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Budget 2020: What does the industry want?

Last year in July, Finance Minister Nirmala Sitharaman presented the first Budget of Modi Government 2.0. Since the pharmaceutical industry did not get much attention from the government last year, they have strongly voiced their concerns and expectations about the upcoming financial budget, especially amidst rising concerns about the economy

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We expect the government to give strong support particularly to the API sector
BR Sikri, Chairman, Federation of Pharma Entrepreneurs (FOPE)

The pharmaceutical industry had a lot of hope during the last budget but the government disappointed the life sciences sector. Since the Finance Minister was new to this portfolio, there was hardly any time for the government to prepare an exhaustive budget.

BR Sikri, Chairman, Federation of Pharma Entrepreneurs (FOPE)

We took it in a sportsman spirit and accepted whatever they gave. This year the industry is hoping for strong support from the government as in the recent past, the industry has suffered many setbacks due to frequent regulatory interventions and huge investment by MSME category of units.

Our expectation from the government in the coming years is to have strong support, particularly in the API sector. In the last five years, the government has talked about APIs, but nothing much constructive happened, although many forums and meetings were held at ministry and NITI Aayog level.

Dependability on China is becoming a big threat to the nation’s security and it is high time for the government to focus on to reduce 50 per cent dependability on China. Formulators who use API of domestic source with 100 per cent locally manufactured intermediates, should be exempted from price control.

Similarly, R&D and process development activities both in the finished dosage form and API needs special incentive and we recommend the government to make it a 200 per cent incentive from existing 150 per cent.

The government expects more quality products from MSME and wants this sector to compete with international standards. If that is the case, the government has to come forward with massive financial help to the small scale sector without any burden to pay a higher rate of interest. Such help should be free of interest and that too with sufficient time of moratorium.

Academia is capable enough to produce new technologies and industry is keen to accept such new technologies. But, the government has to take a serious lead in arranging tie-ups between industry and academia. This will reduce dependability on China over a period of few years to come. The government has to take up this matter on priority and seriously.
There is a gap between SLA and CLA understanding the Rules and Act. This needs deliberation between State Governments, Central Government and the Industry. Existing infrastructure within the pharma industry needs further improvement as old industrial townships have outlived their life and need further upgradation. BA/BE is another additional burden on the industry particularly on MSME as each product need to undergo this test. MSME does not have sufficient funds to invest in this head. Moreover, different CROs are charging different rates for such studies and it is a big financial burden.

Government of India has to come forward with streamlining the system and give financial support to small scale without any rate of interest burden, that too the rate of study should be reasonable and affordable.

Changing lifestyle with a spurt in population has led to a rise in geriatric population in India, rising healthcare spending by individuals etc. Government of India, a couple of years back, announced a new health policy, which led to the introduction of Jan Aushadhi Scheme, free distribution of medicines through wellness centres.

There is a huge potential for the pharma sector in days to come. With the government’s initiative, not only can the industry support the government in providing affordable and efficacious medicines it will also help to mark its presence in the global markets. The present growth projection for the pharma sector is from 10 to 12 per cent which can certainly be more than 15 per cent.There is a saying “Relationship always work when trust is bigger than doubt”. Therefore, the government has to work on trust with the industry to bring in phenomenal change, constructive and positive result in the overall interest of the nation.

Policy and financial initiatives are long over due
Harish Jain, Secretary, Karnataka Drugs & Pharmaceuticals Manufacturer’s Association

Pharmaceutical industry is the major contributor to the India’s economy. In hard times, pharma stands out with double digit growth. Pharma sector would like to be major contributor in terms of employment, knowledge, turnover and spreading soft power of India across the globe. However, there is a huge potential to accelerate growth and with right therapeutic dose of support from the Government, achieving more than 12 per cent year on year growth is distinct possibility. Area of focus should be end to end indigenous manufacture of APIs and speciality excipients, R&D specially innovative dosage forms (rather than NCEs), API process development, biologics and biosimilars, upgradation of MSMEs, ease of doing business.

