The pharmaceutical industry of the country has overwhelmingly responded to the Union Budget 2003-04 presented in the Parliament today as the government has given the due impetus to the sector. The industry captains while commenting on the new Budget emphasized that the government has moved on the right direction to boost the growth in this knowledge based industry sectors like pharmaceuticals, healthcare and biotechnology.
However, there are little disappointments for the industry on the inadequate incentives announced in the Budget especially for the research based companies. Industry leaders' response to Union Budget 2003-04:
Rajiv Gulati
Chairman & Managing Director
Eli Lilly and Co (India) Pvt Ltd
Budget announcements are really encouraging for the pharmaceutical industry. The decision to exempt all drugs and materials imported or produced domestically for clinical trials from customs and excise duties will be a major boost to the industry as well as the clinical research organizations in the country. The decision to include some more drugs to the existing list of life saving drugs and to extend the customs duty concession to them is also a positive step.
As an individual, I feel that government has given the right beginning to promote the health care sector. The exemption from CVD and excise duty for life saving equipment should help the healthcare industry. The move to promote health insurance scheme among the poor should also be appreciated.
Dr Krishna Ella
Chairman & Managing Director
Bharat Biotech International Ltd, Hyderabad
For the first time the pharmaceutical, biotech and healthcare sectors had been given the importance they deserve. The pharma and biotech sectors had been put on par with the IT sector. The budget also gives a tremendous boost to R&D which is very significant.
On life-saving drugs customs duty had been waived. This would affect the domestic manufacturers of life-saving drugs. Customs duty on capital goods for IT had been reduced to 5 per cent from 25 per cent. Customs duty relief had also been given to life-saving equipment. There are several domestic manufacturers of life-saving equipment who will be affected.
The fledgling biotech industry depends on import for most of its equipment. There is no custom duty relief for import of biotech equipment. Actually, this sector needs custom duty relief for import of equipment when compared to the pharma and IT sectors. In general, pharma, R&D and life-saving drugs are given a boost in the budget. That is good news for the future.
I A Modi
Chairman, Cadila Pharmaceuticals
At the outset, the Union Budget 2003-2004 is a development oriented Budget. The abolition of export obligation of Rs. 20 crore for Biotechnology and R&D Companies is a step in the right direction. This package should have been extended to the R&D of pharmaceutical industry in general.
Abolition of customs and excise duty for material used in clinical trials will definitely help Research and Development in India and will boost the export potential of Indian Pharmaceutical Industry.
Reference Standards are very vital for pharmaceutical industry and the reduction of customs duty on Reference Standards is very encouraging.
Reduction of customs duty on Veterinary drugs from 15 to 10% is welcome. However, it may adversely affect the interest of domestic manufacturers, since the corresponding reduction has not taken place in Central Excise duty.
Introduction of uniform VAT in all states is a welcome step. However, considering the necessity of medicines for all sections of the society, the tax on medicines should not exceed 4 per cent.
Introduction of National Health Insurance Scheme @ Rs. 1 per day, giving a coverage up to Rs. 30,000 per annum will take care of the weaker sections and help the domestic Pharmaceutical Industry also.
Abolition of dividend tax for the shareholders is a welcome step aimed at the revival of Capital Market.
Ajay Piramal
Chairman, Nicholas Piramal India Ltd
A growth-oriented Budget with a strong fiscal and consumer stimulus package. What is significant is the fact that the government has largely adhered to spirit of the Kelkar Committee Report and has indicated a clear change in the direction of Indirect Taxes. The Tax Administration reforms that have been proposed are also very good. The debt swap scheme, the stress on reducing the debt burden of states should greatly benefit the economy in the medium to long term. The move towards VAT is the right step and a strong way forward towards tax reform.
For the pharma sector specifically, the equating of pharma and biotech with IT for tax concessions is a very positive sign. The benefits offered to Clinical Research Organizations are very welcome and will go a long way towards making India a hub for pharma research in the years to come. The benefits granted to life saving drugs and medical equipment, especially glucometers and strips are to be commended. The benefits for the health industry are also considerable and will benefit both consumers and the Indian pharma industry.
