Economy of India: Fdi in Indian Pharma Sector

FDI IN INDIAN PHARMA SECTOR
ECONOMY OF INDIA
The economy of India is the twelfth largest economy in the world by nominal value and
the fourth largest by purchasing power parity (PPP). In the 1990s, following economic reform
from the socialist-inspired economy of post-independence India, the country began to experience
rapid economic growth, as markets opened for international competition and investment. In the
21st century, India is an emerging economic power with vast human and natural resources, and a
huge knowledge base. Economists predict that by 2020, India will be among the leading
economies of the world.
A revival of economic reforms and better economic policy in 2000s accelerated
India's economic growth rate. By 2008, India had established itself as the world's second-fastest
growing major economy. However, the year 2009 saw a significant slowdown in India's official
GDP growth rate to 6.1% as well as the return of a large projected fiscal deficit of 10.3% of GDP
which would be among the highest in the world.
India's large service industry accounts for 62.6% of the country's GDP while the industrial and
agricultural sector contribute 20% and 17.5% respectively. Agriculture is the predominant
occupation in India, accounting for about 52% of employment. The service sector makes up a
further 34%, and industrial sector around 14
India's per capita income (nominal) is $1032, ranked 139th in the world, while its per capita
(PPP) of US$2,932 is ranked 128th. Previously a closed economy, India's trade has grown fast
India currently accounts for 1.5% of World trade as of 2007 according to the WTO. According to
the World Trade Statistics of the WTO in 2006, India's total merchandise trade (counting exports
and imports) was valued at $294 billion in 2006 and India's services trade inclusive of export and
import was $143 billion. Thus, India's global economic engagement in 2006 covering both
merchandise and services trade was of the order of $437 billion, up by a record 72% from a level
of $253 billion in 2004. India's trade has reached a still relatively moderate share 24% of GDP in
2006, up from 6% in 1985.
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GROWTH RATE OF INDIA.

The Gross Domestic Product (GDP) in India expanded at an annual rate of 7.20 percent in the
last quarter. India Gross Domestic Product is worth 1217 billion dollars or 1.96% of the world
economy, according to the World Bank. India's diverse economy encompasses traditional village
farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of
services. Services are the major source of economic growth, accounting for more than half of
India's output with less than one third of its labor force. The economy has posted an average
growth rate of more than 7% in the decade since 1997, reducing poverty by about 10 percentage
points. This page includes: India GDP Growth Rate chart, historical data and news.
Countr
y
India
Interest
Growth
Inflation
Jobless
Current
Exchange
Rate
Rate
Rate
Rate
Account
Rate
3.25%
7.20%
14.97%
7.32%
-13
46.0850
Year
2010
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Mar
7.20
Jun Sep Dec Average

7.20
2009 6.70
6.70
2008 9.00
9.00
2007 9.70
9.70
In the third quarter of 2009, India's economy expanded 7.9%. And although it is expected that in
the last three months of 2009, the third largest economy in Asia might have recorded growth over
8%, the beginning of 2010 may surprise us on the negative side.
Indeed, recent data is indicating that GDP growth in the last quarter of 2009 may beat
expectations. For example, since June industrial production has been accelerating, recording
11.7% growth in November, the fastest in two years and exports grew 18% yoy in November.
Yet, the stunning performance of the Indian economy has a lot to do with a significant fiscal
stimulus and loose monetary policy. In fact, it is estimated that government contributed around
50% of total GDP growth in the year to September. In addition, lower interest rates have
supported domestic demand for consumer durables.
However, despite some positive data, the rising inflation is a growing concern. Indeed, a weaker
monsoon has pushed price of food significantly higher in the last few months. This price pressure
combined with strong industrial production may soon lead to interest rate hikes and tighten credit
availability. Also, there is another danger by the corner. It is likely that due to extensive
spending, Indian government may record huge fiscal deficit in the year to March. And in order to
balance the budget the authorities may decide to increase taxes thus crowding our private
investments.
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OVERVIEW OF PHARMACEUTICAL SECTOR

