Budget blues: Pharma sector biggest loser

We have the intelligence, the spirit as well as the manpower. All that we require is a strong government support, says Harinder S Sikka

The Indian pharma industry began feeling the budget blues when on 8th of January 2005, the Finance Ministry dropped a bombshell through sudden and untimely introduction of MRP-based excise duty. Saddled with over Rs 1,000 crore of packaging material, the shocked industry struggled to recover, pinning all its hopes on the forthcoming budget.

The finance bill 2005, however, left more disappointments than cheer, for the pharma industry would now have to research its own drug right from start to finish without any long-term support from the government. The challenge becomes stiffer given the fact that the industry is grossly under-prepared to meet the complex and prohibitively expensive R&D demands.

The industry’s expectations from the budget were not unrealistic. Pharma and healthcare provide vital motorway to the destination 2020. It was, therefore, reasonable for the industry to seek strong initiative from the government in the R&D sector. It was almost taken for granted that forex earnings invested in the R&D and clinical trials conducted both within and overseas would receive tax exemptions.

Similarly, weighted deduction on R&D expenditure was expected to be made open ended. Over and above, the industry was also sure that the Chemicals Ministry’s recommendations of lowering excise duty to eight per cent as well as increasing abatement on excise would be favourably resolved.

The finance bill 2005 has left the industry in a state of shock. Worse, the ghost of fringe benefits tax would hit the pharma sector like a tsunami wave, given large strength of medical representatives employed by all companies.

Indeed, the Indian economy is moving up and booming. In wake of this, however, it is not only changing life styles and higher growth but also leaving behind new set of diseases. Diabetes, for example, is a bomb waiting to explode. Rapidly rising cases of cardiovascular diseases, bronchitis, asthma, cancer etc are threatening to grow out of proportion. Adding to woes is the fact that we are no longer in a position to reverse engineer cheaper versions of the patented drugs.

Development of a new drug costs over Rs 5,000 crore overseas. India’s need to place a strong, robust and well sustainable R&D structure cannot be over emphasised. The budget was expected to provide a long-term vision, direction and initiative to this sunrise sector so that not only the people of our own country, but also the global community of which we are a part and parcel, could be well served.

Countries like USA, Germany, Japan and France co-invest in R&D in the private sector. Canada goes a step further and offers huge financial assistance as well as administrative support to companies engaged in research. It is an established fact that only one out of over a hundred molecules pass through phase III trials. Therefore, if survival of R&D even in developed nations is state dependent, India ought to take steps to offer incentives for drug research.

There is no dearth of money in our country. Both FDI and FII inflows are increasing by the day and country’s forex reserves are in a healthy state. It is but the attitude problem that we need to overcome. In comparison to 83,000 crore spent on defence, our healthcare spend is at a mere pittance at Rs 10,000 crore. This despite the fact that India is known for its intellectual strength and is regarded as the generic capital of the world.

Thousands of crores are wasted in sick PSUs year after year. Over four thousand crore are lost to spurious drugs. It is a great irony yet that the government finds it difficult to overcome the mental blocks and step out in healing our own citizens. We are fortunate thus far to have avoided a major calamity. It takes only one healthcare disaster to bankrupt even a most developed nation. We have the intelligence, the spirit as well as the manpower. All that we require is a strong government support.

By overlooking the stark realities, we have indeed lost a great opportunity. The industry would now be left with no choice but to cut corners through in-house expansions.

Consequently, a large number of small companies operating under loan licensing are likely to face closure in the coming years. Loss of jobs and retardation of growth in the small-scale sector should have been the last thing on the government’s mind.

It was an opportunity that has been lost due to oversight and hurry. If not corrected post-haste, we are likely to repent in leisure.

The writer is senior vice-president, Nicholas Piramal India