Harish Jain, Secretary, Karnataka Drugs & Pharmaceuticals Manufacturer’s Association

Self sufficiency in API and speciality excipients remains a dream on paper. One cannot have a robust global formulation industry dependent largely on imported inputs. It is also a strategic risk in terms of health of more than 1300 million Indians. There has to be end to end (Not n-1 or n-2) indigenous manufacturing. Policy and financial initiatives are long over due. Industry is in crying need of rationalisation in environmental norms and compliance procedures for API Industry without compromising on effluent standards. There is a Bulk Drug Cluster scheme of Department of Pharmaceuticals with grants upto Rs 100 Crore for each cluster. However, this scheme can be availed only by State Implementing Agency (SIA). India requires a minimum of 15-20 clusters immediately. In addition to SIA, the scheme should be extended to SPVs floated by reputed industry associations and maximum extent budget allocation is expected. To encourage R&D including process development, clinical, BA/BE studies etc there is a long standing demand of the Industry to restore 200 per cent weighted deductions.

Also, currently API attracts GST of 18 per cent whereas, formulation attract sGST of 12 per cent which means there is inverted duty structure. This needs to be corrected by reducing API GST to 12 per cent to avoid accumulation of GST credit and clogging of precious working capital.

Upgradation of MSME to WHO-GMP norms by way of interest subvention on capital goods investment as well as investment on upgrading quality assurance systems is long overdue. Target should be to upgrade at least 1000 MSMEs within the next three years with interest subvention assistance of at least Rs 3 crores per MSME. Budgetary allocation needs to be done without any further
delay.

Industry-academic partnership is long overdue. All the public sector institutions like NIPER should have industry academic department headed by senior professor to facilitate partnership and create opportunity for industry, students and institutes. This has been global practice and all major research projects are incubated and commercialised by this partnership.

We recommend restoration of200 per cent depreciation for R&D expenses
S V Veerramani, Immediate Past President, IDMA, Chairman & Managing Director, Fourrts (India) Laboratories

We strongly recommend for restoration of 200 per cent depreciation for R&D expenses. At present, it has been reduced to 150 per cent and the pharma industry requires to roll back to 200 per cent considering the need for increased investments in R&D. We feel that if the government gives proper financial support to SMEs from technology upgradation fund for Pharma SMEs, then the pharma SMEs in India can graduate to the next level and can become exporters. Special package for bulk drug sector is required to reduce dependence on Chinese imports.

S V Veerramani, Immediate Past President, IDMA, Chairman & Managing Director, Fourrts (India) Laboratories

We also need stable pricing policy and simplification of drug regulations.

Increased outlay for registration of product dossiers in export markets as well as reimbursement of expenses on bio equivalence studies and clinical trials for Exports. We are also looking grants for Industry-Academia tie up for technology development.
Particularly for income tax we request the government to remove conditions for availing the revised income tax rate of 22 per cent to avoid double taxation on dividend payment by companies as well as individual shareholders.

As an industry, we feel the need for a separate Ministry for Pharmaceuticals considering the enormous growth potential both in domestic and international markets.

We would like an enhancement of weighted tax deduction from 150 to 200 per cent for R&D
Dr Dinesh Dua, Chairman, Pharmexcil

It’s for the first time post independence that a political party think tank has reached out to the industry to create a White Paper on revving up the sagging economy for GOI to create a Union Budget which addresses these issues. Dr Vinod Paul Member, NITI AYOG who robustly participated in deliberations and wholeheartedly supported the industry.

Dr Dinesh Dua, Chairman,Pharmexcil

On behalf of the Indian pharmaceutical industry and all stakeholders we have presented a detailed note on inverted duty structure which is achilles heel for the pharma industry currently valued at US $40 bio equally divide in US $20 billion each for Exports and domestic currently growing at 11 per cent YoY.

1. Enhancement of weighted tax deduction from 150 to 200 per cent and extension for another five years for the development research and development in the pharmaceutical industry enabling innovation. To also include lab work, process research, pre-clinical, clinical & CRO

2. To give strong support and level playing field to Indian API industry to be more self-dependence than China. Cluster development budget allocation to the maximum extent possible.

3. The contribution from large scale pharma companies is significant for our exports and most of the ANDA and DMFS are filed by the large scale companies. Any proposal for downsizing the product registration reimbursement under MAI for large companies would impact the export growth in the long run and will also discourage product registrations abroad.

4. It is a fact that 55 per cent of our exports are to highly regulated markets and the condition under the MAI scheme restricting the financial assistance for the delegate participation in RBSMs from developed markets would hamper exports in the long run, which may please be relaxed.