The Indian Pharmaceutical industry has been witnessing phenomenal growth in recent years,
driven by rising consumption levels in the country and strong demand from export markets.This
segment of Industry has shown tremendous progress in terms of infrastructure development,
technology base and wide range of products. The industry now produces bulk drugs belonging to
all major therapeutic groups requiring complicated manufacturing processes and has also
developed excellent GMP (Good Manufacturing Practices) compliant facilities for the production
of different dosage forms. The strength of the industry is in developing cost effective
technologies in the shortest possible time for drug intermediates and bulk activities without
compromising on quality. This is realized through the country's strengths in organic chemicals'
synthesis and process engineering. India is today recognized as one of the leading global players
in pharmaceuticals. Europe accounts for the highest share of over 23% of Indian Pharma exports
followed by North America and Asia. Exports to USA have crossed the land mark figure of US
$1 billion during 2006-07. Internationally recognized as amongst the lowest-cost-producers of
drugs, India holds fourth position in terms of volume and thirteenth position in terms of value of
production in pharmaceuticals. It is estimated that by the year 2010, the Indian pharmaceutical
industry has the potential to achieve over Rs.1,00,000 crore production of formulations and bulk
drugs.
The Domestic Pharma Industry :
The domestic Pharma Industry has recently achieved some historic milestones through a
leadership position and global presence as a world class cost effective generic drugs'
manufacturer of AIDS medicines. Many Indian companies are part of an agreement where major
AIDS drugs based on Lamivudine, Stavudine, Zidovudine, Nevirapine will be supplied to
Mozambique, Rwanda, South Africa and Tanzania which have about 33% of all people living
with AIDS in Africa. Yet another US Scheme envisages sourcing Anti Retrovirals from some
Indian companies whose products are already US FDA approved.
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Many Indian companies maintain highest standards in Purity, Stability and International Safety,
Health and Environmental (SHE) protection in production and supply of bulk drugs even to some
innovator companies. This speaks of the high quality standards maintained by a large number of
Indian Pharma companies as these bulk actives are used by the buyer companies in manufacture
of dosage forms which are again subjected to stringent assessment by various regulatory
authorities in the importing countries. More of Indian companies are now seeking regulatory
approvals in USA in specialized segments like Anti-infectives, Cardiovasculars, CNS group.
Along with Brazil & PR China, India has carved a niche for itself by being a top generic Pharma
player.
Increasing number of Indian pharmaceutical companies have been getting international
regulatory approvals for their plants from agencies like USFDA (USA), MHRA (UK), TGA
(Australia), MCC (South Africa), Health Canada etc. India has the largest number of USFDA approved plants for generic manufacture. Considering that the pharmaceutical industry involves
sophisticated technology and stringent "Good Manufacturing Practice (GMP) requirements,
major share of Indian Pharma exports going to highly developed western countries bears
testimony to not only the excellent quality of Indian pharmaceuticals but also its price
competitiveness. More than 50% share of exports is by way of dosage forms. Indian companies
are now seeking more Abbreviated New Drug Approvals (ANDAs) in USA in specialized
segments like anti-infective, cardio vascular and central nervous system groups.
Exports
According to the Quick Estimates of Directorate General of Commercial Intelligence and
Statistics (DGCIS), Pharmaceuticals exports (valued in US dollar terms) registered an impressive
growth rate at 30.7% terms during April-October,2008 compared to the corresponding period of
the last year. This growth further increases to 38.5% when valued in rupees terms. Exports on
account of Pharmaceuticals have been consistently outstripping the value of corresponding
imports during 1996-97 to 2007-08. The trade balance increased from Rs. 2157 crores in 199697 to Rs. 13893 crores in 2007-08. Exports of pharmaceuticals registered a growth at the rate of
16.22% during 2007-08. The share of exports of Pharmaceuticals products to the total national
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exports have been in excess of 2% during each of last 12 years ending 2007-08. It has exhibited a
long-term upward trend from 2.01% in 1996-97 to 2.55% in 2007-08.
Investment
According to Ministry of Commerce and Industry, Domestic investment in the

Pharmaceuticals sector is estimated at Rs. 31.43 thousand crores, which is equivalent to
US $ 7.14 billions.
The Drugs and Pharmaceuticals sector has been able to attract FDI amounting to US $
1428.96 million in the sector from April 2000 to December 2008.
So far, as domestic industrial proposals between August 1991-March 2008 are concerned,
total Industrial Entrepreneur Memorandum (IEMs) filed including Letter Of Intent (LOI)
& Direct Industrial Licences (DIL) add upto Rs. 31257 crores in Drugs & Pharmaceutical
Sector, according to Ministry of Commerce & Industry.
According to the Ministry of Commerce & Industry, Pharmaceutical sector is estimated

