16 July 2021
Production Linked Incentive (PLI) Scheme for Promotion of Domestic Manufacturing of Pharmaceuticals
 
The AtmaNirbhar Bharat initiative continues to be a focus for the Government of India (GoI). The objective of this initiative is to make India increasingly self-sufficient and reduce dependence on imports of key/critical products across sectors. The COVID-19 pandemic exposed the vulnerability of our supply chains, and the GoI is anxious to strengthen domestic manufacturing and the supply of essential products the country needs. As part of this initiative, the GoI has announced Production Linked Incentives (PLIs) for specific sectors and product segments, which are critical to India’s future. The healthcare sector, especially the pharmaceuticals and medical device industries, are significant beneficiaries of these PLI schemes. In March 2020, the GoI announced the first PLI scheme for these industries with an outlay of USD 1.83 billion, where Active Pharmaceutical Ingredients (APIs)/ Key Starting Materials (KSMs) were the focus products. Over the last decade, India has become quite dependent on imports for key pharmaceutical APIs and KSMs, and the pandemic seriously disrupted the supply of these imports. As India imports approximately 60% of its total API consumption from countries like China, the situation was seen as alarming and one that could severely jeopardize drug manufacturing. To further support the AtmaNirbhar initiative, the GoI announced a second PLI scheme for the pharmaceutical sector in March 2021 with an outlay of an additional USD 2 billion, and detailed guidelines were issued in June 2021.

Given below is a snapshot of the PLI scheme:

Release Date
  • 1 June 2021
  • The Scheme was notified vide Gazette Notification No. 31026/60/2020-Policy-DoP dated 3 March 2021

Scheme Objectives
  • Enhance India’s manufacturing capabilities by increasing investment and production in the sector, and facilitate product diversification into high-value goods in the pharmaceutical sector. 
  • Create global champions out of India who have the potential to grow in size and scale using cutting-edge technology and thereby penetrate/establish themselves as key partners in global value chains. 

Eligible Applicants
  • Group A: Applicants having Global Manufacturing Revenue (FY 2019-20) of pharmaceutical goods and/or In-vitro Diagnostic Medical Devices of more than or equal to USD 666 million.
  • Group B: Applicants having Global Manufacturing Revenue (FY 2019-20) of pharmaceutical goods and/or In-vitro Diagnostic Medical Devices between USD 66 million (inclusive) and USD 666 million
  • Group C: Applicants having Global Manufacturing Revenue (FY 2019-20) of pharmaceutical goods and/or In-vitro Diagnostic Medical Devices of less than USD 66 million. This group shall include a sub-group for Micro, Small, and Medium Enterprises (MSME) applicants (i.e. applicants registered as MSMEs with the Ministry of MSME, Government of India).
Eligible Segment / Products
 
Category 1 Category 2 Category 3
  • Bio-pharmaceuticals
  • 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*

Active Pharmaceutical Ingredients (APIs)/Key Starting Materials (KSMs)/Drug Intermediates (DIs) except for the 41 eligible products already covered under the “Production Linked Incentive (PLI) Scheme for Promotion of Domestic Manufacturing of critical KSMs/DIs/ APIs in India” notified by the Department of Pharmaceuticals (DoP) vide Gazette Notification no. 31026/16/2020(PLI Scheme)
 
  • Repurposed drugs
  • Auto-immune drugs, anti-cancer drugs, anti-diabetic drugs, anti-infective drugs, cardiovascular drugs, psychotropic drugs, and anti-retroviral drugs
  • In-vitro Diagnostic Devices
  • Other drugs not manufactured in India
  • Other drugs as approved*

 
Total Incentive Outlay
  • Group A – USD 1.46 billion
  • Group B – USD 300 million
  • Group C – USD 23 million

Threshold Criteria for the Eligibility of the Incentive
 
Group of Participants Minimum Cumulative Investment per Participant
Minimum Percentage Growth in Sales
(Year-on-Year)
Group A USD 133 million over 5 years
  • For the purpose, of determining the eligibility of the incentive for the first year (i.e. FY 2022-23), the threshold sales in FY 2022-23 (for eligible products) has to be greater than USD 33 million in the case of Group A participants, greater than USD 1.3 million in the case of Group B participants, greater than USD 130,000 in the case of Group C participants, and greater than USD 66,000 in the case of Group C MSME participants.
  • For subsequent financial years (i.e. from FY 2023-24 onwards), the threshold sales shall be computed at 7% growth over the actual sales of the approved eligible product of the previous financial year.
Group B USD 33 million over 5 years
Group C USD 6.6 million over 5 years
Group C MSME 20% of Committed Investment each year over 5 years


