at affordable prices.
• The Scheme intends to boost domestic manufacturing of critical KSMs/DI and APIs by attracting large investments in the sector to ensure their sustainable domestic supply and thereby reduce India’s import dependence on other countries for critical KSMs/DI and APIs

Incentive

The Incentive is a % of the incremental sales of KSMs/DI and APIs.

Eligibility/Target Segments

• To be provided to manufacturers of critical KSM/DI and APIs in India
• It shall be subject to threshold of incremental investment for manufacturing critical KSMs/ DI and APIs and shall be applicable for only greenfield projects
• The Scheme shall be applicable for target segments of critical KSMs/DI and APIs as given vide Annexure to the above notification.
• Tenure of the Scheme will be for 8 years from 2020-21 to 2027-28, wherein the applications shall be open for a period of 4 months
• Financial year 2019-20 shall be treated as the base year for computation of incremental sales of identified KSMs/DI and APIs

Others

• Assessment of incremental investment and sale of manufactured KSMs/DI and APIs shall be based on details furnished to the Departments/Ministries/Agencies and Statutory Auditor certificates.
• Functional guidelines will be issued by the Department of Pharmaceuticals (DoP).
• The Scheme shall be implemented through a Nodal Agency, who shall act as a Project Management Agency and be responsible for providing secretarial, managerial and implementation support and carry-out other responsibilities as assigned by DoP from time-to-time.
• An Empowered Committee (EC) including Secretary Pharmaceuticals, Secretary Chemicals and Petrochemicals, Secretary DPIIT, Secretary Commerce, Secretary Environment and Secretary Health will be formed.
• The EC will undertake various activities which shall include but not limited to consideration of application, consideration of claims, conducting periodic review of eligible companies with respect to their investments, employment generation, production and value addition under the scheme.
• The EC will also be authorised to carry-out amendments in the Scheme, if any.

BDO Comments

This initiative by the government is expected to encourage domestic manufactures to augment their production capacities and enhance availability of key raw materials required for domestic manufacturing. If nurtured well and the government continues to commit more resources into this sector, such initiatives can reduce India’s dependence on overseas markets especially China and play a larger role in the international market in the future.