Indian Budget: a good prescription for pharma sector

[Guest guest]

Not a bad prescription, Reducing costs.

Kumar Shankar Roy

For the pharma sector, the Budget has not met major demands relating

to R & D expenses, but has given in to demands related to excise and

Customs duties, which could reduce the cost of drugs. Lower duties

might spur an increased off take of formulations, which is a positive

for the pharma sector as a whole.

Relief from excise duty

Excise duty on all drug formulations has been reduced to 8 per cent,

from an earlier 16 per cent. Companies that have no presence in

excise-exempt zones and, thus, had to shell out excise duty, will now

have some relief on this expense. Smaller players such as Ajanta

Pharma, Zandu Pharma as well as Indian units of multinational

companies (MNC) may benefit from this. A cut in excise duty for

instant sterile dressing pads, burn therapy pads, first-aid kits and

blood grouping reagents would reduce healthcare costs rather than the

tax outgo of medical equipment/accessory companies.

On certain specified life-saving drugs and on the bulk drugs used for

the manufacture of such drugs, the Budget has proposed to reduce the

Customs duty from 10 per cent to 5 per cent, and to totally exempt

them from excise duty or countervailing duty.

This measure will help MNCs such as GlaxoKline Pharma, Aventis,

and Novartis, which are key importers of such drugs. Some biotech

drugs also fall into the category, which would help their makers.

Increased allocation

The National Aids Control Programme has been provided with Rs 993

crore, which might increase procurement of anti-AIDS drugs. This

could have positive implications for players such as Cipla, Cadila,

and Ranbaxy, while higher allocation to polio eradication might

benefit Panacea Biotec among the listed companies.

On the R & D front, the extension of income-tax sops that would have

given standalone R & D companies a 10-year tax holiday did not come;

neither was the much-awaited expansion in the scope of the weighted

deduction granted.

However, innovators still had something in the form of a weighted

deduction for a sum paid to a company for scientific research by way

of Section 35 (1)(ii) of the Income-tax Act.

Any sum paid to an approved scientific research association, approved

university, college/institution (outsourced R & D work) by a company

will benefit the latter by way of a weighted deduction to the extent

of 125 per cent of the outlay. This could lead to more linkages

between public and private stakeholders in research.

Smaller R & D-focussed companies, which are handicapped in making

sizeable investments for building in-house scientific facilities,

would benefit more from this proposal.

http://www.thehindubusinessline.com/2008/03/01/stories/200803015249140

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