The Hindu Business Line : Not a bad prescription

For the pharma sector, the Budget has not met major demands relating to R&D expenses, but has given in to demands related to excise and Customs duties, which could reduce the cost of drugs. Lower duties might spur an increased off take of formulations, which is a positive for the pharma sector as a whole.

Relief from excise duty

Excise duty on all drug formulations has been reduced to 8 per cent, from an earlier 16 per cent. Companies that have no presence in excise-exempt zones and, thus, had to shell out excise duty, will now have some relief on this expense. Smaller players such as Ajanta Pharma, Zandu Pharma as well as Indian units of multinational companies (MNC) may benefit from this. A cut in excise duty for instant sterile dressing pads, burn therapy pads, first-aid kits and blood grouping reagents would reduce healthcare costs rather than the tax outgo of medical equipment/accessory companies.

On certain specified life-saving drugs and on the bulk drugs used for the manufacture of such drugs, the Budget has proposed to reduce the Customs duty from 10 per cent to 5 per cent, and to totally exempt them from excise duty or countervailing duty.

This measure will help MNCs such as GlaxoSmithKline Pharma, Aventis, and Novartis, which are key importers of such drugs. Some biotech drugs also fall into the category, which would help their makers.

Increased allocation

The National Aids Control Programme has been provided with Rs 993 crore, which might increase procurement of anti-AIDS drugs. This could have positive implications for players such as Cipla, Cadila, and Ranbaxy, while higher allocation to polio eradication might benefit Panacea Biotec among the listed companies.

On the R&D front, the extension of income-tax sops that would have given standalone R&D companies a 10-year tax holiday did not come; neither was the much-awaited expansion in the scope of the weighted deduction granted.

However, innovators still had something in the form of a weighted deduction for a sum paid to a company for scientific research by way of Section 35 (1)(ii) of the Income-tax Act.

Any sum paid to an approved scientific research association, approved university, college/institution (outsourced R&D work) by a company will benefit the latter by way of a weighted deduction to the extent of 125 per cent of the outlay. This could lead to more linkages between public and private stakeholders in research.

Smaller R&D-focussed companies, which are handicapped in making sizeable investments for building in-house scientific facilities, would benefit more from this proposal.

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