5. Establishment/Development of the common Effluent treatment plants(CETP) at pharma clusters or alternatively providing grant for individual companies for establishing the ETPs would improve the efficiency of the pharma industry functioning.

6. Clarification may please be provided on the inclusion of the current benefit for the manufacturers under excise for operating from the excise free manufacturing zones. The pharmaceutical industry is also asking for more information on the implementation of GST on the MRP of pharmaceutical products

7. To incentivise value added exports to semi and high regulated markets, three years of moratorium for all pharma manufacturing units from taxes / allowing DTA sales from SEZ units / regulatory compliance licenses except safety issues / interest / repayment of loans.

8. Alternatively grant should be given to MSME units who get approval by PICS/ EU/US/MCA approvals for plants. Which should be at least a Rs 1 Cr per plant and it should be only a one time grant to company. Grant may not be allowed if any other plant of company is already approved as on date.

9. After starting up, units need to qualify machines and validate there process and then wait for six months stability.

10. Then wait for international inspections and certifications. In all if we see any new manufacturing unit targeting overseas supply does not operate above break even before two to three years.

11. FastTrack procedure in CDSCO with FastTrack fee as this will help products to be commercialised at faster pace than today which will result in increase in pharma production in country both for domestic as well as exports.

12. Virtual vendor platform on information highway for B2B pharma Business.

13. Financial support to Indian R&D based companies for BA BE and clinical studies to get their products registered in Europe and US. As there are of products in India having much better technology with easy Availability but units in MSME are unable to complete registration requirements due to funds.

14. Fund for skill development program for all functions in pharma sector for Quality Management Systems, warehouse, distribution, management of supply chain, manufacturing, QC , QA, Marketing & Regulatory Compliances.

15. Biggest issue as far as budgeting is Inverted Duty structure in Pharma wherein there is mismatch of GST on APIs (18 percent) and finished formulations (12 percent) .Industry working capital gets severely stuck with the govt as GST refund almost takes a year to get back money.

16. Situation is further aggravated by some rule which doesn’t allow refund on GST /to ITC on services received. This leads to huge accumulation of ITC without any recourse for refund.

17. Revision in definition of Small and Medium Scale industries. This was proposed to be revised based on GST turnover in 2015. But that proposal never got passed in parliament and has lapsed. Old definition on basis of investment in plant and machinery still continues which is too low.

18. ITC on capital goods purchased – under inverted duty structure, there is no recourse to utilise or seek refund of ITC on capital goods purchased. For new projects or units undergoing modernization and/or expansion, amount of ITC on capital goods can be substantial which gets locked / accumulated.

19. Ease up in issue of Pollution Consents for new units or units undergoing expansion for Pharmaceutical Formulations as well as bulk Drug units.

20. The Government needs to work on a radical policy implementation by converting NPPA into EMMA (Essential Medicines Monitoring Authority) that focuses on quality, availability, affordability and accessibility of essential medicines.

21. DPCO 2013 brought a select list of 530 essential drugs in the NLEM under price control that accounted for 14 per cent in sales value and 24 per centin sales volume of the Indian pharmaceutical market. Five years later, NLEM has increased the list by 64 per cent to include 870 drugs. What is most startling is that despite this increase, there is no significant change in either the sales value or volumes as a percentage of the market. In fact, the sales value and volume percentages remain at 15 per cent and 25 per cent respectively which reflects very poorly on our health regulators. This begs the question that has the sales volume of many of the drugs brought under price control fallen over time lending serious doubts on its availability to the patients.

22. No price control on Non NLEM products since market forces a very potent factor in keeping prices down. As per AIOCD, the pharma industry has seen a price increase of only 3.5 per cent over the last three years. In FY18, approximately 90 per cent of the non-NLEM drugs witnessed a price hike of less than 5 per cent as against the 10 per cent allowable under DPCO 2013. Patients could benefit from the government’s vision of minimum government, maximum governance if implemented in the pharma industry. Instead of trying to control the prices of all drugs, the government should regulate the prices of only the essential or scheduled drugs being sold.

23. Too much price control has negative impact for the very patients they are trying to help as availability of price controlled products is diminished.

24. Companies promote next generation molecules, whose rampant use leads to creating immunity across population and also increases cost of medication as more expensive medicines are promoted and prescribed.

