Budget disappoints pharma industry

Andhra Pradesh, the hub of pharmaceutical industry contributing one-third of the country's bulk-drug production, has nothing much to expect from the Union Budget.

The response from the industry to the Budget is lukewarm as well as there's outright disappointment from some quarters over the absence of any concrete steps for encouraging R&D under the new patent regime.

"I am happy that Customs duty on raw materials has been reduced to 2.5 per cent from 15 per cent, which will help pharma companies to some extent. Apart from this, the finance minister did not touch other areas to either attract more investments in the pharma sector or encourage further growth," B Parthasarathi Reddy, chairman of Bulk Drugs Manufacturers Association (BDMA), and chairman and managing director of Hetero Drugs Limited, told Business Standard.

According to him, the net effect of the Budget was almost neutral on pharma industry.

"Overall, it is a balanced Budget aimed at higher GDP growth rate. Reduction of Customs duty on chemical intermediates will have a positive impact on the pharma industry. The reduction in Customs duties on certain life-saving drugs is good for the people," N Prasad, executive chairman of Matrix Laboratories Limited, told Business Standard.

In his response to the Budget, Satish Reddy, managing director and COO of Dr Reddy's Laboratories Limited (DRL), was critical of missing focus on R&D efforts in the pharma sector.

"With India coming under the patent regime, it's time the government encouraged innovation and supported the industry by announcing grants for R&D. We expected incentives to set up R&D centers in India. This would have created numerous spin-off benefits to help create a base for innovation in India. But, the Budget has been disappointingly silent on this aspect," he said. "It is a matter of concern, especially to companies like DRL, which have been aiming at greater strides in this area."

"Reduction in peak Customs duties from 15 per cent to 12.5 per cent will bring down the cost of imported raw materials, which is a positive sign for all. The removal of FBT on free samples is also good as it is irrational to tax free samples given to doctors who in turn would pass them on to the needy patients. However, it is too small a change to make any great impact," Satish Reddy added.

According to Appaji, executive director of Pharmaexil, the industry body of export units formed by the Union commerce ministry, small and medium units in the pharma sector have been facing difficulties due to tax holidays accorded to states like Uttaranchal.

"There is a stifling effect on these units as they have not been able to withstand the competition from companies that are enjoying tax-free environment in Uttaranchal and Himachal Pradesh. There are no steps to provide any relief to such units in the Budget," he said.

"As far as migration of pharma units to Uttaranchal and Himachal Pradesh is concerned, the damage has already been done. The real issue is that no company will be able to compete with those operating from the hill states as the Central tax exemptions make a great deal of difference," Parthasarathi Reddy said.

The tax incentives to hill states continue to be a major irritant to Andhra-based companies which are worth about Rs 8,000 crore. BDMA is now gearing up to put pressure on the government to bring similar tax-free zones to backward districts in Rayalaseema and Telangana regions so that local companies can enjoy tax benefits by locating their units there.