Budget 2005-06: A mixed bag

The budget this year has turned out to be mixed bag for the pharma industry. With a few quite satisfied, most of the industry voices have shown disappointment and quoted the budget to be just nice words

No major sops have been given to the industry

Daara B Patel
Secretary-General
Indian Drug Manufacturers Association

As regards the pharmaceutical industry no major sops have been given to the so called sunrise industry:

a) Reduction in peak rate of customs duty from 20 per cent to 15 per cent is welcome.

b) We will have to see the specific list of machinery for the pharma sector which now have only five per cent import tariff.

c) As regards 150 per cent weighted deduction of expenditure on in-house research and development facilities we have been asking for extending this benefit at least for a period of five years. The government has agreed for only two years extension.

d) We have been requesting the government to reduce the excise duty on pharmaceuticals to eight per cent from the current 16 per cent, we were hopeful this would be granted in the budget as it would have given the much needed support to the small scale industry (SSI) as well as an across the board reduction in prices of medicines.

e) We had requested the government to consider revision of the existing exemption limit of Rs one crore to SSI sector to at least Rs three crore, as with the implementation of MRP based Excise, the assessable value of goods cleared has increased resulting into quicker utilisation of the exemption limit. This has not been granted and instead the limit for concessional excise duty has been increased from Rs three crore to Rs four crore.

f) The idea of setting up an Advisory Committee for MRP abatement is good but we hope it does not add to the bureaucracy and delays.

This year’s budget is very ‘pro-bio’

Kiran Mazumdar-Shaw
CMD
Biocon Limited

The overall macroeconomic indicators continue to show improvement and the Union Budget 2005-06 has clearly reinforced the strong image that India will attain on the world economic stage.

There is an increased allocation of resources to address infrastructure, health, education and scientific research, which are going to be key drivers in building India as a global economic power.

In my opinion, this year’s budget is very ‘pro-bio’ and promises a favourable fiscal and regulatory policy environment and necessary incentives for the biotechnology sector.

Initiatives in terms of a 150 crore corpus to fund research in biotech and pharma sectors, the extension of 150 per cent weighted deduction for R&D expenditure, reduction of withholding tax, the lowering of customs duties on capital goods and correction of inverted duty structures shows the governments’ intent to support entrepreneurship, indigenous industries, provide low-cost base for research, manufacturing and encourage investments into the sector.

India also has the potential to become an attractive destination for outsourcing in drug discovery and clinical research and co-development of drugs and manufacturing.

Underlying this is a definitive objective of this year’s budget to provide a stable and pragmatic biotech policy with appropriate incentives in order to

augment innovation and product development. Other proposals with regard to corporate tax, custom duties and VAT will benefit the Indian corporate sector as a whole.

There are quite a few positives in this years’ budget

Satish Reddy
Managing Director and COO
Dr Reddy’s Laboratories

There are quite a few positives in this years budget. The reduction of the customs duty and income tax, although expected, is a welcome move. The seriousness of the government in the implementation of VAT and simplification of tax issues are big positives. The policy initiatives announced for the infrastructure and the agricultural sectors will have a positive spiralling effect on the economy as a whole.

From the pharmaceutical industry point of view, it is an average budget. There are no definite proposals for the pharmaceutical industry. There has been a mention of creating a policy framework to encourage R&D. But we will have to wait and see if this intent really translates into definite action.

The only specific benefit is the extension of weighted deduction on R&D by two years from 2005 to 2007. The industry was looking forward to a more long-term time-frame extension, which would have encouraged companies to commit investments on the R&D front. We will have to wait and see the fine print if this extension also now covers not only in-house but also outsourced R&D expenses incurred in India and overseas.

There is also a mention of increasing the R&D corpus fund but we will have to wait and see the fine print to understand specific issues such as the time-frame and the methodology for disbursement. It is time the government recognised the potential of this industry to create a global impact. The least we can expect is the recognition of the pharmaceutical industry as a unique industry. This would probably get the industry the attention it deserves.

The Rs 150-crore R&D corpus gives right signals of encouragement to researchers

Sudhir Kant
President
Millipore India

As a leading bioscience company, Millipore’s business demand and growth outlook is derived from the health of the pharmaceutical, biotech, research and life sciences sectors.

