Nothing to cheer about: pharma industry

Updated: Mar 1 2006, 05:30am hrs
THE pharmaceutical industry feels it has been completely ignored in the Union Budget, since the finance minister failed to address some of its key recommendations. The industry had been seeking an extension of the weighted average deduction of 150% on in-house R&D by another five years. It also wanted to expand the scope of the weighted average deduction to include clinical trials and patent filing.

The industry had proposed lower duties on R&D consumables, equipment and duty-free import of enabling technologies to promote collaborative R&D, and was looking forward to a reduction in excise duty on formulations from the present 16% to 8%. These have not been touched upon.

"The Budget is a disappointment for the Indian pharmaceutical industry," said Habil Khorakiwalla, chairman, Wockhardt. "There is absolute silence on most of our proposals. In fact, the ministry of chemicals itself had recommended increasing the weighted average deduction to 200%, apart from the extension. The status quo regarding excise duties will mean high prices for drugs for the common man," he added.

The silver lining is that the healthcare spend has been increased to 22%. However, the Budget has accounted for the industry demand of reducing the customs duty on import of life-saving drugs. Customs duty on 10 anti-AIDS and 14 anti-cancer drugs has been reduced to 5%, and on certain life-saving drugs, kits and equipment from 15% to 5%. These drugs have also been exempted from excise duty and countervailing duties (CVD). The industry sees this as a boon for patients, although the benefits would go largely to MNCs who import these drugs into the country.

The finance minister, however, has heeded to the industry's demand to exclude expenses on free samples of medicines and on medical equipment distributed to doctors from the ambit of fringe benefit tax (FBT). This is expected to bring down FBT expenses by one-third for pharma companies.

"To establish India as a laboratory of the world, fiscal policies need to support the high investment needs and the long gestational timelines of this segment," says Kiran Mazumdar Shaw, CMD, Biocon. The oversights in the Budget can be rectified through fiscal and taxation policies that encourage the industry to invest exponentially in R&D, she adds.

The industry had suggested to create an efficient pharmaceutical education infrastructure by setting up 10 institutes on the lines of the National Institute of Pharmaceutical Education and Research (NIPER). While the Budget touched upon fund allocations to major universities and an autonomous status for the Rajiv Gandhi Centre for Biotechnology in Thiruvanathapuram, there is no mention of the pharma sector, says DG Shah, secretary general, Indian Pharmaceutical Alliance. Moreover, the industry had demanded zero customs duty on imported naphtha used in the basic chemical industry. "While the Budget has allowed zero customs duty on naphtha imported for the plastics industry, the pharma industry has been ignored. "It seems as if the government does not consider the pharmaceutical industry as a major economic contributor. If research is not encouraged, there will be a flight of R&D projects from India to overseas," Mr Shah cautions.