Indian Finance Minister's slew of budgetary announcements Friday on the health front has been well received, but the pharmaceutical industry seems slightly disappointed.
Hospitals could get a much needed breather thanks to the tax holiday for those set up in tier-II and tier-III cities. More hospitals mean less travel to the nearest one and less crowded wards.
It might thus become cheaper and easier to get well in India's smaller towns. Further patients in rural areas stand to gain in other ways too.
Also the Rashtriya Swasthya Bima Yojana that will provide a health cover of Rs 30,000 for every worker in the unorganised sector falling under the BPL category and his/her family would provide the link with hospitals from the other side, said Habil Khorakiwala, chairman, Wockhardt.
The anti-AIDS drug, Atazanavir, as well as bulk drugs for its manufacture would be totally exempt from excise duty. This is expected to bring the prices down even further. AIDS drugs are available at less than Rs 40 a dose, thanks to companies such as Cipla.
Customs duty would be reduced on life saving drugs that are now imported. These, and drugs made in India would be totally exempt excise or countervailing duty.
Giving in to a long-standing demand of drug companies, excise duty on all goods produced in the pharmaceutical sector has been halved from 16 per cent to 8 per cent.
"The reduction in excise duty and the additional reduction on all pharma products bring in parity between regions entitled to exemptions and otherwise," said Kamal Sharma, MD, Lupin, one of India's largest drug companies.
The Indian healthcare delivery sector, comprising mostly hospitals, clinics and nursing homes, is projected to grow to nearly US$ 40 billion by 2012, says PricewaterhouseCoopers in its report, Healthcare in India: Emerging market report 2007.
The sector's growth will be driven by the country's growing middle class, which can afford to pay for quality healthcare. Over 15 crore Indians have annual incomes of more than Rs 40,000 (US $ 1,000), and many who work in the business services sector earn as much as Rs (8 lakh) US$ 20,000 a year. Today at least 5 crore Indians can afford to buy Western medicines - a market only 20 per cent smaller than that of the UK.
However, Shivinder Mohan Singh, Chairman, Fortis still believes that healthcare is largely ignored outside the public domain. "If you are looking at developing the health care market per se you have to look at lot of areas to develop as well similar to infrastructure," he says.
He further says that though there was talk on Public Private Partnerships, nothing significant has happened, nothing to the scale that India needs to develop. "My sense is that the government is looking at putting focus on health and education just by looking at public outlays, which is not the only solution required," he adds.
Welcoming the budget, Satish Reddy, managing director and COO, Dr Reddy's Laboratories Ltd said that the increased government spending on healthcare was bound to make a positive impact in pharmaceutical industry. "One major concern for industry, particularly export intensive pharmaceutical companies, is the appreciating rupee. Export growth in the first 9 months of the current fiscal is 19.9 per cent, down from 24.8 per cent in the corresponding period of the previous year, the lowest since 2002. Chemicals (which include pharmaceuticals) have suffered a steep drop, from 28.4 per cent to 10.2 per cent and have contributed to this decline. Some attempt has been made to provide relief to exports that are employment intensive but in general, industry has been exhorted to improved efficiencies to remain competitive," Dr Reddy said.
Commenting on the budget, K Raghavendra Rao, managing director, Orchid Chemicals & Pharmaceuticals Ltd said, "The reduction of excise duties should reduce inflationary pressures. The Pharmaceutical industry should have a lot to cheer about as there are some positives including reduction in import duty on capital goods, reduction of import duty on life-saving drugs and reduction in excise duty on all pharmaceutical products."
Mani Iyer, Director, Intas Biopharmaceuticals Limited said that other than reduction of custom duties and excise tax on pharma/biotech industry and setting a corpus of Rs 315 crores for R&D, there was no new policies to encourage new drug research for biotech companies. "By means of fiscal incentives, special grants and other tax friendly measures, the Finance Minister could have extended done more to promote R&D initiatives taken by corporate sector. In addition, the Budget missed a good opportunity to set up a fund that would encourage entrepreneurship in biotechnology," he added.
The overall macroeconomic indicators continue to show improvement and the Union Budget 2008-09 has clearly reinforced the strong image that India will attain on the world economic stage, avers Kiran Mazumdar-Shaw, chairperson, Vision Group on Biotechnology and chairman and managing director, Biocon Limited. "Perhaps the most important tax benefit announced for the sector is the 125 per cent Weighted average tax deduction on outsourced R&D, which sends a strong signal of the potential that discovery research holds for the Indian Pharma and Biotech industry," she stated.
However, Nicholas Piramal India Ltd has revealed its disappointment in the budget, as the allocations for exports and R&D initiatives were next to nil for the future growth. Dr. Swati Piramal, director-strategic alliances & communications, NPIL commented that the budget failed to meet the requirements of the industry in R&D, especially the need to address issues in section 80-IB in a proactive manner. The reduction of excise duty, which would have done three years before, would take some time to make its impact in the industry. "I think that the sops in R&D is quite small and is mainly for CROs while it is not clear whether the provision address the income royalty of the basic research," she added.
(Contract Research Organization (CRO) is an organization that offers clients a wide range of pharmaceutical research services.
Ajith Kamath, chairman and managing director, Arch Pharmalabs Ltd appreciated the recommendations to increase of outlay for HIV treatment, Excise sops on pharma goods and lowering of duty and exemption for life saving drugs. "However, similar concession could have been extended to import of intermediates by Bulk Drug producers who manufacture Life Saving Drugs. This could have put the Indian Bulk Drug Industry on an even platform with China/other countries," he said.