Habil Khorakiwala
CMD, Wockhardt Limited
Union Finance Minister Jaswant Singh had his heart in his right place when forming the budget. For the first time in a decade, he has addressed the fundamental issues of health, education and housing in a substantive manner. Healthcare sector comprising pharmaceuticals, biotechnology and hospitals has been given the industry status for the first time. Enhanced rate of depreciation will not only bring fresh investment but will also benefit modernization of hospitals. The benefit under section 10(23) G will provide access to long-term investment requirement for hospitals and biotechnology. For the first time, he has put pharmaceutical and biotechnology sectors on par with IT. This is a clear recognition of pharmaceutical and biotechnology sectors not only as a knowledge industry but one with great export potential. He has removed some of the anomalies on import of some R&D equipment and consumables for clinical trials. However, this has been selective on notified items.
One would have wished that the Finance Minister would have extended these exemptions across the board on R&D inputs because in any research project, it is difficult to predetermine the specific inputs. Another disappointment is that royalty and income generated out of R&D in both the domestic and the international markets has not been given adequate consideration. The Rs. 3 lakh limit prescribed for this may be adequate for an individual but is too insignificant for an organisation. The penetration of medical insurance is currently at an abysmal 15 per cent of the India's population. The unique feature of this budget is the introduction of a new edical insurance scheme at a nominal premium, which will provide healthcare coverage for the lower strata of society.
Kewal Handa
Finance Director, Pfizer
If the benefits are to the par with the IT industry, it's a major and most significant advantage that the pharma industry could ever dream of. However, the point of concern to me is if the government is going to implement VAT with a Revenue Neutral Rate of 12.5 per cent, the consumers might have to bear an additional tax burden of 5 per cent. Besides, the government has not announced about setting up of a transition arrangement from now to April, when VAT will be implemented. Otherwise, there is a big possibility of the traders meeting with confusion and chaos in the intermediate period. Also, the finance minister did not mention of setting up a body to monitor VAT.
D.B. Gupta
CMD, Lupin Labs
Scrapping of dividend tax sounds good for high dividend paying companies. Abolition of long-term capital gains tax, though with effect from March 1, 2003, is a step in the right direction, but the market was expecting full exemption. The reduction of surcharge on corporate tax, while a welcome step, seems a bit half-hearted as the corporate sector was expecting an abolition of the surcharge.
Reduction of peak customs duty from 30 per cent to 25 per cent would make imported inputs cheaper. Research driven pharma companies would gain from exemption of customs duty and excise duty on materials used in clinical trials. While the details of VAT are not known, it is likely to lead to increased drug prices. For pharma companies the most important positive benefits would be as an indirect result of all the concessions being offered to the healthcare industry as well as the new medical insurance scheme for masses announced by the Finance Minister.
Satish Reddy
MD and COO, Dr. Reddy's Laboratories
A move towards VAT, though not exclusively an exercise of the budget, is a major milestone and encouragement to the organised sector.
We are happy that the pharmaceutical industry has come on the Union government's radar screen. The Finance Minister has equated pharma and biotech with IT as the growth drivers of the knowledge economy. This is a clear indication that biotech and pharma have been identified as the industries to drive the future growth of the Indian economy. Although no significant initiatives have been announced for the pharmaceutical industry, we believe that the long-term direction has been set.
The proposals for the healthcare industry, be it through hospital beds, health insurance or the recognition of individual creative work by way of exempting royalty income from tax, will have a cascading positive effect on the pharmaceutical industry. More positively, there are indications that interest rates will remain soft.
Ranjit Shahani
CEO, Novartis
The finance minister would have taken the word 'pharma' at least 12 times in the budget, which makes it clear that the government is pretty serious on the sector. A number of rationalizations in the duties are a welcome initiative. The exemption of customs duty on the equipments related to clinical trials is positive. However, the excise duty still remains 38 per cent, which could have been reduced to 14 per cent. On the macro economic front, the budget is growth oriented.
The event that has to be watched for will be the Gulf situation. If the situation turns turmoil and affects the petrol and petrochemical imports, then the Indian industry will be affected as 60 per cent of our total petrochemical requirement is based on imports. In that case, the government would seriously have to make some changes in its budgetary policy. So the next 2-3 months will give us the real picture.
Ranbaxy Labs
It is a no change budget for pharma as there is not much incentive/benefits for R&D oriented pharmaceutical companies. R&D is an infrastructure for pharma companies and the industry sop not extended to such pharma companies.