Quantum of Incentive

The rates of incentives on incremental sales (over the Base Year) of eligible product categories are given below:
Financial Year Incentive Rate (Category 1 & 2) Incentive Rate (Category 3)
2022-23 10% 5%
2023-24 10% 5%
2024-25 10% 5%
2025-26 10% 5%
2026-27 8% 4%
2027-28 6% 3%

The incentive applicable for a selected applicant shall be computed as: Net Incremental Sales of Eligible Product(s) x Rate of Incentive

 
Number of applicants to be selected
  • Group A: 11 participants with a maximum of 4 Foreign Multinational Companies (MNCs)
  • Group B: 9 participants with a maximum of 3 Foreign MNCs
  • Group C: 35 participants, of which:
    • A minimum of 20 will be MSMEs, subject to sufficient eligible applicants; and
    • A minimum of 5 will be In-vitro Diagnostic Medical Devices manufacturers subject to sufficient eligible applicants.

Implementation Agency
The Scheme will be implemented through a Project Management Agency (PMA) which will be responsible for providing secretarial, managerial, and implementation support, and will also carry out other responsibilities as assigned by the DoP from time to time.

Duration of Scheme
The tenure of the Scheme is from FY 2020-21 to FY 2028-29

Application Window
The application window will be of 60 days starting from 2 June 2021 to 31 July 2021 (both dates inclusive).

To know more about our previous healthcare PLI insights, click here.
Our Comments
These schemes are a significant top-up to the first pharmaceutical sector PLI scheme announced in March 2020. This indicates that the GoI is serious in shoring up self-sufficiency in the sector while also creating an attractive environment for global manufacturing to shift to India. Both the PLI schemes together cover a wide variety of finished dosage products and APIs/KSMs. These incentives will lead to the creation of new facilities and increase affordability for the consumers. With these schemes, the government also wants the industry to enhance its manufacturing capabilities, diversify the product mix to complex generics, bio-pharmaceuticals, patented drugs, and in-vitro diagnostics. These schemes are also open to MSME companies providing an opportunity for broad-based growth of the industry. While in the last PLI scheme, expenditure related to R&D, product registration-related costs, etc. were not included as part of the investment, this has now been included in the second PLI scheme.

Some stakeholders still believe that fundamental issues have not been addressed sufficiently through these schemes. For example, setting up a Greenfield project still takes too long due to delays in approvals, permissions from the regulatory bodies, etc. Any new project will need a minimum of two years from commencement to start production in a best-case scenario, which means incentives are paid over a period from three to ten years of the starting date. Over such a long period, incentives will erode due to inflation. Additionally, there is still no news on the commitment from the government regarding buying support from these manufacturing units.
Overall, the scheme provides for a greater thrust on innovation as well as the development of complex and high-tech products including emerging technologies. Initiatives like these will help India create a truly global industry in terms of stature and size.

Note: All currency conversions have been mentioned with the following rate of exchange: USD 1 = INR 75
Nexdigm (SKP) 
Urmi Axis | 7th Floor | Famous Studio Lane | Mahalaxmi | Mumbai | 400 011 | India
+91 22 6730 9000 |
ThinkNext@nexdigm.com
 | www.nexdigm.com 
USA | Canada | India | UAE | Japan | Hong Kong
DISCLAIMER
This alert contains general information which is provided on an “as is” basis without warranties of any kind, express or implied and is not intended to address any particular situation. The information contained herein may not be comprehensive and should not be construed as specific advice or opinion. This alert should not be substituted for any professional advice or service, and it should not be acted or relied upon or used as a basis for any decision or action that may affect you or your business. It is also expressly clarified that this alert is not intended to be a form of solicitation or invitation or advertisement to create any adviser-client relationship.

Whilst every effort has been made to ensure the accuracy of the information contained in this alert, the same cannot be guaranteed. We accept no liability or responsibility to any person for any loss or damage incurred by relying on the information contained in this alert.

© 2021 Nexdigm Private Limited. All rights reserved.
  Unsubscribe    View in browser