The Union Budget for the year 2004-'05 failed to cheer investors and the BSE Sensex declined over by 112 points to 4843.84 from pre-budget level of 4955.97.The Finance Minister P Chidambaram has given more focus on social sector reforms and stated that the economy will grow around 7-8 per cent. The fiscal deficit estimated at 4.4 per cent of GDP. Though the growth and estimate of fiscal deficit looks well on paper, the industry sources are not happy about the budget proposals.

The budget could not address the future challenges coming up for the manufacturing sector. It has neglected the manufacturing sector, especially pharmaceutical sector, which was expecting more concessions to meet the challenges arising from globalisation. The Union Budget is focusing more on agriculture and rural development. According to industry sources, as the domestic manufacturing sector is already facing a major threat of competition and with the WTO regime round the corner, FM should have addressed the issue properly.

The domestic pharmaceutical sector was expecting concessions on investments in research and development. The investment in R&D is very crucial for the future growth of the sector. Unless there are more concessions the companies will not likely to spend more on R&D. The Minister has also not given proper treatment for the Biotechnology segment, connected with the pharmaceutical sector. The FM notified automobile industry as an important industry entitling it with 150 per cent deduction of expenditure on in-house R&D facilities. This will help the auto industry to invest in R&D, but the same concessions were not offered to pharma industry, which is a highly knowledge-based industry.

The pharma sector has not gained any direct help from the Union Budget but it may get some indirect support from the concessions announced by FM. The proposals like implementation of VAT from April 1, 2005, unchanged rate of customs duty, the concession of tax exemption of new units in J&K and few concessions for the health sector may help the Pharma sector. Further, concessions like new hospitals with 100 beds or more set up in rural areas, getting tax concessions for next five years and new health insurance policy for poor may be of some indirect incentive. But the sector's expectation was much more to achieve the growth rate of around 8-9 per cent.

The Minister has given full exemption to customs duty, excise duty and CVD for crutches, wheel chairs, walking frames, artificial limbs etc, for the disabled. Further excise duty exemption has extended to diagnostic kits for detection of all types of hepatitis.

The Rs 40,000-crore pharma sector and its investors were disappointed over the budget proposals and reacted negatively. This can be seen from the Pre-Budget and Post-Budget movements of some of the pharma scrips on the Bombay Stock Exchange. The major pharma scrips such as Dr Reddy's Lab, Ranbaxy, Cipla, Sun Pharma, Orchid Chemicals, J B Chemical, Cadila Healthcare, GlaxoSmithKline, Aurobindo, Pfizer, Nicholas, Aventis and Matrix declined sharply after the announcement of budget. Except Divi's Laboratories and Biocon, the share prices of all other drug companies declined after budget proposals.