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

Sun Pharmaceutical

Dr. Reddy's Laboratories

Divi's Laboratories

Cipla

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.

Sajeev

Yemen Stalemate – Half a decade and another unwinnable war

Aden - Steamer Point, Yemen

Victory seemed imminent when coalition led by Saudi Arabia and UAE started bombarding Yemen - a tiny country without any oil in the middle east. Coalition was impressive – Saudi Arabia, Egypt, Morocco, Jordan, Sudan, Kuwait, Qatar, Bahrain and several non-state actors and army of Academi (of Blackwater fame). US provided intelligence, logistical support and sold millions of dollars’ worth of weapon packages to coalition. Saudi and UAE got information from drones bought from China and operated by Chinese contractors, intelligence came from US drones as well. However, so far Yemen seemed to be the graveyard of coalition’s ego. Now after five years, coalition is looking forward for a graceful exit!!!

If we go back in history, Yemen was in a state of war for some time and unfortunately going to be in a state of war for foreseeable future. Former government of Yemen headed by Ali Abdulla Saleh fought and lost six wars against Houthi’s of Yemen. Houthi's took over of Sana'a in 2014 and proceeded towards Aden. It was the possible fall of Aden which prompted an invasion in March 2014.

Whether anyone was able to win or loss; war wrecked whatever left of that poor country. Inaccurate bombings led of deaths of hundreds of civilians. Even if coalition was able to exit someway, suffering is not going to end. This poor country without any natural resources, sitting at the edge of one of the richest geographical area in earth is looking forward for another possible civil war.

Aden

Aden has/had the potential to become Singapore of Middle east. She occupies a crucial position in the shipping routes between Europe to India. It was once ruled by Portuguese, then by Ottoman empire. From the end of 1830 Aden came under the control of British East India company and later under British India. After one century later, in 1937, Aden was separated from British India and became a crown colony. Independence movements forced Britain to give independence Yemen and final detachment of royal marines of UK left the city in 1967 (after 128 years). To an extend Eden' history was like that of Singapore or Hongkong. Unfortunately, similarity ends there. Aden is not going to be Singapore of east any time soon. 

Sajeev

Petrol-Diesel price hikes will result in spectrum wide price rise

An IOC Pump in Bangalore. Photo courtesy: Wikipedia

Petrol and diesel prices were always high in India. Tax revenue from petroleum products is one of the biggest income streams for union government; probably the biggest for state governments (apart from union government’s contribution) we well. Administrations keep on milking this cow whenever the hole in the budget is not manageable. If the price is increasing in international market, then that delta is transferred to customers; if price is decreasing, then, government increases the tax to keep it at the same level.

One may argue, hike is required to address the enormous gap in government’s balance sheet. I cannot agree with that. If we are relying on additional tax revenue from petroleum products to address the hole; then, we are no different than any country which depends on petrodollar for everything. We need to focus on other income streams as well and need to reduce the enormous wastage in government services. 

Many argue that hike affects only the rich; since they are the ones who own cars and luxury vehicles. This argument is older than independent India. People become happy when government imposes an extra tax on super-rich, but they often forget the fact that the same tax might affect them more than the targets. By the way, a car is no longer the privilege of the super-rich. Same case with bikes as well. Sub 160cc bikes are used heavily by common people. 

Then comes lorries. Lorries move commodities across India. Even if it is transported by plane or train, last-mile delivery is often through lorries. As a matter of fact, lorries run on diesel. So, a hike in diesel price will be reflected in prices for items transported by lorries – which essentially is everything. 

Then there are diesel-powered power plants that generate electricity and supply to the grid. Those government-owned generation companies may not be able to raise the price of electricity they produce; but then, after a while, those companies' balance sheets become so bad that government may end up giving budget support to it - again from public money. 

Since petroleum products are used in almost every field of human life, a price hike will result in spectrum wide price rise. In this pandemic era when economic activity is down this is not good. It is not that in international market prices are going up and up and government is forced to do the revision. After the outbreak of COVID-19 oil prices in international markets were crashing; but in that situation instead of passing the benefits to customers, government increased the taxes so that price remained the same. Now, when the price is stabilized government is increasing the price not once or twice but for 18 straight days. 

Government should rethink increasing prices indefinitely. Unfortunately, there is no opposition that can take on government in this issue, and even a rally on the road is not possible because of COVID. India-China border issue and COVID took over all prime-time debates (is that really debate!!!). 

You remember seeing people on the road asking for money or food? Due to COVID, there is hardly much crowd visiting temples/churches/mosques and not many people on roads. Whoever is there often reluctant to go near them due to social distancing. I often saw a lot of them buying Parle-G’s smallest pack and give to their kids using the money given by devotees etc. Now a smaller number of people giving them money and price of food items will increase due to diesel price hike… double strike!!!

Sajeev