Thursday, July 2, 2020

Indian Pharma - Why government should not run its own companies?

Sun Pharmaceutical

Dr. Reddy's Laboratories

Divi's Laboratories


Aurobindo Pharma

Torrent Pharmaceuticals

Lupin Ltd

Zydus Cadila Healthcare

Alkem Laboratories

Biocon Ltd


If you lived in India, you might have heard or used products from at least one company mentioned above. All are champions of Indian private sector. Most of them expanded their networks and now operating far beyond the shores. They are playing a crucial role in bringing healthcare affordable to millions of poor people across the world. There are lot more companies; however, for the purpose of this article I am just mentioned ten.


Now there is another list,


Hindustan Antibiotics Ltd (HAL)

Indian Drugs and Pharmaceuticals Ltd (IDPL)

Rajasthan Drugs and Pharmaceuticals Ltd (RDPL)

Bengal Chemicals and Pharmaceuticals Ltd (BCPL)

Karnataka Antibiotics & Pharmaceuticals Ltd (KAPL)


All five are owned by union government (some as joint venture with state governments). Let's look in to these companies one by one. By the way, all five were formed (or nationalized) within first 35 years of Independent India; a time when socialism was running high on Indian veins.


Hindustan Antibiotics Ltd (HAL)


This company manufactured drugs like Penicillin, Streptomycin and a number of other formulations. HAL went through rehabilitation plan in 2006 for 137.59 crore. However, that plan failed to turnaround the futures for HAL. Later one more plan came with a recommendation to infuse 670.46 crores. This time cabinet looked the other way and approved selling of its surplus to meet liabilities. During that time, union government forgo 307.23 crore payable to them and deferred liabilities worth 128.68 crores. In addition to that, infused 100 crores to meet salaries, wages and critical expenses. Final decision was strategic sale of government shares.


Indian Drugs and Pharmaceuticals Ltd (IDPL)


IDPL manufactures Antibacterial /Anti-infective, Analgestic /Anti-inflammatory, Gastrointestinal, Respiratory Tract, Contraceptive/OCP, Vitamins/ Mineral, Anti allergic, Anti fungus, Antimalarial, Anti diabetic Cardiovascular etc.


Union government on December 2016 decided to shut down this company after meeting its liabilities from the proceeds of sale of surplus land to Government Agencies.


Rajasthan Drugs and Pharmaceuticals (RDPL)


A joint venture with Rajasthan government, RDPL used to produce Anti-Biotic, Anti-Malarial, Antacids, Anti-Inflammatory, Anti-Bacterial, Anti-Fungal, Vitamins & Minerals, ORS, Anti Retro Viral, Anti Hypertension etc.


RDPL is not doing any production since October 2016 after a fire incident in its Jaipur plant. Central government decided to shut down this entity after settling the liabilities via sale of surplus lands.


Bengal Chemicals and Pharmaceuticals (BCPL)


BCPL manufactures industrial chemicals (Alum), branded and unbranded generic pharmaceuticals, hair oil and disinfectants etc.


This company got a revival package worth 440.60 crores in 2006. One decade after that, government decided to divest from BCPL and set the books clean by selling surplus lands. However company is currently profitable.


Karnataka Antibiotics & Pharmaceuticals Ltd (KAPL)


KAPL is joint venture with government of Karnataka and manufactures Dry Powder Injectable, Liquid Injectable, Tablets, Capsules, Dry Syrups and Suspensions etc. This is the only one in the block which is consistently profitable. However, union government decided to sell its shares in this company.

Government PSUs



Two completely different tales for Indian pharma companies!!! One group is celebrated as champions and the second one is considered as lost cause.


Some reasons identified by union government for PSU's sickness are,


  • large monolith-type integrated production facilities producing chemicals, bulk drugs and formulations.
  • Out dated plant and machinery
  • Obsolete technology for bulk drugs
  • Excess manpower, high salary bill
  • Maintenance of huge township, schools and hospitals in all locations of IDPL.
  • Medicines manufactured by IDPL were under Drugs Price Control Order (DPCO) by the Government prior to liberalization in 1991.
  • Shift in Government policy resulting in shifting of the canalization agency from IDPL to State Trading Corporation (STC).
  • Intense competition from private pharmaceuticals companies which did not have to bear the burden of social infrastructure of setting up and maintaining townships, schools, hospitals etc. and had leaner production facilities.

One interesting fact in PSU's case is; to settle liabilities government decided to sell excess land. Looks like these companies own huge tracts of excess land.

  • Why government is allocating so much land to PSU's which is not even used in the first place?
  • Why a drug manufacturer runs townships, schools and hospitals?
  • How companies working in an industry which is highly profitable is making huge losses? It's not that private companies are inventing new medicines; they are also minting money via generics.
  • How these companies managed to make losses even after getting government contracts on priority; and its potential customer base always showed a huge growth. It's guaranteed that, it will never come down.

We need to ponder more on these questions. I believe in the principle that, governments should not own companies or organizations; except may be in public education and security. Since we already have lot of government owned companies let's worry about how we are running it. First of all government owned companies should not be run by politicians or civil servants. Let it run like any other company, answerable to  regulators and market. Let those companies focus on areas which they are operating. Not running schools and townships. Committees after committees and reports after reports will not do it. Government need have the will power to let things go; this may sounds simple but implementation is difficult.


Privatizing is neither a one stop solution for all sick government companies not a silver bullet to fix all underlaying structural issues.

Let them go out of the clutches of politicians and bureaucrats

Let not use them as a tool to propagate socialism.

Let's not make the plants of those companies a municipality where the company runs everything like schools, transportation, hospitals, townships etc.

Let's not make it a place to appoint relatives and favorites

Let those companies run like any other private companies.


It's not like all government run companies are doing bad across the world. Case in point is Government of Singapore; where it's not the politicians or bureaucrats, but qualified professionals runs the show with independence and decision making authority. Singapore government owns, companies like Singapore Airlines, Temasek Holdings, ST Engineering, DBS Bank etc. which are efficient and profitable. There is no reason why it can't be done in India.


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