Right prescription for pharma multinationals

Customs duty cut across the board to 15 per cent; drugs to be cheaper.

Drugs made by multinational pharmaceutical firms could become cheaper if they pass on the benefits of lower import duties to consumers.

The peak customs duty has been reduced across the board from 20 per cent to 15 per cent, and will directly benefit multinationals which import drugs from their parent companies to be marketed in India.

But for the rest of the Rs 25,000 crore pharmaceutical industry, the Budget may have either no impact or a very marginal impact.

The benefit of the reduction in the corporate tax rate (from an effective rate of 35.875 per cent, including a surcharge of 2.5 per cent) to 33 per cent (including a surcharge of 10 per cent) will be mitigated by the reduction in depreciation rate from 25 per cent to 15 per cent.

On the other hand, since biotech and pharmaceuticals industries are not capital intensive by nature, the Budget proposal to reduce customs duty on nine specified items of machinery used in the two industries to 5 per cent is unlikely to have any major impact, a Mumbai-based pharmaceutical sector analyst said.

However, companies could stand to benefit if they choose to import machinery for research and development. But otherwise, the benefits will be restricted to the new product manufacturing facilities which plan to import plant and machinery from abroad.

The industry has welcomed the government's decision to extend the policy on weighted deduction of 150 per cent of expenditure on in-house research and development facilities of biotechnology and pharmaceutical companies by another two years.

Habil Khorakiwala, chairman of Wockhardt, said: "This will give a competitive edge to research-based companies. It motivates further investment in research and development."

Added Prakash Mody, chairman and managing director of Unichem: "This will definitely help the sector face the patent regime confidently."

"The extension of the March 2005 `sunset clause' to 2007 has been as per our desire. We can now make massive investments in R&D," Swati Piramal, director and chief scientific officer of Nicholas Piramal India said.