to have created 2.20 lakh employment opportunities.
According to Centre For Monitoring Indian Economy (CMIE), the aggregate sectoral
income grew by 18.9% during the quarter ending June 2008 while the growth in net
profits during 2007-08 was 8.2%.
Key Strengths
Strong manufacturing base
Cost competitiveness
Network of laboratories and R&D infrastructure
Highly trained pool of scientists and professionals
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World-class quality products
Strong marketing and distribution network
Strong process development skills
Potential ground for clinical trials
Fast growing health care industry
Rich biodiversity
Growing biotechnology industry
Highest Quality approvals from USFDA, EDQM, MHRA etc.
Ranks 4th in the world, accounts 8% by volume and 2% by value.
Very strong in Indian medicine systems of Ayurvedic, Homoepathy, Unani, Siddha and
Herbals medicines
An excellent center for clinical trials.
Research and Development

In no other Industry segment innovative R&D is as critical as in Pharma industry. Here, the New
Drug Discovery Research (NDDR) has to keep pace with the emerging pattern of diseases as
well as responses in managing existing diseases where target organisms are becoming resistant to
existing drugs. The NDDR is also an expensive activity. It is encouraging to observe that at least
10 Indian companies are into new drug discovery in the areas of infections, metabolic disorders
like diabetes, inflammation, respiratory, obesity & cancer. Most of these companies have
increased their R&D spending to over 5% of their respective sales turnovers. There is notable
success from some Indian companies in out licensing new molecules in the asthma and diabetes
segments to foreign companies. Introduction of Product Patent for Pharmaceuticals is an
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important feature for Indian Pharma R&D scenario. This has boosted the confidence of MNC
Pharma companies in India where a number of western Pharma companies have already R&D
collaborations with Indian Pharma companies in the field of NDDR. Some Indian companies
have also got US-FDA approvals for their new molecules as Innovative New Drugs (lND).
Western Pharma companies have recognized the attractiveness of India as a R&D outsourcing
destination due to low cost scientific manpower, excellent infrastructure, top quality with
capability to conduct modern research under GLP, GCP guidelines. Many of them have set up
independent R&D centres in India.
Clinical Trials to establish safety and efficacy of drugs constitute nearly 70% of R&D costs.
Considering the low cost of Research and Development in India, several MNC Pharma
companies as well as global Clinical Research Organizations are increasingly making India a
clinical research hub. In conclusion new drug discovery in India has made a promising start
wherein at least five to six potential candidates in the areas of Malaria, Obesity, Cancer, Diabetes
and Infections are likely to reach Phase II clinical trials.
Contract Manufacturing
Many global pharmaceutical majors are looking to outsource manufacturing from Indian
companies, which enjoy much lower costs (both capital and recurring) than their western
counterparts. Many Indian companies have made their plants cGMP compliant and India is also
having the largest number of USFDA-approved plants outside USA.
Indian companies are proving to be better at developing Active Pharmaceutical Ingredients
(APIs) than their competitors from target markets and that too with non-infringing processes.
Indian drugs are either entering in to strategic alliances with large generic companies in the
world of off-patent molecules or entering in to contract manufacturing agreements with
innovator companies for supplying complex under-patent molecules.
Some of the companies like Dishman Pharma, Divis Labs and Matrix Labs have been
undertaking contract jobs for MNCs in the US and Europe. Even Shasun Chemicals, Strides
Arcolabs, Jubilant Organosys, Orchid Pharmaceuticals and many other large Indian companies
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started undertaking contract manufacturing of APIs as part of their additional revenue stream.
Top MNCs like Pfizer, Merck, GSK, Sanofi Aventis, Novartis, Teva etc. are largely depending on
Indian companies for many of their APIs and intermediates. The Boston Consulting Group
estimated that the contract manufacturing market for global companies in India would touch
$900 million by 2010.
Selected Contract Manufacturing Deals in India
Indian company
Multinational
Product
Lupin Laboratories
Fujisawa
Cefixime
Cefuroxime Axetil,
Apotex
Nicholas Piramal
Allergan
Advanced
Optics
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(Bulk)
Bulk and Formulations
Medical
Eye Products
Lisinopril
Wockhardt
Ivax
Dishman
Solvay
Pharmaceuticals
Pharmaceuticals
IPCA Labs
Merck
Bulk Drugs
Tillomed
Atenelol
Orchid Chemicals and

