The Indian pharma sector has undergone some tough times in the past one year having to contend with a steeply falling rupee and non compliance with quality manufacturing standards
landing them in trouble with the US FDA. Not only that, the global economic slowdown also played spoilsport leading to devaluation of currencies in many markets in which domestic pharma companies are operating in, delay in receiving ANDA approvals, the usual price erosion, and declining interest from global pharma majors in research collaborations as the latter looked to prune their costs.
Despite these negatives, most of the companies were able to grow their topline largely led by volume growth and some product exclusivities. Going forward, there will be some pressure in the medium term given that the recovery from the crisis will be a gradual affair and given that many companies have a large presence abroad. However, from a long term perspective, the prospects for the sector appear bright led by increasing focus of governments across the world to reduce healthcare costs and many drugs going off patent. As the developed world recovers, tie-ups in the R&D space would also go a long way in enhancing the fortunes of the Indian pharmaceutical industry.
Budget Measures
Basic customs duty on 9 specified life savings drugs and their bulk drugs and one vaccine is being reduced to 5%. Further, these drugs will be exempt from excise and countervailing duty.
The scope of the current provision of weighted deduction of 150% on expenditure incurred on in-house R&D has been extended.
Focus on healthcare to be increased. Provision for the National Rural Health Mission increased by Rs 20.5 bn over and above Rs 120.7 bn provided in the Interim Budget.
Fringe benefit tax (FBT) abolished.
Rate of minimum alternate tax (MAT) on book profits has been increased from 10% to 15%, but with a provision of carrying forward the tax credit on MAT to ten years from the current seven years.
Budget Impact
Reduction in customs duty on certain bulk drugs used in making life saving drugs to 5% is a positive for companies having product pipeline catering to these segments.
Extended weighted deduction on in-house R&D is beneficial to domestic pharma companies who are increasingly undertaking R&D activities to become research driven companies in the long term.
Abolition of the fringe benefit tax will mean that conducting business can be less complicated and less burdensome.
Company Impact
Reduction in customs duty on bulk drugs used in making certain life saving drugs to 5% means that companies such as Dr.Reddy's, Biocon, Cipla, Piramal Healthcare, Aventis will be able to pass on this benefit to consumers, in which case there will not be much impact on the margins of the companies.
The extension in weighted deduction on in-house R&D will benefit domestic pharma companies such as Glenmark, Dr.Reddy's, Ranbaxy, Biocon, Piramal Healthcare, Sun Pharma and Cadila Healthcare.
The Indian pharma sector has undergone some tough times in the past one year having to contend with a steeply falling rupee and non compliance with quality manufacturing standards
landing them in trouble with the US FDA. Not only that, the global economic slowdown also played spoilsport leading to devaluation of currencies in many markets in which domestic pharma companies are operating in, delay in receiving ANDA approvals, the usual price erosion, and declining interest from global pharma majors in research collaborations as the latter looked to prune their costs.