Pankaj R Patel
Chairman and Managing Director, Zydus Cadila
A reform-oriented budget, which is timely and much awaited. Healthcare has been accorded a high priority status in this budget. This will provide an impetus to research and development initiatives and will have a positive impact on the pharma sectors prospects and valuations. The most positive ring of this budget of 2003-2004 was to hear pharma and biotech being placed at par with the IT industry. It was timely and much awaited. For long the industry has been asking to treat it at par with the Information technology industry both with respect to IPR and the inputs used for R&D. Some of these expectations have been met such as waiving of export obligation for R&D and exempting drugs and materials used for clinical trials from custom and excise duties.
Considering the fact that under the existing regime material imported for the purpose of clinical trials attracts 30 per cent basic custom duty and 60 per cent CVD. This comes as a big relief for pharma companies investing heavily in R&D. Reinstatement of zero customs and excise duties for imported life saving drugs and inclusion of more drugs on the life saving drugs category will enhance the competitiveness of domestic players. The depreciation of import duty to 40 per cent from 25% on medical equipments will also be highly beneficial. The fiscal benefits on incentives on foreign investments under Sec (10) 23 G which, has been extended for private hospitals, will boost private medical investment. Also the budget has focussed on a general health insurance, which will help a larger section of the population to health facilities.
J.B. Mody,
CMD, J.B. Chemicals & Pharmaceuticals Limited (JBCPL)
The Budget for 2003-2004 is growth oriented for the Pharma Industry. The Pharma Industry, which is growing at around 8 per cent, will see much faster growth due to the General Health Insurance Scheme, Hospital Schemes and certain encouragement given to Exports. The Domestic Pharma Industry will grow more than 15 per cent in the coming year. The General Health Insurance Scheme will help substantially to look after the healthcare of the people, whereby the quality of life of our Indian people will improve considerably.
It is also heartening that 10A and 10B for Pharma and IT Industry which are both knowledge-based industries, will continue, due to which, Pharma Exports will grow substantially in the coming year.
It is encouraging that Dividend Tax at the Shareholders will be removed. Due to the removal of dividend tax and Long Term Capital Gain Tax, all the Capital Markets will improve considerably and private savings will be diverted to the Capital Market. These are all positive factors.
Raghavendra Rao
Managing Director, Orchid Pharma
This is a well conceived, balanced and growth oriented budget with strong focus on infrastructure, which is vital for progress and development of the economy. There has been a good mixture of development and pragmatism that has been employed in this budget. The overall emphasis on the healthcare / pharmaceuticals sector augurs well for the Indian pharma industry. Measures like tax holiday for R&D, placing of pharma industry at par with the IT industry for Income Tax exemption and withdrawal of export obligation of Rs 20 crore per annum for availing customs duty exemption will benefit the pharma sector well. Also exemption of drugs and materials used in clinical trials from duty and reduction of duty on import of reference standards from 25% to 5% will further boost basic research. The steps to exempt life saving drugs from excise duty and expanding the list for customs duty exemption are also commendable. Moreover, the abolition of dividend tax at the hands of the investor and long-term capital gains tax are also welcome steps for the overall investment climate.
Kiran Mazumdar-Shaw
CMD, Biocon India Group
It is a good and balanced budget. It is expected to boost the investor confidence and the stock markets have escalated. There has been a particularly strong reference to biotechnology by the Finance Minister which is extremely heart warming. He has referred to the biotech sector as a sunrise industry and has addressed quite a number of issues that focus on the fiscal needs of the sector. He has endorse that the biotechnology sector it is both capital and R&D intensive demanding long gestation period. Now it is for the biotech sector to prove its worth, as the concessions in the Budget, which provides adequate fiscal support, would definitely provide a fillip to the segment.
On the tax holiday for R&D sector, the budget had given due support to the recommendations of the CII National Task Force on Biotechnology, the government has turned around to provide a helping hand with a proactive and pragmatic policy to incentivise the sector.
The duty reduction on life saving drugs was also a step in the right direction and many biotech drugs came under this segment.
