Encouraging exercise

After all that the industry went through in the last few months on matters of pricing, excise or VAT proposals, the industry expected the budget to set right some of the anomalies. But the industry remains unhappy, probably because the expectations were high and some of their proposals were not considered. It is but natural for the industry to feel that the Finance minister has not extended sufficient benefits to promote growth in the industry. However, the industry has not been ignored and has received some attention. While there may not be anything positive, there aren’t any negatives either. The pharmaceutical industry in India is still not so large as to attract the attention of the FM for any industry-defining policy changes. There is only an indirect benefit to the industry, in that, the increased allocation to healthcare expenditure could help manufacturing companies producing life-saving drugs for the national health programmes. Of course, it will be the bigger and better equipped companies who will benefit and is not across the board. Post-2005, research in all its forms has become the favourite of the industry, including the small scale.

Survival and growth of the Indian units is dependant on this activity and the government acknowledges it. When it comes to encouraging R&D, the industry definitely needs a push if India has to become an R&D hub and some sort of medium to long term incentives have to be worked out, of course jointly, with industry taking a pro-active interest in it. But beyond that, it is the industry that has to take the lead and fill-in for creating an enabling environment and research culture in the country.

To some extent, the Finance Minister’s proposal to extend the weighted average deduction of 150 per cent on R&D expenses for pharma, biotech and chemical companies by another two years to March 31, 2007, is welcome as it will benefit major spenders. It is another matter that some section expected a higher deduction or for a longer tenure. It is also true that with the adoption of the IPR, an R&D-led growth for the industry needs investments in time and money. One can be sure that this issue could be addressed in 2007 provided the industry puts in some concrete efforts in this direction. The pharma R&D corpus fund of Rs 150 crore has somehow been less operational with just small disbursals, that too from the interest component of the fund. This is set to change with the government’s intention to enhance disbursals including the corpus amount in phases from next year. With the untimely MRP-based excise duties and consequent large inventories by the companies, the expected duty cut from 16 per cent to 8 per cent did not materialise. On the other hand, measures like lower customs duty on capital goods and rationalising of duty structure is indicative of support to indigenous industry and entrepreneurship in pharma and biotech sector. There is also a reduction in custom duty on imported bulk and finished drugs which will undoubtedly help importing companies, and this could lead to pressures on indigenous companies on the finished goods front. Overall, the budget initiatives attempt to provide low-cost base for research, manufacturing and encourage investments into the sector.