25. MSME- to encourage by way of financial help so that they can upgrade to WHO approval standards

26. Industry academia tie up for technology development.

27. Reduction in multiplicity of regulatory interventions.

28. Environmental problems & complications of API industry to be resolved on priority.

29. Improvement in existing infrastructure

30. Reforms in Patent Law.

31. To expedite final notification on E pharmacy.

32. Innovation & biologics funds as well as infrastructure to be created to maintain India’s leadership in Lifesciences.

CBDT could constitute a panel with adequate representation from the Departments of Revenue, Pharmaceuticals and Trade
Daara B Patel, Secretary General, IDMA

The Central Board of Direct Taxes (CBDT) may consider to constitute a panel with adequate representation from the Departments of Revenue, Pharmaceuticals and Trade to define which expenses would be considered as ‘ethical’/ ‘unethical’ (eg, samples, conferences, etc) and guidelines for implementation.

Daara B Patel, Secretary General, IDMA

Notwithstanding the above, the provisions of the Circular should be prospective in nature and not effective from the date of the Regulations (i.e. December 10, 2009). Further, the Circular should be linked to violations of Uniform Code of Pharmaceutical Marketing Practices for Indian Pharmaceutical Industry (UCPMP) as and when it becomes mandatory. Till such time Circular should be kept in abeyance. The UCPMP is a voluntary code of marketing practices for pharmaceutical companies in India and it was introduced in March 2012 by the Department of Pharmaceuticals (DoP). Further, DoP is now in process to re-draft the UCPMP code and is engaged in discussions with the stakeholders from the pharma and medical device industry for their comments.

A weighted deduction of 200 per cent of the amount spent on specified activities like investment in in rural/ semi-urban healthcare infrastructure. Even donations to institutions carrying out building of such an infrastructure should be qualified for weighted deduction. With special focus of the Government on scheme like Aayushman Bharat, such provisions will give big boost to the pharma players to contribute to success of the scheme.

Currently, active pharmaceutical ingredients (‘APIs’) (raw material used to make bulk drugs) are majorly imported from China. India imports around 80 per cent – 90 per cent of its raw material from China. Thus, India runs the risk of a severe shortage of medicines because of it’s over dependence on China for sourcing raw material for drugs. From a tax point of view, investment based tax incentives can be declared to boost API manufacturing in India. Special zones may be notified for manufacture and export of APIs. Special package schemes, similar to Modified Special Incentive Package Scheme (‘M-SIPS’) or Electronics Manufacturing Cluster Scheme could also be considered for this purpose with ongoing trade war between USA and China, there is a big opportunity for India.

Under the section 35(2AB) of the ITA provides for weighted deduction of 150 per cent on the expenditure incurred on scientific research on in-house R&D facility approved by the prescribed authority – DSIR. Further, DSIR has issued guidelines dated May 2014 which provides for approval of the R&D facility subject to fulfilment of certain conditions. It is suggested that the existing provisions should be specifically clarified to allow weighted deduction in respect of expenditure incurred outside the R&D facility which are sometimes necessitated by the industry’s business needs. Additionally, it could also be provided that where the risk of doing research is assumed by a company, the entire cost of R&D activities (whether outsourced or undertaken in-house) is eligible for weighted deduction in the hands of company undertaking the risk. Our recommendation is that DSIR guidelines should not deal with the allowability or dis-allowability of any expenditure incurred on in-house R&D facility. There are sufficient provisions within the Act which provides powers to the Assessing Officer (AO) to examine the same. Further in case of doubt about the usage of asset for or activity constituting scientific research, the AO can always refer the question to CBDT under Section 35(3) of the Act, which in turn will refer the question to DSIR. Based on these feedback the AO should decide the quantum of R&D expenditure entitled to weighted deduction under Section 35(2AB) of the Act. In other words, DSIR should not decide the quantum of R&D expenditure entitled to weighted deduction under Section 35(2AB) of the Act. The AO should decide the quantum of R&D expenditure entitled to weighted deduction under Section 35(2AB) of the Act. Accordingly, the provisions of Section 35(2AB), Rule 6 (including relevant forms) and DSIR guidelines should be amended.

With a view to achieve a growth rate of eight per cent and put India on the growth trajectory and to ensure having a robust R&D database, it is suggested that the weighted deduction under Section 35(2AB) of the Act should be extended for a further period of 10 years. This would enable the country to be on par with the developed nations which have robust R&D centres fuelling growth in the economy.

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