Gujarat elections: Pharma sector eyes GST boost, thanks BJP govt for infra push

Industry leaders say new tax regime will help compete with states such as Uttarakhand and HP that gave tax sops in the past decade

assembly elections Updated: Nov 17, 2017 08:04 IST
Maulik Pathak
Maulik Pathak
Hindustan Times, Ahmedabad
Gujarat Elections,Gujarat,GST
Industry leaders say the GST, which subsumed a string of local and state levies and was launched with much fanfare on July 1, will help Gujarat compete better with states.(HT File Photo)

Teething problems with India’s new unified national tax system might have left some industries dissatisfied but the Goods and Services Tax (GST) is likely to be a boost for the pharmaceutical industry in Gujarat that goes to the polls in December.

Industry leaders say the GST, which subsumed a string of local and state levies and was launched with much fanfare on July 1, will help Gujarat compete better with states such as Himachal Pradesh and Uttarakhand that announced tax sops in the past decade. “With Goods and Service Tax (GST) in place, a level playing field has been created among all states. As a result, life has become much easier for pharma manufacturers. Our new investment plans will be in Gujarat,” said Pankaj Patel, chairman of Cadila Healthcare, India’s second-most valuable pharmaceutical company in terms of market capitalisation.

Speaking over the phone, Patel confirmed that the company’s future investments plans for setting up new factories have been lined up for Gujarat over other states.

The Ahmedabad-based company that has 11 manufacturing facilities, including an overseas factory in Brazil — the maximum being in Gujarat — has in the past set up factories in places such as Baddi in Himachal Pradesh and Sikkim.

Gujarat’s pharma industry, which accounts for almost a third of the country’s annual production according to state government figures, is a critical piece in the Bharatiya Janata Party’s development narrative to win the western state for the sixth straight time. The Rs 65,000 crore industry flourished during the party’s 22-year rule, industrialists say, and employs, directly and indirectly, more than a million people, according to government data. The buoyant pharmaceutical industry in the state is also an important success story of the GST, which the opposition Congress has repeatedly targeted — party vice-president Rahul Gandhi calls the reform “Gabbar Singh Tax” and alleges it looted the common man — for causing a loss of jobs and hardships.

“The present (BJP) state government has given a lot of emphasis on infrastructure… in the last 12 to 15 years, the state government has ensured that round-the-clock electricity is supplied to industries,” said Viranchi Shah, chairman of Indian Drug Manufacturers’ Association (IDMA), Gujarat.

The state has the highest number of ports in the country and good rail, air and road connectivity, along with skilled manpower and state government support that were crucial for the pharma industry, he added.

“Unlike other states, labour issues are not very severe here and also, there is a lot of skilled manpower due to a large number of educational institutes here,” said Shah of IDMA.

But in the past decade, the pharma industry in the state saw a downturn as several firms shifted to other states that offered tax benefits for 10 years, starting from the time of commencement of the said facility.

During this time, Gujarat’s share in pharmaceutical production fell to 25% from 40%. “There were 4,000 licensed pharma companies in Gujarat but this number came down to 3,000 about 10 years ago when a tax holiday was declared in hilly states. Today, with GST in place and tax holiday in hilly states ending soon, a lot of fresh investments from pharma companies are coming in Gujarat,” said H G Koshia, commissioner, Food and Drug Control Authority, Gujarat.

The number of applications for setting up new pharmaceutical and medical equipment manufacturing facilities in Gujarat had tripled after GST was implemented, he added.

“Brand Gujarat has been in high demand all over India, specially for the pharma sector, given the fact that Gujarat produces the highest quality of pharma products in the country with lowest failure ratio among all states. Also, 40% of the machinery used for pharmaceutical is made in Gujarat and the state is also a chemical hub. All these make Gujarat the most attractive destination for pharma companies,” added Koshia.

Another factor that helped Gujarat was the lack of skilled manpower and snags in electricity supply in the hill states.

Koshia said with the tax breaks in the hill states ending in the next couple of years, Gujarat was at an advantage because of its superior infrastructure.

“After GST rollout, while there is some incentive still in store for the units in tax havens, the difference in cost of production between Gujarat and the hilly states has narrowed down a lot,” he added.

First Published: Nov 17, 2017 08:03 IST