Pharmaceuticals
Sun Pharma
Kopran
Cadila Healthcare
Apotex
Eli Lilly
Synpac
Pharmaceuticals
Altana Pharma
Boehringer Ingelheim
Biocon
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Bristol Myers Squibb
Nizatidine (anti- ulcerant)
Eprosartan Mesylate
Cephalosporin
and
other
injectables
CVS
products,
anti-infective
drugs and insulin
Penicillin- G Bulk Drug
Intermediates for Pantoprazole
Gastrointestinal
Products
Bulk Drugs
and
CVS
GROWTH OF INDIAN PHARMACEUTICAL INDUSTRY:

The pharmaceutical industry in India is among the most highly organized sectors. This industry
plays an important role in promoting and sustaining development in the field of global medicine.
Due to the presence of low cost manufacturing facilities, educated and skilled manpower and
cheap labor force among others, the industry is set to scale new heights in the fields of
production, development, manufacturing and research.
Industry Trends
The pharma industry generally grows at about 1.5-1.6 times the Gross Domestic
Product growth
Globally, India ranks third in terms of manufacturing pharma products by volume
The Indian pharmaceutical industry is expected to grow at a rate of 9.9 % till 2010 and
after that 9.5 % till 2015
In 2007-08, India exported drugs worth US$7.2 billion in to the US and Europe
followed by Central and Eastern Europe, Africa and Latin America
The Indian vaccine market which was worth US$665 million in 2007-08 is growing at
a rate of more than 20%
In 2008, the domestic pharma market in India was expected to be US$ 10.76 billion
and this is likely to increase at a compound annual growth rate of 9.9 per cent until
2010 and subsequently at 9.5 per cent till the year 2015.
The retail pharmaceutical market in India is expected to cross US$ 12-13 billion by
2012
The Indian drug and pharmaceuticals segment received foreign direct investment to
the tune of US$ 1.43 billion from April 2000 to December 2008
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"The Indian pharmaceutical industry has grown from a humble Rs 1,500 crore turnover in
1980 to approximately Rs 1,00,611 crore in 2009-10," the pre-Budget survey said.
The growth of the Indian pharmaceutical industry has been fuelled by exports, which
increased 25 per cent in 2008-09.
FDI IN INDIA
FDI in India has increased over the years due to the efforts that have been made by the Indian
government. The increased flow of FDI in India has given a major boost to the country's
economy and so measures must be taken in order to ensure that the flow of FDI in India
continues to grow.
Advantages of FDI in India:
The Indian government made several reforms in the economic policy of the country in the early
1990s. This helped in the liberalization and deregulation of the Indian economy and also opened
the country's markets to foreign direct investment.
As a result of this, huge amounts of foreign direct investment came into India through nonresident Indians, international companies, and various other foreign investors. The growth of FDI
in India boosted the economic growth of the country. Major advantages of FDI in India have
been in terms of
Increased capital flow.
Improved technology.
Management expertise.
Access to international markets.
Amount of foreign direct investment in India

The total amount of FDI in India came to around US$ 42.3 billion in 2001, in 2002 this figure
stood at US$ 54.1 billion, in 2003 this figure came to US$ 75.4 billion, and in 2004 this figure
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increased to US$ 113 billion. This shows that the flow of foreign direct investment in India has
grown at a very fast pace over the last few years. The various forms of foreign capital flowing
into India are NRI deposits, investments in the commercial banks of India, and investments in
the country's debt and stock markets.
FDI in major sectors in India
The major sectors of the Indian economy that have benefited from FDI in India are
Financial sector (banking and non-banking).
Insurance
Telecommunication
Hospitality and tourism
Pharmaceuticals
Software and Information Technology
Foreign Direct Investment (FDI) is permited as under the following forms of investments.
Through financial collaborations.
Through joint ventures and technical collaborations.
Through capital markets via Euro issues.
Through private placements or preferential allotments.
Forbidden Territories:
FDI is not permitted in the following industrial sectors:
Arms and ammunition.
Atomic Energy.
Railway Transport.
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Coal and lignite.
Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc.
FOREIGN INVESTMENT
The Foreign Direct Investment (FDI) equity inflows during 2009-10, in the month of
November 2009 were estimated at US$ 1.73 billion.
Cumulative amount of FDI inflows from August 1991 to November 2009 was US$
125.92 billion.
The sectors attracting the highest FDI equity inflows during April-November 2009 have
been the Services Sector, Computer Software & hardware, Telecommunication, Housing and real
estate, Construction activities, Power, Automobile industry, Metallurgical industries, Petroleum
& Natural gas and Chemicals.
The top investing countries in terms of FDI equity inflows during April-November 2009
have been Mauritius, Singapore, U.S.A, U.K, Netherlands, Japan, Cyprus, Germany, U.A.E,
France.
An Overview of Advantages of FDI

