The Union Budget 2005-06 has turned out to be a major disappointment to the pharmaceutical industry in all respects. The finance minister not only smashed all expectations of this industry but has also placed some fresh roadblocks in its path of progress by introducing a new tax on fringe benefits. Although this new levy is for all sectors, its impact on pharmaceutical industry is going to be quite bad. With the country having an adamant finance minister in chair, not much relief should be expected even after representations. The government at the Centre is well aware that the pharmaceutical industry in the country, particularly the domestic sector, is passing through a difficult phase from January 1, 2005. On the one hand, the new patent law has come into existence exposing the domestic pharmaceutical units to the controversial product patent regime. By its casual way of framing the draft bill and the new rules, the government has already placed the domestic industry and consumers at serious disadvantage. Both are at a loss how to live in the new environment emerging out of this legislative change.
Implementation of Schedule M in the pharmaceutical industry for creating a uniform manufacturing standard in another 3 months from now is posing a threat to the survival of a large number of small drug units. Many of them think that they may not be able to recover the costs of even a few lakhs of rupees from sales after the implementation of Schedule M provisions. It may be true that many SSIs do not have annual sales above a couple of lakhs of rupees. SSIs stand could be true but, at the same time, India badly needs some basic standards in drug manufacturing. How to balance these sides is a tough issue the government should seriously consider. Introduction of levying Central excise on the MRP of drugs from January 7 is yet another issue affecting the viability of medium and small scale units. The new measure has evoked a number of representations from the industry associations but with no response from the government even in the Budget. Indifference of the government to industry's problems is happening at a time when the overall performances of pharmaceutical companies are turning bad. Profitability of top [u1]companies like Dr Reddy's, Ranbaxy, Lupin etc. are already [u2]on decline during the current year so far. On the export front, things are not that rosy as it used to be. Margins are on the decline in the US and generic competition is flaring up world over. At the same time, R&D expenditure of Indian companies is getting [u3]out of hand with no sign of any new molecule from the research labs. Most of the SSIs are already on the run for cover. Only some of the medium scale units are doing somewhat better. With the new patent regime, they may not also be able to stand up to the MNCs for long. So, for its survival in the coming years, this industry has to look for some extreme options.