This budget has several positive initiatives to drive growth in the sectors referred to. The reduction in customs duty on capital goods and specified R&D equipment will help these companies reduce capital goods and R&D costs at a time both are increasing due to the demands of the new product patents regime.

The setting up of the Rs 150-crore R&D corpus also gives the right signals of encouragement to researchers and the scientific community. The National Rural Health Programme shows honourable intent and subject to proper execution should encourage the healthcare industry.

It goes without saying that the reduction in corporate tax is always welcome. The reduction in depreciation rates however in not inline with the life of the asset and hence unwarranted. All in all – it’s a good budget.

It is a wonderful budget

Dr K M Ishwar Nambiar
Managing Director
Alopa Herbal Health Care
Bangalore

It is a wonderful budget. The emphasis has been given to four major areas: infrastructure, health, education and scientific research. Ayurvedic industry was expecting a deduction in excise duty. Deduction in excise duty could have encouraged to popularise age old ayurveda globally. In the manufacturing sector, only textile and sugar industry have receives a boost.

Savings will receive a boost with introduction of a deduction of up to one lakh. Personal income tax slabs of one lakh and 1.25 lakh for women in a good relief for middle-income group.

Continuance of R&D allowance for two more years is welcome

Dr D B Gupta
Chairman
Lupin Limited

General

Overall this is an excellent budget for all sector of the economy. The focus on agriculture, irrigation and rural health are welcome as these would have a long-term impact on the weaker sections of the society.

After a long time the government is finally heeding to the pleas from Mumbai in terms of boosting the city’s infrastructure. The announcement that three of the city’s mega-infrastructural projects Western Island Freeway, Trans-harbour link and Mumbai Metro Rail project are likely to receive funding from the Mega-City Mission is good news for the city. Hopefully, the central government will continue to pour funds into the city now that the Finance Minister has announced his intention to make Mumbai a regional financial hub.

Direct Taxes

Two of the announcements on the corporate tax front are welcome. The reduction in the tax rate on corporate income tax is a step in the right

direction. By allowing companies to offset the minimum alternate tax against the normal incidence in the next year, the finance minister has corrected an anomaly.

While the FM’s proposals on treatment of depreciation are seemingly tax neutral reducing the depreciation rate to 15% from 25% for the first year would mean that companies in the growth phase, which are investing in augmenting their capacities may have to pay higher tax in the first year.

Pharma sector

For the pharma sector the most heartening news is continuance of the R&D allowance for two more years. At a time when the Indian pharma sector is investing heavily in R&D, this incentive is precisely the kind of boost that is needed.

The announcement of a stable policy regime in the medium term for pharma and biotech sector will allow companies to plan for the future.

VAT implementation will mean uniform prices all over India

J P N Singh
Director
Galpha Laboratories Ltd

The reduction of peak custom duty on capital goods will reduce the cost of project of our new project at Baddi, Himachal Pradesh.

Finance Minister has formulated on dedicated corpus fund for Research & Development. Further, he has announced policy measures to encourage drug dispensary & clinical research outsourcing which may map out our expansion plans at Baddi, Himachal Pradesh.

There is no change in the excise rate. The finance minister has announced that an expert committee shall be formed to determine the increase in the rate of Abetment. Any increase in abetment rate will improve bottom line of our company.

The reduction in corporate tax may reduce the tax liability of Galpha Laboratories Ltd making available additional resources.

Implementation of VAT from April 1, 2004 will mean uniform prices all over India on pharmaceutical products.

The budget allocation for healthcare is quite inadequate

Swaminathan Jayaraman
MD
Vascular Concepts (I) Pvt Ltd

While the budget may have addressed the needs of the Indian industry broadly, I am disappointed by the lack of sufficient attention paid to the healthcare industry. In particular, the budget allocation for healthcare is quite inadequate.

The fringe benefits taxation is also going to have a detrimental effect on the medical devices industry. All in all, I feel the budget does not adequately address the issues of our industry.

Disappointing budget

N H Israni
CMD
Blue Cross Labs Ltd

From pharma industry viewpoint, the budget is very disappointing. Whilst customs duty is reduced on imported bulk and finished drugs which will help MNCs, there is no reduction in central excise of 16 per cent on local drugs which should have come down to eight per cent in line with UPA agenda to improve consumer accessibility and safeguard local industry.

