No fizz in this fiscal

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There is no doubt that Budget 2012-13 bears the stamp of today’s political and economic climate, and the Finance Minister Pranab Mukherjee has played it very well. Though the pharma industry was hoping for relief on quite a few fronts, very few have fallen in place. Some positives are the weighted deduction on skill development, five year extension on in house R&D tax deduction, lowered cost of HIV and cancer drugs. Usha Sharma notes feedback from industry veterans


‘Introduction of Advance Pricing Agreements is a welcome move’
– Rahul Patni, Associate Director Life Sciences, Ernst & Young

Contrary to the expectations of the industry, there is no major incentive or reform for the life science industry. For an industry already reeling under pricing controls and competition, general increase in service tax and excise duty from 10 per cent to 12 per cent likely to increase both input and output costs further.  Five year extension for 200 per cent weighted deduction for in-house research and development (R&D), increased deduction to 150 per cent of capital expenditure incurred for hospitals and deduction of ` 5,000 for preventive health check-up are positives for the industry, but with limited impact. List of drugs and medical devices eligible for lower import duty and excise duty exemption expanded to include additional life science drugs.
While a slew of amendments in transfer pricing and international tax side likely to impact companies across the board, including pharmaceutical companies, introduction of Advance Pricing Agreements (APAs) is a welcome move.


“It is ironic that on one side the government is trying to reins in prices of drugs and on the other increasing taxes and duties on drugs”
– Kewal Handa, Managing Director, Pfizer

The pharmaceutical industry does not have much to cheer about in this budget. The one percent increase in excise duty will result in a 1.5 percent increase in drug price. It is ironical that on one side the government is trying to reign in prices of drugs and on the other increasing taxes and duties on drugs.
In their efforts to address the fiscal deficit, the government has raised service tax rate from 10 per cent to 12 per cent. The standard excise duty hiked from 10 to 12 per cent thus adversely affecting the common man who is already burdened due to rising costs and inflation. In his speech the Finance Minister spoke about improving supply side management of the economy – faster implementation of GST will definitely benefit the industry.


“New weighted deduction on expenditure incurred on skill development is  welcome”
– Daara Patel, Secretary-General, Indian Drug Manufacturers’ Association (IDMA)

Union Budget has not been very exciting for the pharma Industry. We are afraid that it is going to be difficult for the companies to maintain the price line as excise duty on bulk drugs has gone up from 10 per cent to 12 per cent and for formulations, from five per cent to six per cent. Increase in service Tax from 10 per cent to 12 per cent is further going to affect the cost of medicines.
What is encouraging is the fact that 200 per cent weighted deduction for R&D expenditure has been extended for a period of another five years. The new weighted deduction of 150 per cent on expenditure incurred on skill development is also very welcome.

A few benefits that have been proposed are:

  • Proposal to extend concessional basic customs duty of five per cent with full exemption from excise duty/CVD to six specified life saving drugs/vaccines.
  • Basic customs duty and excise duty reduced on Iodine
  • Basic customs duty reduced on probiotics.
  • Minor benefits have been provided for the SME sector but that is across the sector not particular in pharma industry, such as :

“Budget 2012 as an halfhearted effort to promote R&D”
– Apurva Shah, Chairman, Association of Clinical Research Organization (ACRO) India

Budget 2012 as an halfhearted effort to promote R&D. We had expected the government to recognise that CROs account for an important component of R&D and therefore the R&D set off should be spread to cover the R&D done outside the pharma companies in CROs. By doing so it would speed up the R&D process and position India as a leader in pharma R&D. We also appreciate the fund set aside for training and hope that we can avail these funds to train the professionals to conduct ethical clinical research as per Good Clinical Practice (GCP).


“Our expectations have been belied in biotech research”
– K V Balasubramaniam, Managing Director, Indian Immunologicals

It has imposed additional costs on the vaccine industry. Excise duty has been increased from one per cent to two per cent ad valorem on finished vaccines without any set off benefits. Therefore, we will have to absorb the increase in excise duty and the ad valorem part of customs duty. This will impact the thin margins in the vaccine industry. We were expecting weighted deduction for outsourced research and clinical research expenditure, lower import duties on research and testing equipment, increased abatement of excise duty etc., which would make biotech research more cost effective and vaccines more affordable to patients. Our expectations have been belied.
With better outlays for public health programmes, promise of increasing immunisation coverage to 100 per cent, as also improved spending under the Rashtriya Kisan Vikas Yojana, we expect improved business for both human and animal vaccines. This is the good part. On the other hand, margins will be under pressure for the vaccine industry. We must look to reduced import duties for biotech research, manufacturing and test equipment; weighted deduction for outsourced research and clinical trials, higher excise duty abatement. This is in the interest of cost effective research in biotechnology and more affordable vaccines in our country.


