Karnataka's pharma and biotechnology sector are visibly upset over the Union Budget 2006. Despite the recommendations put forth by the Association of Biotechnology Led Entrepreneurs (ABLE), the Finance Minister P Chidambaram has not addressed any of the issues. "This budget 2006 is a disappointment because it not provided for incremental investment in Science & Technology. Research & Development is seen as the next big opportunity for India Inc. To establish India as a laboratory of the world, fiscal policies need to support the high investment needs and the long gestational timelines of this segment. Industry has been seeking fiscal support through a 5 year weighted tax deduction, lower duties on R&D consumables and Equipment - to be on par with other competing nations and duty free import of enabling technologies to promote collaborative R&D, stated Kiran Mazumdar-Shaw, president, ABLE and chairman and managing director Biocon Limited.

Unfortunately, this year's budget has completely ignored Industry's recommendations, stated Shaw. The main recommendation of the Pharma-Biotech sector was the extension of the weighted average deduction at 150% u/s 35 (2AB) for R & D expenditure till March 2015. This has not been addressed by the Finance Minister. With the advent of the WTO-TRIPS regime, R&D is the key for the future and survival of the Bio-Pharma Industry. If this incentive if not made available beyond 2007, the allocation of financial resources into R&D is likely to diminish resulting in India's dependency on external innovation and the country's inability to address unmet medical needs through affordable drugs. The recent avian flu crisis should be a wake-up call for such an urgent investment in indigenous R&D.

Additionally, there is a serious anomaly in taxation pertaining to patent filing wherein weighted average tax deduction is only applicable to Indian patent filings but excludes International filings. This is an enormous disincentive to Indian R&D which is positioning itself to address global opportunities. The lack of incentives for R&D is seeing the flight of Intellectual Property from India to more tax friendly regions of the world.

It is imperative that the Finance Ministry address this serious dilution of our Intellectual capital through favourable taxation and fiscal mechanisms. Industry hopes that such oversights can be rectified during the course of this fiscal through fiscal and taxation policies that encourage Indian industry to invest exponentially in R&D, she said.

Neutral impact despite customs duty reduction on Anti-AIDS, anti-cancer & Life Saving Drugs. Indigenous manufacturers: No perceived benefits. However, no benefit for R&D led Pharma-Biotech companies, stated Shaw and giving an Overall Rating for budget as 7/10 (Fiscal deficit being brought down to 3.8%). For a Sector specific Rating for Biotech: 5/10 (No benefit for R&D, technology licensing & indigenous drugs).

The diagnostic sector which had presented a list of issues as a part of the budget recommendations and the Union Finance Minister has left them in the lurch without even addressing the issue of customs duty on raw materials. In the wake of this step motherly treatment towards the sector the Chinese products now will stand to gain and it is a death knell for domestic diagnostic manufacturers, stated Dr. Shama Bhat, chairman and managing director, Bhat Biotech.

Dr. BV Ravi Kumar, managing director XCyton Diagnostics stated that the budget was disappointing one and the diagnostic sector had no support whatsoever.

The only official who stated that the budget was positive for the biotech sector was Dr. Krishna S. Deshpande, Director, Institute of Bioinformatics who felt that the Finance minister did his best in terms of leaving the corporate tax untouched despite pressure from the Left parties. The fall on customs duty reduction on Anti-AIDS, anti-cancer & Life Saving Drugs is a humanitarian action. With regards to anti retroviral drugs the country was manufacturing generic versions at a much cheaper rate hence it would not have that much of an impact.