The serious problems created by government recently for SSI and contract manufacturing units through MRP-based C E system threatening mass closures and exodus to tax-free zones have also not been addressed nor anything special is done to activate wider R&D or export efforts.

It is time that government should look into these matters seriously and take positive actions quickly before it is too late.

The date line should be extended longer as R&D is not a two-year story

Ajay Vij
COO
Dabur Pharma

The Union Budget 2005-06 is overall positive and is in the right direction. However, with regard to the pharmaceuticals sector the FM could have proposed better benefit schemes. In the new IPR regime, the traditional dependence on generics for growth would no longer remain a viable option. We need to go for R&D led growth which is where we expected more Sops.

The weighted deduction should have been increased to 200 per cent and rather than setting the date line at 2007 it should be extended longer.

Because, new drug discovery research is not a two-year story but it takes 8-10 years and substantial investment at each stage. Pharma is an area that needs more support and a stable policy regime. Also, it is disappointing that the much sought for excise duty reduction from 16 per cent to eight per cent has not figured in budget either.

The budget doesn’t offer much, but nice words

Rajiv Gulati
CMD
Eli Lilly

The budget despite mentioning that the objective is to encourage R&D doesn’t offer much, but nice words. How will India become R&D hub if the government doesn’t facilitate for a conducive environment for research?

Another disappointment is with regard to excise duty where the FM has not given in to the demand of the industry to bring down the duty by half.

Consumer durable attracts only eight per cent excise duty. Why pharma has to pay 16 per cent, this is ridiculous. One good proposal is VAT though there are many implementation ambiguities.

There is no mechanism to recover tax paid on inventory as on April 1, 2005 and many others could pop up once the regime takes off.

We expected much more in the R&D area

Dr Brian W Tempest
CEO & Managing Director
Ranbaxy Laboratories Ltd

The budget as a whole is positive for the country and will benefit the society. Special fiscal incentives for the pharma industry, particularly for R&D, would have been in line with the government’s intention of making it a global force to reckon with.

Investment and gestation horizons for researching new medicines are long, typically 15 years or more, and research is expensive. We expected much more in this area from the budget.

Ratings on:

Effectiveness: 7.5 on a scale of 10
Economy: 7.5 on a scale of 10
Pharma: 5 on a scale of 10
Individual: 7 on a scale of 10
Overall: 6.75

We expected some far-reaching measures

Dr Subhash C Mandal
Fellow, Indian Pharmaceutical Association
Hony Secy. IPA-Bengal Branch
Secy. - All India Drugs Control Officers’ Confederation

The pharma industry is very disappointed with this year’s budget. We expected some far-reaching measures from the Finance Minister to strengthen our efforts to make Indian pharma industry globally competitive. But there was nothing specific in the budget for the Indian pharma industry.

As the new patents regime came into effect this year only we expected some incentives for the small and medium sized pharma companies to make them competent enough to face the challenges of the new era, but there was nothing in this regard.

A positive way to encourage the manufacturing sector

Puranjit Mukherjee
Chairman
West Bengal Pharmaceutical & Phytochemical Development Corporation Limited
(A Govt. of West Bengal Undertaking)
Kolkata

The overall union budget is in a positive way to encourage the manufacturing sector, specially the policy support to pharma and biotech sector.

The reduction of customs duty to 5 per cent for import of nine specified machines will definitely boost this sector to achieve the international standard of quality but the long demanded issue for reduction of excise duty in this sector is not done with for which the medicine prices may go up when excise to be charged at MRP based.

The imposition of VAT has made matters worse for the pharma industry

Sudip Kumar Ghosh
Managing Director
Life Pharmaceuticals (P) Ltd
Kolkata

To our dismay, there is absolutely nothing in this year’s budget about the Indian pharma industry. Though it is a good budget which should fuel the growth of the industries but there is no mention about the pharma industry in this FM’s second budget.

Beside, the imposition of VAT (Value Added Tax) has made matters worse for the pharma industry. Now, it is a state of chaos as nobody has a clear idea about VAT, its implications and computation.