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The Department of Pharmaceuticals (DoP) is drawing up a ₹7,000 crore scheme to boost domestic bulk-drug manufacturing, with a proposal to extend production incentives to existing plants, allow greater flexibility in claiming support, and earmark dedicated funding for research and development (R&D).
Of the proposed outlay, ₹5,000 crore could be allocated to production incentives, with the remaining ₹2,000 crore directed towards R&D, common infrastructure and capital subsidies, according to people familiar with the discussions.
A key departure from the existing production-linked incentive (PLI) scheme would be a shift from product-specific support to a platform-based approach. The proposed framework identifies 52 sets of molecules as manufacturing platforms, potentially covering value chains spanning more than 300 intermediates and downstream active pharmaceutical ingredients (APIs).
Products would be classified into three categories — intermediates, advanced intermediates and APIs — allowing incentives to support a wider segment of the manufacturing value chain.
“These platforms could cover value chains supporting more than 300 intermediates and downstream APIs, moving away from the existing scheme’s product-specific approach,” an official told Business Standard, requesting anonymity.
The proposed scheme could also extend eligibility to brownfield projects, alongside greenfield investments. This would allow manufacturers to seek incentives for capacity expansion and better utilisation of existing facilities, including plants established under the bulk-drugs PLI scheme, the official said.
Another proposed change is to replace the differentiated incentive rates under the existing scheme with a flat rate, calculated as a percentage of eligible sales, for each of the six incentive years.
Under the current framework, fermentation-based products receive incentives worth 20 per cent of incremental sales in each of the first four years, followed by 15 per cent and 5 per cent in the fifth and sixth years, respectively. Chemically synthesised products receive a flat 10 per cent annually over six years.
The proposed scheme, sources said, would have an eight-year expenditure schedule, although individual manufacturers would remain eligible for production incentives for six years or for the remaining tenure of the scheme, whichever is shorter.
It could also allow manufacturers to designate any two years as zero-production years, giving them flexibility to defer claims in the event of unexpectedly low output, they said.
The longer scheme window and flexibility in claiming incentives are intended to accommodate the production cycles and commercial uncertainties associated with bulk-drug manufacturing.
Union Pharmaceutical Secretary Manoj Joshi had earlier indicated that the government was working on a comprehensive framework that would go beyond the existing PLI model, placing greater emphasis on long-term capacity creation, R&D and partnerships between industry and academia.
In an interview with Business Standard in June, Joshi had said the proposed framework would give companies a longer implementation window to establish manufacturing facilities and more flexible support for product development.
Proposed scheme looks to fill gaps left by PLI
The proposal comes against the backdrop of the existing bulk-drugs PLI scheme, which has attracted investment but struggled to translate it into production and incentive disbursals.
Approved in March 2020 with an outlay of ₹6,940 crore, the scheme had attracted actual investment of ₹5,210.74 crore by June 2026, exceeding the committed investment of ₹4,330 crore, according to the DoP’s written response to queries from Business Standard.
However, production stood at about ₹3,270 crore, against a lifecycle target of ₹37,378 crore, according to documents reviewed by this newspaper. Incentive disbursals were also modest at about ₹87.5 crore, or just 1.2 per cent of the approved outlay.
The gap between investment and production reflects the commercial and operational challenges facing domestic manufacturers.
“The causes for this divergence could include severe price pressure from competing countries, high costs of utilities and inputs, and the absence of full value-chain integration, among others,” officials familiar with the matter said.
Industry executives say domestic bulk-drug manufacturers remain particularly vulnerable to competition from Chinese suppliers, whose pricing can undermine the viability of newly commissioned Indian facilities.
“Chinese exporters sharply reduce prices when new Indian facilities begin commercial production, making it difficult for domestic producers to secure orders and operate their plants at viable utilisation levels,” a Delhi-based pharmaceutical executive said.
While the existing PLI scheme has helped attract investment and revive domestic production of strategic products such as Penicillin G, the proposed framework seeks to address the constraints through a combination of manufacturing incentives, technology development and infrastructure support.
A dedicated ₹500 crore allocation for R&D is proposed to support areas including fermentation, strain development, biocatalysis, enzyme engineering and continuous-flow chemistry, officials said.
The capital-support component would also cover continuous-flow equipment, retrofitting of existing facilities and adoption of strategic technologies.
What’s proposed
₹5,000 crore as production incentives
₹2,000 crore for R&D, infrastructure and capital subsidies; ₹500 crore exclusively for R&D 52 molecule sets as manufacturing platforms, covering over 300 intermediates and downstream APIs
Greenfield and brownfield plants, potentially including existing PLI facilities
Eight-year window; six years of production incentives
Two zero years, a flexibility to skip incentives during years of unexpectedly low production
