The development, which would end the six-decade government monopoly in processing raw opium, would help domestic pharma companies to locally source opium-based products like morphine, codeine and thebaine.
At present, two state-run firms process opium but production levels are not sufficient to meet the demand of drug makers. As a result, they import opium-based products, especially codeine.
"To reduce the dependency on imported codeine, the government is planning to add more processing capacities," a senior finance ministry official said.
Codeine is one of the most sought opium products by the Indian pharmaceutical industry, to make cough syrups. And, despite having some of the largest opium fields in the world, India annually imports about 30 tonnes of codeine.
Last year, the government decided to allow private pharma companies to process opium and manufacture opium-based drugs. Two of the country's leading pharma companies, Hyderabad-based Dr Reddy's and Mumbai-based Piramal Healthcare (formerly Nicholas Piramal) were given permission to process opium to produce substances to be used in drugs.
"We are on the project and Piramal Healthcare would start the manufacturing process by 2010," said N Santhanam, executive director and chief operating officer. A technological tie-up with a US-based firm is also in place to produce opium-based drugs, he added. But refused to divulge the firm's name.
Having a technological tie-up was one of the pre-conditions. The plant would be set up at the company's existing facility at Baddi in Himachal Pradesh. The entire project would incur an investment of about Rs 70-100 crore (Rs 700 million-1 billion),
though the final cost is being finalised, said Santhanam.
A government official said Dr Reddy's has not yet set up a facility. When asked, the Hyderabad-based firm, in an emailed reply, said, "Dr Reddy's is not implementing the project to produce alkaloids from opium processing."
Opium is extracted from the opium poppy. Indian opium contains a range of chemical compounds such as morphine, codeine, thebaine, noscapine and papaverine, which have widespread medical and scientific uses.
India happens to be the only country in the world with a legal mandate (under the Vienna-based International Narcotics Control Bureau) to export raw opium and produce morphine through conventional processing.
The stress now is on value addition, which is why private pharma firms have been roped in, said the finance ministry official.
Currently, the Government Opium and Alkaloids Factory (GOAF), an arm of the Ministry of Finance, department of revenue, manufactures and sells opium and its alkaloids. There are two manufacturing units located at Ghazipur in Uttar Pradesh and at Neemuch in Madhya Pradesh.
These opium factories receive, store and process opium for domestic sales and export. It is also engaged in processing the opium into alkaloids of pharmaceutical grades.
Of the total production of about 600 tonnes, 120 tonnes is needed by the factories, while 500 tonnes is exported mainly to the US and Japan. Now, 100 tonnes would be given to the private company, the ministry official said. The revenue earned from 500 tonnes of opium was Rs 200 crore (Rs 2 billion) during the last financial year.