More than 1,000 small scale pharmaceutical units employing around a lakh of people have shut down their operations in the last one year as they could not cope with regulatory changes and the current financial crisis, says an industry body. That is at least three units a day on an average.

An equal number of companies have also shifted to states that provide tax exemptions, often retrenching people in old locations. The remaining 2,000-2,500 units are facing imminent closure.

This will result in another 500,000-600,000 technical and non-technical people unemployed in the near future, said T S Jaishankar, chairman of Confederation of Indian Pharmaceutical Industries, the umbrella organisation of various state level pharmaceutical associations. But, he said, the exact statistics were not available.

Until three years ago, India had about 7,500-8,000 units, meeting 30 per cent of the country's drug requirement. Almost 40 per cent of these small scale drug units had to close down their operations as they were not able to bear the cost of implementing Schedule M manufacturing norms, according to a recent National Productivity Council survey report.

These norms were mandated in 2005 by the government to enforce Good Manufacturing Practices in the domestic industry.

Gujarat had about 2,000 units earlier and now this number has shrunk substantially. About 90 per cent of the remaining units have suspended production due to lack of orders, said Deepak Padia, former chairman of the Gujarat State Board of Indian Drug Manufacturers Association.

According to J P Agarwal, former president of Madhya Pradesh Small Scale Pharmaceutical Manufacturers Association, there were more than 500 units in MP about five years ago, but now only 135 remain.

Agarwal said over 1,000 units had migrated to excise free zones and more than 50 per cent of them have now suspended production due to lack of job work orders and over capacity created in the region. "Most of them are up for sale, but there are no takers," he said.

Various industry leaders said one of the major reasons for the stalemate was the lack of business due to the minimum turnover criteria introduced by various state and central public undertakings in the their annual drug purchase tenders in the recent years.

Unlike large drug units, most of the SSI pharma units lack the financial muscle to employ own medical representatives to sell their products and depend on tenders and job works from large units for survival.

While WHO-GMP was only the criteria for most government undertakings for their tenders earlier, now most of them insist a minimum Rs 20-crore (Rs 200 million) turnover for units to participate in the annual tenders. For example, Indian Railways had introduced a minimum turnover criterion of Rs 50 crore (Rs 500 million).

Besides this, preference is given to public sector drug units in government drug procurements as part of the revival of sick public sector drug companies. Sources said government procurements consist a minimum 10-15 per cent of the Indian drug production, worth over Rs 55,000-60,000 crore (Rs 550-600 billion).

"In recent years, there was big negative publicity to brand SSIs as manufacturers of spurious drugs. This caused harassment by officials and many units had to exit," noted JP Agarwal. He himself had sold off his firm a few years ago.

B Sethuraman, president of Tamil Nadu Pharmaceutical Manufacturers Association said migration of numerous units to tax-free havens in North India had created a non-level playing field for companies operating outside these zones. While excise duty was zero in these zones, units in the other states had to pay 16 per cent excise duty, which was reduced to 8 per cent in the last Budget.

"Banks are reluctant to fund SSI units and this has created a stalemate in working capital and expansion plans of the companies. The benefits of the Rs 650-crore (Rs 6.5 billion) Technology Upgradation Fund Scheme for the sector is yet to reach the units and less than 2 per cent of the units have availed its benefits," said Jaishankar.