New Delhi: Over a year before the financial crime investigating agency Enforcement Directorate (ED) knocked on Delhi Chief Minister Arvind Kejriwal’s door to arrest him, pharmaceutical company Aurobindo Pharma’s promoter and director, P Sarath Chandra Reddy, was arrested in November 2022.
This was in the same highly publicised and politically charged Delhi liquor excise policy case, for which Kejriwal currently is in judicial custody. Subsequently, Reddy turned an approver, implicating Kejriwal in the case.
Using the recently disclosed electoral bonds data, the newsrooms running the Project Electoral Bond initiative revealed that Reddy’s company gave the ruling Bharatiya Janata Party (BJP) Rs 5 crore in electoral bond donations just five days after his arrest, which Kejriwal and Aam Aadmi Party alleges was his ‘fee’ to get out on bail.
In total, Aurobindo Pharma, which has operations in over 155 countries, bought electoral bonds worth Rs 52 crore. Of that, it gave Rs 34.5 crore to the BJP. After Reddy’s arrest, the company’s entire donation, which constituted over 57% of its total donation, went to the BJP.
But the money trail doesn’t stop there.
The Reporters’ Collective has now found that Aurobindo Pharma gave its largest chunk of electoral bond donations to the BJP – Rs 25 crore out of Rs 34.5 crore (72.4%) – in November 2023, two days after it was selected by the Union government to receive large subsidies - public money from the government to run their business.
Aurobindo Pharma is ranked among the top 10 generic pharma companies in the world. On November 6, 2023, the Department of Pharmaceuticals approved the company under a Production Linked Incentive (PLI) scheme to domestically produce Penicillin G, an active pharmaceutical ingredient (API) essential in common antibiotics. Under the PLI scheme the government provides financial subsidies to selected companies to manufacture specific goods. The government calls it an incentive.
With this listing, the company stands to make crores of rupees from the Union government for manufacturing the product within India after a hiatus of three decades.
Two days later, on November 8, 2023, it gave 25 bonds of Rs 1 crore each to the BJP.
Aurobindo Pharma wasn’t alone in this. At least 18 companies approved for the centre’s financial incentive to manufacture pharma drugs and drug intermediates together donated at least Rs 521.9 crore to parties in electoral bonds. Aurobindo Pharma appeared in two such lists of companies approved for government incentives. The Caravan first reported about donor pharma companies winning government incentives.
On March 31, 2024, the company announced that it had commissioned a Penicillin G manufacturing facility in the Kakinada district of Andhra Pradesh. This facility will manufacture 15,000 metric tons of Penicillin G annually.
Pharma donors win government incentives
Aurobindo Pharma purchased a total of Rs 52 crore in electoral bonds between April 2021 and November 2023.
Before November 2022, the Hyderabad-based company contributed Rs 15 crore to Bharat Rashtra Samithi (BRS), formerly known as Telangana Rashtra Samithi, Rs 2.5 crore to Telugu Desam Party (TDP) and Rs 4.5 crore to BJP.
In November 2022, Sarath Reddy was accused of being part of the ‘South Group’, comprising influential politicians and businessmen from India’s south. Allegedly they offered kickbacks worth Rs 100 crore to Kejriwal’s Aam Aadmi Party (AAP) leaders for a favourable liquor policy in Delhi, that has been said to have drained the state’s exchequer.
Just five days after Reddy’s arrest, his company transferred Rs 5 crore to the ruling BJP, sparking suspicions of collusion between the company and the party in power.
In May 2023, while Reddy remained incarcerated, Aurobindo Pharma secured a position in the coveted list of companies slated to receive a potential Rs 1,000 crore incentive over five years from the Union government. This incentive is part of the Production Linked Incentive (PLI) Scheme for pharmaceuticals, overseen by the Department of Pharmaceuticals. The scheme encourages drug manufacturers to domestically produce high-value pharmaceuticals such as complex generic drugs and patented drugs. The encouragement comes in the form of additional money from the government to top up its revenues.
However, companies must meet minimum investment requirements, and achieve a specified minimum growth in sales for specific categories of drugs or drug intermediates to qualify for this incentive.
Twelve companies from this list collectively donated Rs 426.4 crore through electoral bonds, with nearly 64%, amounting to Rs 271.95 crore, going to the BJP.
The list has big names in the pharma industry including Sun Pharmaceutical Industries Limited, Dr. Reddy’s Laboratories Limited, Lupin Limited and Cipla Limited.
In June 2023, following his company reaching this milestone, Sarath Reddy turned into a crucial witness in the ED case, subsequently getting a pardon. He further gave a statement implicating the Delhi CM, aiding ED in pinning Kejriwal as the mastermind in the case.
In November 2023, the company clinched another milestone, successfully securing a second PLI scheme to manufacture Penicillin G. According to the Department, this PLI scheme is “for promotion of domestic manufacturing of critical Key Starting Materials (KSMs)/ Drug Intermediates and Active Pharmaceutical Ingredients (APIs) in India”.
A crucial raw material in common antibiotics, domestic manufacturing of Penicillin G ceased in India in the late 1980s due to cheaper imports spurred by globalisation in the 1990s.
Incidentally, two days later, the company made the largest electoral bonds purchase in one go. It bought Rs 25 crore worth of electoral bonds in the tranche. The entire amount went to the BJP.
Six companies on the list donated Rs 95.5 crore through bonds, of which BRS got Rs 87.5 crore. These companies were Hindys Lab, Hetero Drugs, Dasami Lab, Hazelo Lab, Honour Lab (all part of the Hetero Group) and Granules India. The rest went to Congress and TDP.
Previous reports by Project Electoral Bond highlighted that Hetero group companies donated Rs 120 crore of their Rs 140 crore bond donations to BRS. BJP got Rs 15 crore and Congress got Rs 5 crore from the group. The group’s founder Bandi Parthasaradhi Reddy is a BRS MP.
Financial incentive schemes for pharma firms
The Union government maintains that the PLI schemes were “envisioned by Prime Minister Narendra Modi” to make India “atma nirbhar” or self-reliant. It said in June 2023 that PLI schemes in 14 sectors were initiated with “an incentive outlay of Rs. 1.97 lakh crore (spread over five years) to strengthen their production capabilities and help create global champions.”
The government also highlighted that these schemes led to a surge in Foreign Direct Investments (FDI) in India, especially in the medical appliances sector which saw a staggering increase of 91% in FDI inflows between FY 2021-22 and FY 2022-23.
Currently, the Department of Pharmaceuticals runs three different PLI schemes. These schemes have different financial outlays and eligibility criteria for manufacturers. In addition, different conditions need to be fulfilled for approved applicants to be given financial incentives.
As per the June 2021 operational guidelines for the PLI scheme for Pharmaceuticals, companies were categorised based on their Global Manufacturing Revenue, with varying incentive outlays ranging from Rs 1,750 crore to Rs 11,000 crore per group over five years. To qualify for incentives, manufacturers must meet minimum investment and sales growth targets each year.
Under the PLI scheme for Domestic Manufacturing of critical Key Starting Materials, Drug Intermediates and Active Pharmaceutical Ingredients, which includes Penicillin G production, incentives range from 20% of the net sales in FY 2023-24 to FY 2026-27, sliding down to 5% for FY 2028-29.
Aurobindo Pharma’s Penicillin G production falls in this category. Its subsidiary, Lyfius Pharma, is set to produce an estimated 15,000 metric tonnes annually at the newly commissioned plant in Andhra Pradesh’s Kakinada district.