Satish Mehta
Managing Director, Emcure Pharmaceuticals
This indeed has been a path-breaking budget. It is extremely growth oriented and it is a matter of satisfaction that the Pharmaceuticals and Biotechnology have been treated at par with IT industry. The innovative insurance schemes for the people below poverty line should eventually help in improving the sales of the pharmaceutical industry and help in providing cost effective health care for the poor. The removal of custom duty for import of R&D equipment &machinery for Biotechnology will go a long way and give the required fillip to the Biotechnology Industry. Government has also recognized the importance of R&D in Pharma sector. Removal of Custom Duty for samples for Clinical Trials is a step in the right direction as Clinical Trials offer a great potential for India and emphasis on infrastructure and healthcare will pay rich dividends in times to come. Reduction in transaction cost and time by simplifying the Custom Clearance process. The overall strategic thinking of the Finance Minister is laudable.
Satish Tandon
Managing Director, Alfa Laval
More industry and people friendly Budget. I am happy with the budget as the government has not increased any taxes and has reduced custom duties.
Though the benefits bestowed upon the pharma sector, It is yet to see that any kind of financial benefits that the pharma industry would have even after the equivalent status given to the pharma sector at par with the IT. It is only the recognition that the pharma sector has gained at par with the IT but it is doubtful if it will give any financial gains to the sector in future.
Mohan Bhandari
Managing Director, Bilcare
Finally the government has fulfilled the wishes by giving pharma sector an equivalent status at par with the IT industry. The equivalent status would indeed give the needed impetus to the pharma sector. Now we would go high with our mission in research for the global pharma companies. Government has recognized the competency of this knowledge base pharma sector that not only has the potential to raise foreign currency and but also has a great job potential.
S P Maitra
President - sales & marketing
Alkem Laboratories Ltd, Mumbai
In medicines (sector) customs duty has been removed from cyclosporin and number of drugs is going to be extended in the category of 5% customs duty. This will help to increase import of Life Saving Drugs.
Health Insurance is going to be focused by bringing 50 lakh more below-poverty line families under health insurance.
Tax redemption on Pharmaceutical & Biotechnology is going to be par with information technology. This will certainly help in boosting up the pharmaceutical business in the coming year.
Dr Pratap Reddy
Chairman, Apollo Hospitals
It's a bold and decisive move to bring health as a priority in the Budget. It's an excellent move to meet the healthcare needs of millions of poor. This budget will make India the global destination as far as healthcare is concerned. The fear of VAT and service tax were also negative indicators but however, the budget has had concern for the healthcare industry. We've been waiting for three years now for something like this.
Dr Padmanabhan Babu
Managing Director, Bangalore Genei Pvt Ltd
The budget would give an added boost to the biotech sector as the tax benefits offered to information technology were provided now also applicable to the biotechnology sector. The point on the firms getting tax holiday for R&D is mainly beneficial of pure research firms and not for contract research organisations.
Scientists at the Indian Institute of Science feel encouraged about the budget, particularly over the fact the tax holiday for research and development activities will provide the much-needed boost to the sector.
Prof. G Padmanabhan
Scientist, Emeritus and former director, Indian Institute of Science
The tax holiday for R&D will help the pharma and biotech companies to be able to invest as the impeding WTO regime is forcing many medium scale companies to focus on research activities. " This announcement will help promote the R&D among in the Industry.
Dr Shama Bhat
Chairman, Bhat Bio-Tech India [P] Ltd
Although the budget provided the much-needed cheer to the biotechnology sector, still it could have provided a reduction in the customs duty for raw materials used in the production of diagnostic equipment. For instance, the HIV kits, if manufactured and purchased in India, the companies have to pay customs duty of over 60 per cent, which was affecting the diagnostic production companies in the country. On the other hand, if the finished kits were imported, the duty was exempted.
Vishal Bali
National Manager, Wockhardt Hospital & Heart Institute
The lowering of life saving equipment has been a welcome relief for the health care sector, which is now the next growth avenue for the country. Although the budget indicates a five percent reduction of import duty, it is not quite clear at this stage by how much the cost of equipment will come down. The announcement on the increased depreciation value of equipment by 40 per cent will help healthcare providers to update equipment at a faster pace.
V Sankaran
Vice President - Finance, Bal Pharma
The customs duty on chemicals and the tax holiday for R&D will aid the research programmes by pharma companies who are gearing up for the 2005 regime. The five percent reduction in drug intermediaries is a considerable incentive for drug manufacturers.
R. Venkatraman,
Resident Manager, Anshul Agencies
The five percent deduction on customs for chemicals would aid the pharmaceutical sector substantially.