Foreign Direct Investment in India is allowed through four basic routes namely, financial
collaborations, technical collaborations and joint ventures, capital markets via Euro issues, and
private placements or preferential allotments
FDI inflow helps the developing countries to develop a transparent, broad, and effective policy
environment for investment issues as well as, builds human and institutional capacities to
execute the same.
Some of the biggest advantages of FDI enjoyed by India have been listed as under:
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Economic growth- This is one of the major sectors, which is enormously benefited from
foreign direct investment. A remarkable inflow of FDI in various industrial units in India
has
boosted
the
economic
life
of
country.
Trade- Foreign Direct Investments have opened a wide spectrum of opportunities in the
trading of goods and services in India both in terms of import and export production.
Products of superior quality are manufactured by various industries in India due to
greater
amount
of
FDI
inflows
in
the
country.
Employment and skill levels- FDI has also ensured a number of employment
opportunities by aiding the setting up of industrial units in various corners of India.
Technology diffusion and knowledge transfer- FDI apparently helps in the outsourcing
of knowledge from India especially in the Information Technology sector. It helps in
developing the know-how process in India in terms of enhancing the technological
advancement
in
India.
Linkages and spillover to domestic firms- Various foreign firms are now occupying a
position in the Indian market through Joint Ventures and collaboration concerns. The
maximum amount of the profits gained by the foreign firms through these joint ventures
is spent on the Indian market.
FOREIGN DIRECT INVESTMENT (FDI) IN PHARMA SECTOR

FDI Inflows to Drugs and Pharmaceuticals industry in India has grown over the last few
years due to the several incentives that have been provided by the Indian government. The
increase in FDI Inflows to Drugs and Pharmaceuticals industry in India has helped in the
growth of the sector
Drugs and Pharmaceuticals ranks 8th in Indias top 10 FDI-attracting sectors. The government of
India has allowed foreign direct investment up to 100% through the automatic route in the drugs
and Pharmaceuticals industry of the country, on the condition, that the activity should not fall
into the categories that require licensing. Pharmaceutical industry accounts for about 2.91% of
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total FDI into the country. The FDI in Pharmaceutical sector is estimated to have touched US$
172 million, thereby showing a compounded annual growth rate of about 62. The Industry has
received almost Rs 2141 crore investment from 36 countries through FDI between April 2007 to
April 2009 with most of the fund infusion directed to healthcare and biotech ventures. Out of the
total investment, almost 82 per cent of the FDI in Pharmaceutical sector was from five countries
- Mauritius, Singapore, USA, UAE and Canada. The increase in FDI Inflows to Drugs and
Pharmaceuticals industry in India has helped in the expansion, growth, and development of the
industry. This in turn has led to the improvement in the quality of the products from the drugs
and Pharmaceuticals.
Technologically strong and totally self-reliant, the Pharmaceutical industry in India has low
costs of production, low R&D costs, innovative scientific manpower, strength of national
laboratories and an increasing balance of trade. The Pharmaceutical Industry, with its rich
scientific talents and research capabilities, supported by Intellectual Property Protection
regime is well set to take on the international market as a global leader.
The Pharmaceuticals sector has been able to attract FDI amounting to Rs.21409 million during
the period from April, 2007 to April, 2009 including Rs. 43.42 million in the first month of the
current year. Out of 36 countries which contributed to FDI in India, 5 countries, led by Mauritius
(56.36%), Singapore (11.18%), USA (5.81%), UAE(4.73%) and Canada(4.00%), accounted for
over 82% of FDI in Drugs & Pharmaceuticals(Table-1).
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There were 208 foreign collaborators during the period April, 2007 to April, 2009 in so far as
Drugs & Pharmaceuticals are concerned. Of these, top 10 foreign collaborators contributed
48.70% of FDI. Further, out of top 10 collaborators, 7 were from Mauritius and one each from
Singapore, UAE and USA as may be seen from the Table-2.
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INDIAN PHARMA ATTRACTS RS 2141 CR FDI IN 2007-09,

