The Union Budget 2010-11, which has got wide acclaim from the India Inc, has left the Indian pharmaceutical industry with a sigh of relief by proposing weighted deduction of in-house R&D expenditure from 150 per cent to 200 per cent. However the corporates also marked their disappointment in lack of new proposals and more incentives directly supporting the industry.
Commenting on the budget, Dr Reddy's managing director and COO Satish Reddy said, “Under the prevailing conditions, the budget has been a balanced one with focus on inclusive development”.
From the pharmaceutical sector perspective, which is an innovation driven industry, increase in weighted deduction from 150 per cent to 200 per cent on expenditure incurred on in-house R&D is a positive and encouraging move. The Government’s commitment to ensure continued growth of Special Economic Zones augurs well for industrial development. While we await the fine print on specifics and implementation proposal, the aim to implement GST and DTC by April 2011 is a welcome move, Dr Reddy said.
Reacting to the budget proposals, Biocon chairman and managing director, Kiran Mazumdar-Shaw said that Finance Minister Pranab Mukherjee has delivered a safe and steady budget. He has not made any of the radical pronouncements by way of growth-linked fiscal measures which are necessary for the economy to script a double-digit growth story – essential to ensure that every Indian participates in progress. Clearly a detailed action plan is required if the aspirations of ordinary Indians are to be realized.
Sectors that ensure inclusive growth and require an attitudinal change on the part of the government – such as education, rural development, agriculture and national healthcare – have only seen a marginal increase. While it is encouraging that the government proposes to extend the health insurance scheme for all BPL NREGA families, this must be extended to all Indians through a public-private partnership, Shaw said.
Astellas Pharma managing director Teruo Yasufuku said, “We welcome the Government’s move to provide Rs 66,100 crore for Rural Development”. Healthcare allocation at Rs 22,300 crore with a marginal increase over the 2008-09 Budget, is almost the same as the 22,641 crore expenditure in the July 2009 Interim Budget. This is unsatisfactory, he said.
Weighted deduction on in-house R&D being raised from 150 to 200 per cent and the same hiked to 175 per cent on payments to national laboratories, research associations, colleges, universities and other institutions for scientific research are beneficial. MAT up from 15 to 18 per cent will hurt book profits of some companies and is a disincentive, Yasufuku said.
It is a welcome move from Finance Minister to raise weighted deduction on in–house R&D expenditure from 150 per cent to 200 per cent and weighted deduction on payment made to national laboratories research association, colleges, and other institutions for scientific research is increased to 175 per cent from 125 per cent, said Sanjay Nagrath, chief financial officer of Intas Biopharmaceuticals.
The Union budget 2011 is not a game changing budget but is an incremental and conservative budget to keep the economy on track, said D Sucheth Rao, CEO, Neuland Labs. For the pharma industry it is a positive sign that the weighted deduction for in house R&D which has been increased from 150 per cent to 200 per cent that will be effective upto March 31, 2012. The increase in MAT comes as a disappointment and will have a negative impact on business. This increase will hit pharma companies negatively. It will also hurt infrastructure companies in power and road sectors. The decrease in surcharge would be eaten by increase in the MAT rate, Rao said.
The Federation of Indian Chamber of Commerce and Industry (FICCI) has expressed its satisfaction that its recommendation towards harmonization of duty structure anomalies in the medical devices & equipment sector saw acceptance in the Union Budget 2010-11.
The budget for this year has brought positive changes for the Indian medical devices and equipments sector. One of the critical issues, which the Indian medical devices and equipment industry is facing today, is inverted duty structure, where the import duty on a finished medical device or equipment is less than the duty imposed on its raw material and components. This is seen as an impediment by local manufacturers towards indigenous manufacturing of these products, FICCI said.
The Association of Biotechnology Led Enterprises (ABLE) said it is pleased to note that the weighted deduction of 150 per cent on all in-house R&D has been raised to 200 per cent for all manufacturing houses in the budget speech of the finance Minister. However, as highlighted in our pre-budget submission, a significant part of the R&D costs incurred by biotech companies are not “in-house.” For instance, a biotech company must file international patents in order to protect its IP, and to conduct clinical trials (sometimes outside the country as well), which are all, in our view, legitimate R&D expenses that would need to be covered under the weighted deduction scheme.
The association is also happy to note that there is also a service tax exemption on testing and certification of seeds, said Dr. Vijay Chandru, president, ABLE.
The budget is a good gesture to the pharma industry for not putting any change in excise duty on Formulations or APIs, said S V Veeramani, chairman of SME committee of IDMA and Chairman & Managing Director of Fourrts (India) Laboratories Pvt Ltd.
B Sethuraman, president of the Madras Pharmaceutical Association commented that Pharma companies on non-excise free zones are happy as the Finance Minister has retained the excise duties on Pharma products at four per cent. As far as the industry is concerned it is a happy note on several things. The service taxes have not been increased and only two increase in excise duty on bulk drugs. Even though the R&D expenses increased from 150 per cent to 200 per cent, the industry’s demand was 300 per cent.
The Union budget offers no incentives to the pharma sector, said Jatish N Seth, secretary, Karnataka Drugs and Pharmaceutical Association (KDPA) and director Srushti Pharmaeuticals Pvt. Ltd. The Finance Minister has announced an eight to 10 percent hike on bulk drugs which would hardly have an impact on the prices of formulations, he added.
The rationalisation of customs duty on medical equipments across board is a welcome sign, said Dr G S K Velu, president of All India Medical Diagnostic and Surgical Instruments Manufacturers Association and the Managing Director for Trivitron Group of Companies. Nothing has been done to support local manufacturing initiatives for medical devices, diagnostics and medical instruments. Announcement of Medical Tech Parks with Tax holidays is a welcome gesture, Dr Velu said.