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More power to GST


20161215ep04The ongoing winter session of Parliament is crucial as there are many big ticket bills awaiting a nod. The most crucial ones are the draft laws related to the Goods and Services Tax (GST) – Model GST, Integrated (IGST) and GST (Compensation to the States for loss of Revenue) . The GST Council, headed by Finance Minister Arun Jaitley, has been trying to achieve a consensus between the states and centre on various contentious issues. The Council hopes to iron out all the creases so that these draft laws can be introduced in Parliament and passed in this session. Though significant ground has been covered, it hasn’t been a smooth road. For instance, the latest meeting of the GST Council scheduled for November 25 has been postponed to December, as the states asked for more time to revert with suggestions on the changes in the model GST law and compensation formula. Both these are politically sensitive issues so the rescheduling is understandable but with the winter session due to close on December 16, the timeline looks challenging.

The passage of these GST related laws in the winter session is crucial also because the Modi government has decided to prepone the Union Budget by a month to February 1. This is to ensure that it can be passed by end March, in time for the new financial year. Thus, it is no wonder that the government has propose to introduce all three GST-related Bills as money bills which need to be voted on only in the Lok Sabha. If this happens, the government is reasonably assured of a safe passage, as it has a clear majority. In fact, Parliament started a week earlier to ensure enough time to discuss GST but so far, protests from opposition parties to the demonetisation issue have hogged the limelight.

As our cover story in the Express Pharma December 1-15, 2016 issue points out, pharmaceutical  companies, as their peers in other sectors, see GST as a simpler tax regime. No doubt the devil lies in the details, but by and large, there is hope that these will be sorted out later as the implementation rolls out. GST is one policy which could potentially unite SMEs as well as larger players as almost all sections see benefits. Hopefully the benefits of a more rational tax regime will percolate down to the consumers and patients will gradually see reduced medical costs.

Mega policy changes like GST are required because the pharma sector, as others, need to squeeze out efficiency where ever they can as global markets are set to become even more competitive. According to Mergermarket’s sector trend report for Q1-Q3 2016, the Pharma, Medical & Biotech (PMB) sector took another dive in Q3 2016, to end at $ 56.9 billion, over 316 deals. This represented a loss of 31.4 per cent of its deal value and 12.2 per cent of its deal count compared to Q2 2016 ($ 82.9 billion, 360 deals). Though this was the second consecutive decrease in value since Q4 2015, the report stresses that despite the quarter-on-quarter downward trend, year-to-date activity in the PMB sector remained relatively robust and amounted to 1,033 deals worth $ 228.7 billion in Q1-Q3 2016. Deal activity was the third-highest by both deal value and deal count in Mergermarket history (to 2001), with only the previous two years topping these results. M&A in the sector might thus take a slightly different shape in the future, with companies opting for fewer mega-deals in favour of ‘smaller’ transactions, says the report.

Another report, this time from GBI Research, titled Strategic Trends in Private Equity and Venture Capital Funding for Healthcare, points out that the healthcare sector has seen a decline in venture investments, particularly for early-stage investments, as pricing pressures, stringent regulations, rising development costs, reimbursement issues, and declining R&D productivity have proved significant barriers. Again, this could be a temporary blip, as the number of new molecular entities launched globally in 2014 reached a 17-year high of 46.

GBI Research report ends on a note of hope, highlighting how some nimble players, like healthcare startups, particularly those in the biotech segment, are tapping angel investors, typically individual high-net-worth investors that provide financing through loans or equity investments.

Can the government take on the role of an angel investor in the pharma and healthcare sector? Policies like GST would make India a better investment destination but tax exemptions on life saving medicines and medical devices, for instance, would directly benefit the consumer. Is the Prime Minister listening?

Viveka Roychowdhury

[email protected]

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