MAJORITY FROM MAURITIUS
India, Monday, August 10, 2009: The Indian pharmaceutical industry has received almost Rs 2141 crore investm
According to the latest report of the Department of Pharmaceuticals, the pharma industry in the country has attra
The FDI from Mauritius in the two financial years was Rs 1206.50 crore, accounting to 56.36 per cent of the tota
Further, the figures show that while 208 foreign collaborators joined hands with Indian pharma industry for proje
Considering the global trend, there is no wonder for most of the fund inflow originates from Mauritius and Singa
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"When we look at the global funding sources, almost 80 per cent of them have their base in Mauritius and anothe
According to the regulations, FDI up to 100 per cent is permitted on the automatic route for manufacture of drug
FDI POLICY IN THE DRUGS AND PHARMACEUTICALS INDUSTRY IN

INDIA
In India, the Department of Chemicals & Petro-Chemicals, in the Ministry of Chemicals and
Fertilizers, is the concerned authority for the drugs and phamaceutical sector. The Department
aims at ensuring abundant availability of good quality pharmaceuticals of mass consumption, at
reasonable prices within the country. It also formulates and implements policies and programmes
for achieving growth and development of chemicals, petro-chemical and pharmaceuticals in the
country.
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In order to attract investment into the sector, the Department has undertaken several initiatives.
The major being the Pharmaceutical Policy, with the objective of:
Strengthening the indigenous capability for cost effective quality production and exports
of pharmaceuticals by reducing barriers to trade in the pharmaceutical sector.
Strengthening the system of quality control over drug and pharmaceutical production and
distribution to make quality an essential attribute of the Indian pharmaceutical industry
and promoting rational use of pharmaceuticals.
Encouraging R&D in the pharmaceutical sector in a manner compatible with the

countrys needs and with particular focus on diseases endemic or relevant to India by
creating an environment conducive to channelising a higher level of investment into
R&D in pharmaceuticals in India.
Creating an incentive framework for the pharmaceutical industry which promotes

new investment into the pharmaceutical industry and encourages the introduction
of new technologies and new drugs
As per all such initiatives, foreign Direct Investment (FDI) upto 100% is permitted (subject to
stipulations laid down from time to time) through the automatic route in the case of all bulk
drugs cleared by Drug Controller General (India) along with all their intermediates and
formulations.
MEASURES TAKEN BY GOVERNMENT TO ATTRACT FDI

Recent Initiatives in Pharma sector
Government has taken various policy initiatives for the Pharma sector
Government has offered fiscal incentives to R&D units in Pharma sector
Steps have been taken to streamline procedures covering development of new drug
molecules, clinical research etc.
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A number of inhouse R&D units holding recognition of DSIR have come up in the
Pharma sector. These units are eligible for weighted tax deduction@150% under Section
35 (2AB) of the Income Tax Act 1961 for the R&D expenditure incurred.
Government has also come up with two new schemes specially targeted at drugs &
pharmaceutical research.These are: 'The New Millennium Indian Technology Leadership
Initiative' (NMITLI) and the 'Drugs and Pharmaceuticals Research Programme' (DPRP).
As per Union Budget 2010.
Improving Investment Environment

Foreign Direct Investment (FDI) inflows during the year have been steady in spite of the
decline in global capital flows. India received FDI equity inflows of US$ 20.9 billion during
April-December, 2009 compared to US$ 21.1 billion during the same period last year.
Government has taken a number of steps to simplify the FDI regime to make it easily
comprehensible to foreign investors. For the first time, both ownership and control have
been recognised as central to the FDI policy, and methodology for calculation of indirect
foreign investment in Indian companies has been clearly defined. A consistent policy on
downstream investment has also been formulated. Another major initiative has been the
complete liberalization of pricing and payment of technology transfer fee, trademark,
brand name and royalty payments. These payments can now be made under the automatic
route.
Government also intends to make the FDI policy user-friendly by consolidating all prior
regulations and guidelines into one comprehensive document. This would enhance clarity
and predictability of our FDI policy to foreign investors.
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BUDGET 2010 - EXPECTATIONS OF PHARMA INDUSTRY

