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Regulatory Hurdles Threaten Growth of Indian Pharma Exports

The Federation of Pharmaceutical and Allied Products Merchant Exporters (FPME) has raised alarms over these issues, urging the government to intervene and address the mounting concerns.

• By Newsdesk
• New Delhi
• Dec 12, 2024

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India’s pharmaceutical exporters, long hailed as global leaders in the industry, are now grappling with a host of regulatory and administrative challenges that threaten to derail their growth trajectory. The Federation of Pharmaceutical and Allied Products Merchant Exporters (FPME) has raised alarms over these issues, urging the government to intervene and address the mounting concerns.

Impact of Section 43B(h): A Financial Conundrum

A major point of contention for exporters is the introduction of Section 43B(h) of the Income Tax Act, which came into effect in April 2024. This provision mandates companies to pay their suppliers, registered as micro, small, and medium enterprises (MSMEs), within 45 days to qualify for tax deductions. While aimed at protecting MSMEs, exporters argue that the rule fails to account for the unique dynamics of the pharma industry.

“The cash cycle for exporters is vastly different from domestic companies. Our competitive edge lies in offering extended payment terms of up to 180 days to international customers. With production and transit times alone taking 50–60 days, this regulation creates a significant mismatch in payment timelines,” said an FPME spokesperson.

Exporters often face delayed payments due to factors beyond their control, such as limited dollar availability in key markets like Latin America and Africa. These delays exacerbate the cash flow crunch, hindering the ability of companies to comply with the 45-day payment rule. The FPME has already approached the finance ministry twice, in July and September, seeking an exemption for exporters, with plans to escalate the issue ahead of the upcoming Union Budget.

Lack of Transparency in Customs Procedures

Another significant challenge arises from inconsistencies at customs checkpoints. Exporters have reported that customs agents frequently demand additional documents, such as certificates of analysis (CoA) and good manufacturing practices (GMP) certificates, alongside purchase bills. These documents are often unavailable to merchant exporters who procure finished goods from local distributors.

“While customs authorities have the right to raise objections, there needs to be a transparent and standardized process. At present, the lack of clarity results in unnecessary delays and added costs,” the FPME spokesperson noted.

Global Competition Intensifies

India’s dominance as the “pharmacy of the world” is increasingly under threat. Competitor nations like Bangladesh, Sri Lanka, Dubai, and Turkey are leveraging more streamlined regulations to challenge India’s market position. Bangladesh, in particular, has emerged as a formidable rival, rapidly establishing itself as a global pharmaceutical hub.

“India’s regulatory hurdles are making it easier for competitors to eat into our share of the global market. If we don’t address these issues, we risk losing our leadership position,” warned a pharma analyst.

Growth Amidst Challenges

Despite these obstacles, India’s pharmaceutical exports recorded $17 billion in revenue from April to October 2024, marking an 8% growth over the same period last year. However, industry experts caution that sustained growth will be difficult without addressing the current regulatory bottlenecks.

A Call for Policy Reforms

The FPME has called on the finance ministry, the Central Board of Indirect Taxes and Customs (CBIC), and other regulatory bodies to implement reforms that support the unique requirements of the pharma export sector. From seeking exemptions under Section 43B(h) to demanding greater transparency in customs procedures, the association continues to advocate for measures that can bolster India’s position in the global pharmaceutical industry.

As India’s pharmaceutical exporters await governmental action, the industry stands at a critical juncture. Addressing these challenges will not only safeguard the sector’s growth but also reinforce India’s status as a global pharma leader.