The Indian pharmaceutical and healthcare industry has seen consistent augmentation over the last few years.
While India has traditionally been seen as a strong player in the generics markets, it has also shown a great potential as an attractive destination for research and development (R&D), contract manufacturing, clinical trials and exports, which are already being capitalised by leading MNCs. “However, what lacks is the scale and India’s share of wallet in these investments in comparison to its peers such as China, Brazil and other such markets.”
India is now witnessing a different form of investments from the MNCs, and these include research collaborations with Indian research partners being looked at as risk-bearing entrepreneurs, and a renewed interest in the generics play by capitalising on Indian branded generics, according to a report.
“Some of the recent deals of big pharma with the Indian mid-sized companies licensing branded generics to market in the West clearly demonstrate as to how enticing India is for the global pharma industry. What makes us hopeful is the belief across spectrums that Indian industry is far from saturation in terms of linear and lateral growth.”
Indian industry now needs to go lateral, and diversify into innovation, he urges. “But with the economic downturn, there is an extra health supplement required to stimulate the industry by providing tax and fiscal benefits in the coming Budget.”
On tax holiday.
The Government can consider introducing tax holidays for profits from new research products. Reinstatement of tax holidays under Sections 80IA and 80IB of the I-T Act can also be considered for both domestic and foreign companies.
The Government can also consider introducing better tax benefits such as research tax credits for set off against corporate tax liability and so on, similar to those which have worked well for the developed economies.
The industry bodies wish that the weighted deduction for R&D, which is currently at 150 per cent, would be increased to 200 per cent.
Currently, there are a number of conditions that are imposed for availing weighted deductions for R&D, which should be relaxed. Further, the expenditure incidental to research carried on outside the R&D facility, including clinical trials, bio-equivalence studies, should be brought within the ambit of weighted deduction – this would give a thrust to the Indian companies to participate in global R&D projects.
On export incentives.
Exports have been an area with an ample scope for growth. Extension of tax holiday benefits under Section 10A/ 10B of the I-T Act to units engaged in pharma/ healthcare exports has been an incentive being eyed by the industry for quite some time.
On local needs.
To give a boost to the local market, the Government can look at extending customs duty exemption on the import of all life-saving drugs (currently available for certain drugs). This may be done by the introduction of more drugs/ therapeutic areas in the current list or by providing a definition of life-saving drugs under the legislation so as to expand its scope.
Reduction in excise duty on raw material (Active Pharmaceutical Ingredients), to bring it at par with the final pharmaceutical products (i.e. from 8 per cent to 4 per cent), could be a milestone towards improving the cost-efficiencies of pharma manufacturers with a focus on domestic markets who fear losing the excess CENVAT credit accumulation, due to the rate difference.
On hospital ‘holiday’
Rethought is required on the healthcare front. Hospitals that start functioning in the specified Tier II and Tier III cities before March 31, 2013 can benefit from a tax holiday on profits earned by them in the initial five years. However, hospitals typically have a long gestation period, which makes it difficult to take advantage of this privilege.
To make this provision workable, the Government can think of giving an option to the hospital to choose the period of five years from the initial ten years. Extension of such a tax holiday for another period of ten years may also be considered.
The pharma industry is a highly regulated one; the Government needs to undertake certain measures to ease the operating environment in the industry. Some such measures could be the harmonisation between the transfer pricing regulations and the Drugs Price Control Order which controls the pricing of scheduled formulations, the introduction of advance pricing mechanism in the transfer pricing regulations, and so on.