Despite a host of important suggestions and demands submitted by various drug industry associations to the Ministry of Finance, the Union Budget 2004-'05 has no specific proposals to give a boost to this promising industry. Even as the drug industry in India is to enter a new mode of business pattern with the emergence of product patent regime during the same budgetary period, the finance minister hardly considered any of these proposals made by the industry.
Naturally, the responses to the Central Budget this time from the disappointed industry circle was greatly melancholic. The reactions to the Union Budget presented by P Chidambaram in the Parliament today echoed that it was not digested well by the pharma industry for the lack of any specific proposal for the sector and for not making any mention of price control, encouragement due to IPR regime, tax incentives in the areas of R&D and manufacturing. On the overall, the MNCs were more vociferous in expressing their dissatisfaction from the Budget. The Indian corporates, on the other hand, seemed to have a more balanced view on the Budget.
Yogin Majmudar, president, Indian Drug Manufacturers' Association (IDMA), said, "The Budget is more or less an extension of last year. Nothing has been assured in the areas of R&D or duty revision. None of the IDMA recommendations were met. We had requested for a duty exemption on the import of anti-AIDS drugs, which was not met."
Dr. Ajit Dangi, director general, OPPI, said that as per the recommendations of the Chelliah committee, the government could have reduced the import duties of drugs from 20 per cent to 15 per cent and 10 per cent respectively. There is still an import duty of 5 per cent and 15 per cent on the import of life saving drugs, which could have been done away with," he said.
Dr. Brian W Tempest, CEO & managing director, Ranbaxy Labs. Ltd. said, " Though the pharmaceutical industry is widely believed to be India's next potent vehicle for catapulting the country on a high growth trajectory, no fiscal incentives seem to have been provided either for pharma R&D or for leveraging Intellectual Property. The Finance Minister should address these issues in the 2005-2006 Budget. Emphasis has been laid on education, rural health, employment, food, water-shed management and defense. Rates have been kept unchanged in both Direct & Indirect Taxes. The most significant revenue raising measure is the 2 per cent education cess on all taxes and the widening of the Service Tax net, along with the increase in Service Tax rate from 8 per cent to 10 per cent. In a nut-shell, there is thought and honour in this Budget, but no passion or courage."
Satish Reddy, managing director and COO, Dr Reddy's Laboratories, strongly reacted to the Union Budget 2004-'05 that there is practically nothing for Pharmaceuticals, except for a 10 years 100 per cent tax exemption for companies doing research in Biotechnology. "The Budget is likely to lead towards the growth of certain sectors like Agriculture, and for more broad based focus on growth, one may have to wait for the next Budget," he added.
Kewal Handa, director (Finance), Pfizer India, said, "The Budget has been a disappointment as far as Indian pharmaceutical industry is concerned. The Common Minimum Programme (CMP) of the current government had promised an increase in expenditure for the pharma industry, which was not indicated in the Budget. A countervailing duty of 16 per cent has been imposed on life saving drugs, which means the life saving drugs will become costlier by 16 per cent. The service tax is extended to transport and logistics sector, which will increase operational expenditure of pharma companies."
According to Venkat Jasti, president, Bulk Drug Manufacturers Association, and vice chairman, Pharmaceutical Export Promotion Council (Pharmexcil), there is no much emphasis on pharma sector, though only health insurance is given some importance. "Though Automobile industry has been notified as an industry entitled to 150 per cent deduction of expenditure on in-house R&D facilities, and it is presumed that it may continue for pharma sector for another 9 months or so," he said.
However, T S Jaishankar, chairman, Confederation of Indian Pharmaceuticals Industries (CIPI), welcomed the Budget saying that it takes into consideration the interests of all the walks of public life, and is satisfactory for the pharmaceutical industry. The Finance Minister has not tried to bring in much sensational changes that could not only affect the pharmaceutical sector, but also other sectors. The decision to increase the CLSS scheme limit to One crore and to increase its subsidy component to 15 per cent will definitely help the cause of the pharmaceutical industry, now undergoing a transition phase. Another noticeable development was the proposed health insurance scheme, which will definitely boost the turnover of the Indian Pharma sector.
IA Modi, chairman, Cadila Pharmaceuticals, said, "The exemplary work done by the Indian Pharmaceutical Industry has totally missed the attention of the Finance Minister while presenting the Budget for the year 2004-2005. It seems that, the concessions to the Farming Sector has over shadowed the Pharmaceutical Sector."
He added that the Pharmaceutical Industry today is growing at a commendable speed and particularly it is making deep inroads into the developed countries, where the earnings are substantial. From 2005 when the WTO comes into effect, the existence of the Industry largely depends on research. Pharmaceutical research shall have to be strengthened more and more to capture the developed markets through newly expiring patents and new molecules discovery. To exploit the patent expiry market, the Pharmaceutical research should have sufficient fund, to address the issue through non-infringing processes where the Indian Pharmaceutical Industry has done commendable achievement and a large number of molecules have already been registered in the developing countries.
K Raghavendra Rao, managing director, Orchid Chemicals & Pharmaceuticals, said that the union Budget has attempted to give major thrust to the rural sector. Huge provisions have been made for education and several rural schemes and this could pose heavy burden on the exchequer. Except for the telecom, aviation and insurance sectors, there is nothing much for the industry in general. As regards capital markets, the relief given to capital gains should be welcomed but the imposition of transaction tax on securities may cause a dampening effect. Despite being an export-oriented industry, the pharmaceutical industry seems to have been overlooked.
R L Shenoy, director (finance), Merck India Ltd, said, "It was a Budget with a human face and not much has been announced for the pharma industry or specifically to the MNCs. The exemption from dividend tax could have been also extended to debt related mutual funds."
