Pharmaceutical Industry is one of the major manufacturing industries in Pakistan providing employment to thousands of people directly and indirectly. The industry, however, is facing many challenges, which are hindering its growth. The major challenge faced by the industry is the complete freezing of price of pharmaceutical products since 2001. The prices of pharmaceutical products are determined by Ministry of Health and the Ministry has not increased the prices since 2001. With medicine prices still at the 2001 while the fuel, electricity, labour wages, and raw materials' prices sky-rocketing at a rate which makes all percentages meaningless, pharmaceutical companies have to weather large cuts in their profit margins, to the extent that they many are finding it hard to keep up with their expenses. Pakistan is the only country in the entire Asian region that has not given its pharma and biotech industry tax-breaks and R & D incentives. Government's requirement that drug production lines should be separate is raising cost and reducing the ability of local manufacturers to compete not only in the global market but even at home. Most of the raw material is imported from different countries of the world. If rupee depreciates against the dollar, it raises the cost of raw material which adversely affects profitability of the local manufacturers. Presently, 411 local pharmaceutical manufacturers are in the market, while 30 multinational companies are producing medicines in Pakistan. The industry's turnover is $ 1.9 billion approximately, with exports contributing only $ 85 million. The pharmaceutical industry is trying to increase its exports to $ 600 million till the end of 2010, a target that can be made realistic and attainable only if the Government solves the problems being faced by pharmaceutical industry. Pakistan's pharmaceutical industry is considered to be one of the cheapest pharmaceutical industries in the world which is producing medicines at the cheapest rate, maintaining the quality and packaging according to the world standard. If Ministry of Health allows the manufacturers to set the prices of medicines according to the situation in the market, it will be a great incentive for the industry. The Ministry can still regulate the prices of limited drug molecules, as the Government of India is doing. Government of India is setting the prices of only 74 drug molecules which are mentioned by WHO as essential medicines. The probability of establishing a cartel by the manufacturers is very small considering the sheer number of players working in the industry. In the past, Govt has given incentives like tax-breaks, R & D and tax rebate to textile and IT sectors. Provided with these incentives, these sectors have performed reasonably well. If such incentives are offered for the pharmaceutical industry, the exports of pharmaceutical products can be increased exponentially. Government should suspend its requirement of separating the drug production lines, at least for a limited time period, because it will be very difficult for smaller companies to meet this requirement. Government should also provide loans to the local companies to establish separate drug production lines. Since this can be the only way for the smaller companies to meet this requirement. Very few pharmaceutical raw materials are produced locally and so most of them are imported from different countries of the world. Government can attract investors for investment in this sector by announcing incentives for them. In this way, the raw material will be available to the manufacturers at a cheaper rate. After observing the economic crisis in the country the world and the country, it is quite difficult for the Government to announce monetary incentives for the pharmaceutical industry. However, the Govt. can at least provide relaxation in those areas, which are in the jurisdiction of the Ministry of Health like the change in the prices of pharmaceutical products and temporarily suspension of the separation of the drug production lines. The Govt. actions can be fruitful only when the pharmaceutical industry as a whole gives a positive response. There have been concerns about the incentives that the Government has provided to different manufacturing and services sectors in the past. Some experts are of the view that those incentives and benefits have not been utilised as per requirement. So, the pharmaceutical sector itself must show a corporate responsible behaviour in receiving and responding to the incentives. " The writer is a student of SZABIST and currently doing MBA.