By providing financial incentives to businesses, the Indian government’s PLI Scheme aims to increase domestic manufacturing and lessen dependency on imports. The program, which stands for production linked incentives, pays companies according to the higher sales of goods made in India. This strategy pushes businesses to increase their production capacity, make investments in new technologies, and become more globally competitive. In particular, the Pharma PLI Scheme seeks to establish India as a world leader in pharmaceutical production, particularly for essential medications and APIs.

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What is the Production Linked Incentives (PLI Scheme)?

The production linked incentive scheme is a flagship program started by the Indian government in 2020. The major purpose is to stimulate both local and international companies to scale up their manufacturing functions within India. The major concept is straightforward: the government delivers cash incentives as a ratio of a corporation’s incremental sales of locally produced goods. This means the more a corporation manufactures and sells, the more incentives it earns.

It is a performance-driven program developed to entice large-scale investments and create jobs. The scheme initially targeted these industries, but it rapidly spread to cover 14 major industries, comprising electronics, pharmaceuticals, textiles, and automobiles, with an overall budget of more than ₹ 1.97 lakh crores.

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The scheme targets to attain a number of major goals –

1. Increase Domestic Manufacturing – The goal is to produce more Made in India goods. The government encourages businesses to establish or grow their production facilities in India by offering financial incentives.

2. Decrease Import Dependency – India has historically relied significantly on imports for a number of finished goods and raw materials, particularly in industries like pharmaceuticals. By promoting domestic manufacturing, the PLI program aids in the replacement of these imports.

3. Create Global Champions – The program’s goal is to assist Indian businesses in expanding to a size that allows them to compete on a global basis with players from other countries.

4. Create Jobs – As manufacturing activity grows, there is a corresponding increase in the need for skilled labor, which results in a large number of new jobs being created.

Deep Dive Into the Pharma PLI Scheme

The Pharma PLI Scheme is one of the most remarkable elements of the overall PLI initiatives. It was started to address a vital exposure: India’s over-reliance on a handful of nations for raw materials, specifically Key Starting Materials, Drug Intermediates, and Active Pharmaceutical Ingredients. These are the common ingredients required to make medicines. The COVID-19 pandemic outlined this dependence, as supply chain disturbances led to prime issues.

The Pharma PLI Scheme is divided into two components –

1. PLI for Bulk Drugs (PLI 1.0) – This scheme, with an outlay of ₹6.940 crore, pays attention to boosting the local production of 41 vital APIs and KSMs. It delivers incentives for incremental sales for a duration of up to 10 years.

2. PLI for Pharmaceuticals (PLI 2.0) – This is a wider scheme with a budget of ₹15,000 crore. It sets a target to stimulate the manufacturing of high-value, complicated medicines such as complicated generic drugs, biopharmaceuticals, patented drugs, and cell-based or gene therapies. The incentives are provided for a duration of up to 6 years, based on the pharma product and the size of the corporation.

The scheme delivers a large push to corporations to invest in new facilities and R&D to manufacture these high-tech products. This is particularly advantageous for third party pharma manufacturing company in India and those engaged in contract pharma manufacturing, as the incentives make it more appealing for them to take on large-scale production orders.

Benefits of the Pharma PLI Scheme

The Pharma PLI Scheme delivers a multitude of advantages that are reshaping the pharmaceutical landscape of India.

1. Financial Incentives and Investment Boost

The financial incentive itself is the most obvious advantage. The program directly increases companies’ profits by rewarding them for increased production, which makes it simpler to defend new investments. As a result, capital expenditures for new machinery, plants, and technology have increased dramatically. Nowadays, a lot of pharmaceutical companies can grow and introduce new, cutting-edge products to the market that they might not have previously thought of.

2. Increased Independence (Atma Nirbhar Bharat)

The program is a key component of the “Atma Nirbhar Bharat” (Self-Reliant India) movement. India is lessening its reliance on imports by providing incentives for the production of KSMs and APIs. This is important for national drug security because it guarantees a steady supply of necessary medications, even in times of international emergency.

3. Enhanced International Competitiveness

Indian manufacturers benefit from the incentives by having lower production costs, which increases the competitiveness of their goods on the global market. As a result, India’s standing as the “pharmacy of the world” is growing. Due to the emphasis on high-value products, Indian businesses are now competing in more sophisticated markets rather than just generic medications, which could result in increased export revenue.

4. The expansion of contract and third-party manufacturing

For Third-Party Pharma Manufacturing Companies in India and those that specialize in contract manufacturing in the pharmaceutical industry, the PLI scheme has produced a fantastic opportunity. Large pharmaceutical companies that might not want to make significant investments in new manufacturing facilities can outsource their production to qualified contract manufacturers because the incentives are tied to increased production. Smaller manufacturing facilities can expand as a result, and larger businesses can swiftly scale up production without having to make a significant upfront investment.

Limitations and Challenges

Despite being revolutionary, the Pharma PLI Scheme has drawbacks and difficulties.

1. High Investment Thresholds

The high minimum investment needed to be eligible for the scheme is one of the main obstacles. These requirements can only be met by big businesses with substantial financial support. Smaller and medium-sized businesses (SMEs), which are the foundation of the Indian pharmaceutical industry, may be left out. The largest incentives are still reserved for the industry titans, even though some groups are included for smaller businesses. This could create an unfair playing field.

2. Focus on Greenfield Projects

“Greenfield” projects—new manufacturing facilities constructed from the ground up—are frequently given preference under the scheme. Businesses that have made significant investments in modernizing their current facilities may not be able to take full advantage of the advantages. For established players who are more concerned with updating their current operations than creating brand-new ones, this could be a drawback.

3. Complex Application and Monitoring Process

The PLI scheme application procedure can be fairly complicated, involving a great deal of specific documentation and strict adherence to rules. For businesses, particularly those with limited resources, the ensuing monitoring and auditing to guarantee compliance can also be a burden.

4. Potential for Market Disruption

In certain situations, the PLI scheme’s abrupt boost in production might result in a surplus of supply, which could eventually have an impact on market prices and profitability. To prevent unforeseen market distortions, the government must carefully oversee the program.

5. Limited Product Coverage

The list is still selective even though it includes a large variety of products. Because not all pharmaceutical products qualify, businesses that produce other significant medications are unable to take advantage of the incentives. A lopsided focus on particular product categories may result from this selectivity.

The Role of Contract Manufacturing in the PLI Era

One significant trend in the pharmaceutical industry is the growth of contract manufacturing, which has been accelerated by the PLI scheme. Many businesses are opting to collaborate with a Third-Party Pharma Manufacturing Company in India instead of spending billions of rupees to construct new plants. This enables them to increase their sales through outsourcing and swiftly access the PLI benefits.

The PLI scheme is a huge opportunity for an Indian third-party pharmaceutical manufacturing company. They can make investments in cutting-edge facilities and then collaborate with several customers to reach the high production goals required to be eligible for the incentives. The entire pharmaceutical ecosystem is strengthened and made more competitive by this model’s increased efficiency and economies of scale.

With the PLI Scheme India playing a key role, the pharmaceutical industry in India appears to have a bright future. The government can guarantee that the program keeps spurring innovation and expansion and securing India’s position as a major pharmaceutical powerhouse in the world by resolving its shortcomings and building on its achievements.

Also Read: Formulation Development in Pharma – From Concept to Cure