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No shot in the arm

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FOR the pharmaceutical industry, Budget 2005 has been more a case of unfulfilled expectations.

About the only silver lining, if it can be said so, is the extension of exemption from income-tax an amount equal to 150 per cent of weighted R&D expenditure.

Even this extension has only been granted only until March 2007, when it could have been for a longer period, considering that R&D benefits pan out over a considerably longer timeframe.

There has been no reduction in excise duties either, which would have benefited the domestic consumer, given the intensely competitive nature of the Indian generic market.

However, with the increase in the recent abatement level on MRP-based excise duty from 35 per cent to 40 per cent, a further reduction in excise duty limits might probably have been a tad too much to ask for.

The reduction in peak import duties might marginally benefit some of the larger formulation companies.

Further, the reduction in the corporate tax rate might positively impact MNC players such as GlaxoSmithKline, Aventis and Pfizer, which currently pay peak rates.

The lowering of depreciation rates would cut into the gains that would accrue by virtue of the reduction in taxation.

But the impact would be muted, as these companies, because of operating in mature businesses, have a low depreciation-to-operating profit ratio.

Nath Balakrishnan

(This article was published in the Business Line print edition dated March 1, 2005)
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