Habil Khorakhiwala, chairman, Wockhardt Ltd feels that the Budget was balanced. "The 2 per cent cess that will yield Rs 5,000 crore a year for education is a gigantic leap if implemented properly. At the same time, he has sent the right signals to the industry and world at large by raising the foreign direct investment cap in key sectors like telecom and airports. However, we are disappointed that there is nothing in this Budget to promote R&D in pharmaceutical sector, which the industry expected and deserved, against the background of the new patent regime beginning on January 1, 2005. The Finance Minister has provided incentives to R&D in automobile sector but left out pharmaceuticals. I hope he will make amends for this omission before long," said Khorakhiwala.
Ajay Piramal, chairman, Nicholas Piramal India Ltd was also of a similar opinion. "The growth plan of 7-8 per cent is encouraging. I would have liked if there would have been a clarification on weighted income tax deduction status for R&D spend of pharmaceutical companies beyond March 2005. Indian pharmaceutical companies are at a crucial point of evolution, and the continuation of this incentive will assist Companies to allocate higher funds for research," he said.
Kamal Sharma, managing director, Lupin Ltd, agreed that the announcement on the capital gains tax front has been welcome to the industry. On the negative front, the government did not scrap the surcharge and dividend distribution tax. It also imposed an additional levy of 2 per cent for educational cess. The finance minister did not announce tax incentives for export profits and the extension of sunset clause in section 10 B to be extended beyond 2009, which was against industry expectations. The increase of service tax to 10 per cent would further increase the operating cost," said Sharma.
M B Kapadia, sr. executive director, GSK, India, said, "The Budget promises a GDP growth of 7-8 per cent, which is good. Specifically, emphasis on rural healthcare infrastructure, VAT implementation and the increase of FDI cap on insurance will be good for the pharma industry in the long run."
Sudhir Walia, director, Sun Pharma, said, "While there is nothing specific for the sector, the increased spend on rural healthcare may have a trickle down effect on the pharma sector. The tax holiday for biotech and the increased emphasis may benefit companies in this area, whereas the pharma sector, which has shown global skills in process and product development, has been ignored. None of the demands related to creation of intellectual property or innovation have been considered. The increase in service tax, the expansion of the service tax, and the educational cess on all taxes will impact margins."
Dr Krishna M Ella, managing director, Bharat Biotech, said that the Union Budget this time has given more attention to biotechnology than pharma. This is the first time that Biotechnology has been given due emphasis. Pharma companies may now start looking at investing in biotechnology. There are few biotech companies in agriculture and the Budget is going to help to pump in more investments in this sector. The 100 per cent tax exemption on research in biotechnology is a positive move. Now companies in biotech can save this amount and put it back in to R & D. Bharat Biotech, which has been investing about 20 per cent of its turnover will be able to put in 30 per cent into research and development. The National Biotech Committee of FICCI has earlier recommended for such exemption and the committee's efforts have been fulfilled by this achievement.
Dr BS Bajaj, chairman of southern chapter of All India Biotech Association (AIBA), said, the Budget is going to be good for biotech companies. There are good chances that pharma companies will start diversifying into biotechnology sector. More investments can take place in the food processing industry too.
Sunil L Mundra, managing director, Natural Capsules stated that the Budget was not up to the expectations. For the pharma sector on the whole there are no new incentives. We were looking for better investment opportunities. "However, Value Added Tax is good for pharmaceutical sector in the long run," he stated
However, Kiran Mazumdar Shaw, chairman and managing director, Biocon Group of Companies, said that it was a good and balanced Budget. "The announcement that companies doing research on biotechnology to get 100 per cent tax exemption for ten years, clearly reflects the strong political will of the Government to drive reforms strongly. It is expected to boost the investor confidence and the stock markets have escalated. The strong reference to biotechnology by the Finance Minister is extremely heart warming. He has referred to the biotech sector and stated that additional funds will be provided. As expected the Budget is balanced giving an increased focus on exports, infrastructure agriculture science and technology. However, the biotech industry will rate the Budget as a positive one and the new government has laid the pathway to progress," she stated.
SV Veeramani, chairman of the SSI Subcommittee of the Indian Drug Manufacturers Association (IDMA) and CMD, Fourtts Lab, said the Budget could be termed as a poor man's Budget and it has not much to enthuse the pharmaceutical sector. However, the Budget could be felt as satisfactory since it has not brought in any negative provisions against the sector.
He added that the welcome steps include increasing the CLCSS scheme limit for SSIs from the existing 40 lakhs to Rs 1 crore and to hike the subsidy part from 12 per cent to 15 per cent. Similarly, the liberal incentives announced for the growth of biotech sector and for the R&D units will definitely help the Indian industry to grow marginally.
Dr. BV Ravi Kumar, managing director, XCyton Diagnostics, responded to the Budget saying that the exemption of excise duty on all types of hepatitis kits come as the great boon for the sector. "While Imported kits came in duty free, it was not a viable decision by the government to charge a 16 per cent duty on diagnostic kits manufactured indigenously. Of course, Finance minister has not yet delved into the duty component of diagnostic kit components, which we hope would be removed," he added
Dr. Shama Bhat, managing director, Bhat Biotech said that the new measures for the diagnostic kits would provide the much-needed boost. "We would have wanted to see the imported components duty to come down. The biggest advantage for us is the cent percent tax exemption for ten years given to companies doing research on biotechnology. All this would go a long way for the sector to further enhance the growth. All types of hepatitis kits and diagnostic kits for all types of epidemics being exempt from duty is the best news for us," he added.