“The contribution of pharma and biotech to India’s growth is not recognised at all”
Dr Krishna Ella, Chairman & Managing Director, Bharat Biotech 

I am glad that the Finance Minister mentioned that India is polio free. The contribution of pharma and biotech to India’s growth has grown many folds and this sector deserved much more attention and support in the budget in addition to the vaccine security announcement.
Weighed deduction (150 per cent) for skill development under SME might be useful for biotech industry but increased excise duty and service tax certainly takes away some of our growth path. Consumers may have to pay more. On the other hand, an increase of NRHM (National Rural Health Mission) funds to Rs 20,820 crore is good sign, but needs prioritisation of the areas in the health ministry. I hope the MOH (Ministry of Health) gives lot of priority to preventive health like vaccination under NRHM. The contribution of pharma and biotech to India’s growth is not recognised at all. We expect the government to provide good infrastructure and power, which is vital for manufacturing sectors like vaccine and biotech to grow. No clear strategy for manufacturing policy envisaged in the budget. Sad that import of bicycles got recognition, but not our sectors.


“We need decisive strides not hesitant steps in the direction of socio-economic progress”
Kiran Mazumdar Shaw, Chairman & Managing Director, Biocon

As always, the government has stopped well short of making fundamental corrections to our healthcare system to ensure that every Indian has access to affordable quality healthcare. The government could have extended a health insurance cover to BPL families and at least laid the foundation stone for a National Healthcare System. The Finance Minister also needed to set up a rural employment guarantee stipend linked to skill building.
Finance Minister hopes that General Sales Tax (GST) will be effective from August 2012 is welcome. However, it remains to be seen whether the plan can be implemented in the given time-frame. While it is understandable that FDI in retail is a very thorny issue, With this Budget, the government had another opportunity to assure investors, increase investment, revive the economy, and promote inclusive growth. However, it is sad that it failed to meet these objectives. We need decisive strides – not hesitant steps – in the direction of socio-economic progress. While we do have a sound economy we clearly need to kick-start growth momentum – or much of the progress we have made will be lost. For how long does the government expect India to sustain itself on empty rhetoric?


“Not given adequate attention”
Tapan Ray, Director General, Organisation of Pharmaceutical Producers of India

Overall, there is nothing significant in this budget for the healthcare sector, as such. However, we appreciate the announcements for the healthcare as well as for the pharma sector of the Finance Minister in his budget speech with reference to the following areas:

Infrastructure Building

  • Existing vaccine units to be modernised and new integrated vaccine unit to be set up in Chennai.

Improving access to medicines

  • Scope of ‘Accredited Social Health Activist’ – ‘ASHA’ is being enlarged. This will also enhance their remuneration.

Reduction in transaction costs

  • Cancer and HIV patients get a breather this budget with the Finance Minister announcing a cut in medicine prices for these deadly diseases.
  • Proposal to extend concessional basic customs duty of five per cent with full exemption from excise duty/CVD to six specified life saving drugs/vaccines. 

The drugs that have been added in the category of Life Saving Drugs are as follows:
(176) Raltegravir potassium
(177) Rotavirus Vaccine (Live Oral Pentavalent)
(178)  Pneumococcal Polysaccharide Vaccine
(179) Posaconazole Oral suspension
(180) Temsirolimus Concentrate for infusion for injection
(181) Natalizuma
In our view, the healthcare concerns of the country have not been given adequate importance in the Union Budget proposals for 2012-13 to help improving the healthcare needs of the nation.


“Advance Pricing Mechanism will encourage the industry and it will certainly help the industry”
Pawan Chaudhary, Chairman & Managing Director, Venus Remedies

The industry is pleased as impetus to R&D has been provided by extending the weighted deduction of 200 per cent by five years. R&D expenditure in India is still on lower side and for a sustainable growth India needs more and more R&D. Most of the pharma companies have their subsidiaries or arms overseas and are subject to international tax. The positive stance shown by the Finance Minister on Advance Pricing Mechanism is encouraging and it will certainly help the industry. Pharma sector is also facing a challenge in having talented manpower. Additional incentive announced on account of weighted deduction on skill development will go a long way in helping the sector.
However, increase in both the excise duty and service tax would result into the additional burden.


“Five year extension to the 200 per cent R&D tax deduction is a welcome move”
K Raghavendra Rao, Chairman & Managing Director, Orchid Chemicals & Pharmaceuticals

While the pharma industry would be disappointed as nothing substantial was announced for the sector, five year extension to the 200 per cent R&D tax deduction is a welcome move. Initiatives like liberalising of external commercial borrowing rules and the boost to investment in infrastructure sector are particularly laudable.”


 “Implications for the pharma industry in India.”
Sujay Shetty, Leader Pharma,  PwC India

“200 per cent weighted deduction for in- house R&D for another five years. will help India climb the Innovation curve Overall, in this year’s budget we saw a neutral share for the pharma sector. Though there has been some mild tinkering around the edges. 
On the positive side, GST network, the IT infrastructure, to be set up as National Information Utility and to be operationalised by August 2012. It is expected that GST implemention will bring supply chain efficiencies and hence reduction in prices of the medicines. We can also see positive support given to R&D by extending 200 per cent weighted deduction for in- house R&D for another five years. This will help India climb the Innovation curve.
Given that India has the largest pool of diabetic patients in the world, with more than 41 million people suffering from the disease; this is projected to reach 73.5 million in 2025. Reducing customs duty to 2.5 per cent, excise duty to six per cent and exempting SAD (special additional duty) on parts and components for the manufacture of blood pressure monitors, blood glucose monitoring systems (gluco-meters) and raw materials, used for manufacture of syringes, needles, cannuale, will help manage diabetes and reduce the treatment burden on India’s GDP.

u.sharma@expressindia.com

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