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PLI scheme-Heading to be a dampener?

The production linked incentive scheme for medical devices has been introduced to lead to an incremental production of ₹68437 crore over a period of 5 years. It has a total financial outlay of ₹3420 crore and a disbursal from FY21-25. An incentive at 5 percent of incremental sales over base year FY20 has been offered to compensate for the manufacturing cost disability of 12-15 percent vis-à-vis competing economies. Eight companies have come forth and committed a total investment amounting to ₹729.63 crore and to commencing commercial production from April 2022.

While this is great, the PLI scheme is far from being a resounding success for a ₹86840 crore medical devices sector with 85 percent dependency on imports. Only eight applications from the targeted 28 have yet been approved by the Ministry of Chemical and Fertilizers.

The PLI scheme for the pharmaceutical industry too does not seem to have convinced the large players. Why would the manufacturers set up greenfield plants, when their current ones have idle capacity of 35 percent or so? And that too for a return of mere 2.1 percent annually, which is the total allocated incentive of ₹6490 crore, on a ₹47364 crore production, with 80 percent capacity utilization, over a 7 year period? In a high capital investment industry with a small-sized Indian market and continuous pricing onslaught from the Chinese industry, the API sector is in a fix.

Companies are also not confident, that when the time comes, the government will actually disburse the incentives. Going by past experience, with its reputation of being the biggest litigant and resorting to amending laws with retrospective effect, companies are wary that their dues may not be settled for some violation of a clause in the fine print. And as demonstrated by Pfizer asking Argentina to pledge assets as security against potential vaccine claims, corporations need complete certainty around government payouts.

India is on a COVID-19 vaccination drive. With 12500 private hospitals and 15000 government hospitals, about 2.7 million citizens are being vaccinated per day. In the first phase, 13.75 million vaccines were administered to healthcare and frontline workers. In the second phase since March 1, citizens above 60 years and above 45 years of age with comorbidities are being given preference.

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