The hype around the Union Budget 2017-18, especially after Prime Minister Modi’s December 31 address was high but the general consensus is that it has failed to address most of the issues facing the pharma sector. Once again.
The Budget would have been a good time to announce certain fiscal incentives. For instance, weighted deduction on R&D would encourage innovation, while there could be an incentive scheme for patents. Exemptions of certain duties and taxes, encouraging API production, were other among other measures, on the pre budget wish list of pharma companies.
There is no doubt that Finance Minister Arun Jaitley has a juggling act to do, with too much to do and too little (time of resources) to dole out. It is now hoped that dole outs to other related segments like healthcare, agriculture, MSEs, etc will help the sector in indirect ways. In fact, some industry leaders and associations are heaving a sigh of relief that no more taxes have been added to the pharma sector.
In some cases, the FM has been very vague. For instance, his restating of the government’s intent to amend the Drugs and Cosmetics Act to ensure availability of drugs at reasonable prices could give the pharma companies some sleepless nights, if the Act is amended to mandate the use of generics instead of brand names.
Similarly, the scrapping of the Foreign Investments Promotion Board (FIPB), as part of the government’s ease of doing business initiative, might prove to be one less hassle for foreign investors looking to invest in the sector. So even though other strictures continue, we might see more foreign investments into the pharma sector.
Tax rates for MSMEs were reduced and this is expected to spread some cheer among pharma MSMEs. The increased fund allocation for vocational training could see more emphasis on and uptake of skill building courses in the pharma sector which will result in a better trained workforce.
The biotech sector was completely bypassed in this budget, even though this is the next big opportunity as almost 10 blockbuster biologics are due for patent expiry by 2020. It is left hoping that the extra push on vaccinations will boost the earnings of vaccine manufacturers.
The healthcare segment has been luckier, with budget estimates for health getting a boost of more than 27 per cent, from Rs 37061.55 crores in 2016-17, to Rs 47352.51 crores for 2017-18, focussing on public health measures. Two new AIIMS were announced, as well as 5000 new post graduate medical seats per annum. The FM also announced plans to eliminate infectious diseases like kala azar, filariasis and tuberculosis and convert 1.5 lakh health subcentres into health and wellness centres. In a bid to improve the health of pregnant women and their children, the FM announced aid of Rs 6000/- if the delivery was institutional and if the child was immmunised. Senior citizens will now have separate health cards. But given the mammoth gaps, even this is being seen as too little.
Another mention in the FM’s budget speech on February 1 was the intention to come out with a separate set of rules for medical devices, focused on reducing cost of such devices. The draft Medical Devices Rules 2016 was notified in October last year and there have been consultations with difference segments of the medical devices sector.
The FM’s budget announcement was followed within two days with the notification of the Medical Devices Rules 2017 as of January 31 this year and to come into force from January 1 next year, giving the industry ample time to study them and engage in a dialogue with the government for changes. The reaction from the medical devices industry was mixed, with some sections claiming that the Rules were more stringent than global rules, even while claiming to be framed in conformity with Global Harmonisation Task Force (GHTF) framework.
But the mere fact that the notification came a couple of days after the FM’s announcement is a clear signal that he means business and will action every Budget Day promise (or threat). If this is so, the reverberations of the FM’s Budget speech could continue through the year.
For instance, if the Drugs and Cosmetics Act is amended to mandate generic names of medicines on prescriptions in a bid to break the monopoly of some brands, this could be a major inflexion point for the sector. Pharma companies will have to change their marketing tactics as the purchase decision shifts from doctors to chemists and pharmacists. We will just have to wait and watch.