The last budget being neutral, the Indian pharmaceutical industry has drawn its unfinished
agenda with the hope that Budget 2010 would prove to be a remedy for the industry. Industry
believes that its wish list has a merit for consideration in this budget as some of these items have
not been covered in the aforesaid impending legislations.
Research tax credits
Drying pipeline of new drugs, increased R&D expenditure and increased pressure in the
developed nations to bring the health care costs down has compelled MNCs to offshore R&D
further. While India is perceived as an attractive destination to outsource R&D work due to its
low cost and high quality capabilities, to put India in a leading position, there is a need to provide
impetus to such activities in the form of tax and fiscal benefits. While currently, weighted tax
benefit is available for in-house R&D, there are no specific benefits available to units engaged in
the business of R&D. In this regard, the Government can play its role by providing benefits to
units engaged in the business of R&D by way of deduction from profits linked to investments.
Further, benefits in the form of research tax credits, which can be used to offset future tax
liability, similar to those given in developed economies can also be considered.
Include expenses related to research done outside R & D lab
The Indian pharma space has witnessed multiple innovative moves that have strengthened their
ability to make it big in the discovery/R&D space. These Indian companies incur huge
expenditure on overseas trials, preparations of dossiers, consulting/legal fees for NCE (New
Chemicals Entities) and ANDA (Abbreviated New Drug Applications) filings with the US FDA.
Also there is a significant amount of legal costs incurred in defending the patents and products.
While currently, weighted deduction is available for expenditure on in-house R&D facility, the
provisions do not specify that the expenditure incurred outside the R&D units are eligible for
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weighted deduction. Accordingly, industry bodies have sought the inclusion of expenditure
incidental to research carried outside R&D facility in India or in any foreign country, within the
ambit of weighted deduction.
Extend tax holiday to hospitals beyond rural areas
The quality and low cost advantage has boosted the medical tourism in India. Industry report
suggests that about 150,000 medical tourist visit India every year. Further, medical tourism to
India is expected to bring revenue of $2 billion by 2012. In order to capitalise on the opportunity
and to strengthen the position of India as a low cost health care tourist destination, there is a
greater need to set-up more and more state of the art health care facilities. Even otherwise, there
is a clear case of augmenting health care system in India. Given that large part of investment
would need to be contributed by private sector, the Government can play its role by providing
fiscal benefits and extending the existing tax holiday to hospitals set up beyond the rural areas.
Subsidy for rural healthcare infrastructure
Specifically with regard to rural and semi-urban areas, several companies have taken the
initiative to build the supply chain infrastructure and develop specific products--these steps are
not easy and carry huge investments. To promote the development of these areas and have better
access to healthcare facilities, the Government, in addition to its own programs, should support
the private sector as well--this could be in the form of subsidy, sharing infrastructure with private
sector, tax incentives and so on.
Rationalise assessment procedure
As per the industry practice, Pharma companies reach out to patients through doctors by
providing free samples of drugs to doctors and incur other promotional expenditure on seminars
and so on for education of doctors. This creates awareness about the drugs and ultimately helps
in boosting the sales of the companies. During the course of assessment proceedings, the revenue
authorities often challenge the promotional information and ask for voluminous documents
which are cumbersome to provide. They also often deny tax deduction on an ad-hoc basis. In this
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regard, the Government can rationalize the provisions by providing for claim of expenditure on a
self certification basis or on the basis of specified documents such as CA certificate and so on.
Harmonize pricing regulations
Transfer pricing is another area needing special attention for pharmaceuticals industry. While
transfer pricing regulations expect companies dealing in active pharmaceuticals ingredients
(APIs)/finished drug formulations (FDFs) imported from related parties to maintain higher
margins, Drugs Prices Control Order (DPCO) places restrictions on the end selling price. Equally
customs regulations create a reverse pressure by seeking to check any undervaluation of
imported APIs/ FDFs. There is a clear case to being in harmony in transfer pricing, customs and
DPCO regulations. Other issues which pharma companies face is comparison of prices of
innovator/ research oriented companies with generic companies without taking cognizance of
quality and efficacy. This causes significant hardship for innovators companies who spend
significant costs on research. There is an immediate need to address these issues as well. Also,
while it is proposed that Advance Pricing Agreements (APAs) and safe harbor rules would be
introduced, it needs to be expedited.
Extend list of life saving drugs
On the indirect tax front, the Government can look at extending the list of life saving drugs,
which are eligible for customs duty exemptions in India. This will lead to availability of life
saving drugs to the patients at reduced prices and bring down the cost of treatment for these
ailments. Further, it could also consider reducing the duty on medical devices which would lead
to overall reduction in the cost of treatment of patients. Also, Government could consider
reducing basic custom duty for formulations to five percent in line with the Chelliah Committee's
long-term fiscal policy recommendation.
Rationalise duty structure
The levy of excise duty on API at eight percent and on output of four percent has led to
accumulation of Cenvat credit in the books of manufacturers, especially those who are not
engaged in exports and cater only to the domestic market. Further, there are no provisions to
25 | P a g e
recover the accumulated Cenvat credit, which becomes a cost to such pharma manufacturers. The
Government could consider rationalising the duty structure by making it at par with duty on final
output. Another demand has been to increase the abatement limit allowed for computation of
excise duty on medicaments, from 35 to 45 percent. Further, industry has sought rationalisation
of Value Added Tax (VAT) on medicines across states with specific exemption of life saving
drugs and life saving medical devices.
In a nutshell, while the global developments have led to exciting opportunities for Indian pharma
industry, it is once again in search of support from the Government to tap the same. On the other
hand, the Government is making progress in bringing two major tax reforms, ie direct tax code,
and goods and services tax; they carry an underlying agenda of bringing tax reforms,
simplification of procedures and minimisation of tax incentives. Given that the Government
intends to implement these legislations in the near future, it appears that it may not bring in any
major changes in this budget.
26 | P a g e
IMPACT OF BUDGET ON PHARMA SECTOR
The Indian Pharmaceutical Industry (IPI), valued at around US$20 bn (Share: Domestic
59%, Exports 41%), is ranked 11th in value terms and fourth in volume terms in the
world. It manufactures about 400 bulk drugs and almost the entire range of formulations.
The industry, however, constitutes less than 2% of the total global industry turnover due
to low prices.
The industry is highly fragmented with around 20,000 players, of which around 250 in
the organised sector control over 70% of the total domestic market in value terms.
The industry has been growing at a healthy rate of 11-12% annually over the last few
years driven by good growth in both domestic and export markets. While growing share
of generics in the developed markets and opportunity from Contract Research and
Manufacturing Services (CRAMS) have been the primary drivers for exports, changing
demographics and shift in disease profile have been the major factors contributing to the
domestic market growth.
The IPI has remained largely immune to the global slowdown. Though the industry
achieved good growth in total turnover during FY2008-09, its profitability was negatively
affected due to exchange fluctuation losses, high interest burden and volatility in raw
material prices. Globally, the impact of economic slowdown has had varied impact across
different markets with overall moderation in growth rate vis--vis previous year.
27 | P a g e
BUDGET PROPOSALS
1. Increase in the weighted deduction on expenditure incurred on in-house Research &
Development activities from 150% to 200% also increase in the weighted deduction on
payments made to National Laboratories, research associations, colleges, universities and
other institutions, for scientific research from 125% to 175%.
2. Increase in peak rate of excise duty from 8% to 10%.
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3.
Increase in rate of Minimum Alternate Tax (MAT) from 15% to 18%.
*Excluding 2% education cess and 1% secondary & higher education cess

# On influenza vaccine and nine specified life saving drugs used for the treatment of breast
cancer, hepatitis-B, rheumatic arthritis etc and bulk drugs used for the manufacture of such drugs
IMPACT OF BUDGET ON PHARMA SECTOR
Duty Structure
(%)
Existing
Proposed
7.5
7.5
10.0
10.0
5.0
5.0
8.0
10.0
CUSTOMS DUTY*
Bulk Drugs
Formulations
Life Saving Drugs#
EXCISE DUTY
29 | P a g e
Bulk Drugs
1. Increased weighted deduction on in-house R & D expenditure will further encourage

spending by pharmaceutical and biotech companies on research for New Chemical
Entities (NCEs), New Drug Delivery Systems (NDDS) etc carried out in-house or
outsourced to third parties like National Laboratories and research institutions.
Expenditure of capital nature and cost incurred on clinical trials conducted domestically
will also be eligible for enhanced rate of weighted deduction.
2. Impact of increase in peak rate of excise duty would increase the cost of bulk drugs &
drug intermediates for the formulation companies. However, the impact on bulk drug
manufacturers would depend upon their ability to pass-on the increase to domestic clients
while their export business would remain unaffected.
3. Increase in MAT rate is expected to result in higher tax outgo for pharmaceutical
companies covered under MAT and operating from tax-exempt locations.
30 | P a g e
BUDGET IMPACT: COMPANIES

% of Sales
Applicable
Company
Bulk
Drugs
Proposals
Overall Impact
Formulations
Ranbaxy Lab.
25
74
1,2 and 3
??
Sun Pharma
11
89
1 and 2
??
Dr. Reddy's Lab.
37
56
1 and 2
Cipla
12
84
1 and 2
??
GlaxoSmithKline
97
Biocon
92
1, 2 and 3
??
Aurobindo Pharma
56
44
??
Lupin
18
82
1, 2 and 3
??
Legends:
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??
Highly Positive
Marginally Positive
??
Marginally
Negative
Highly Negative
??
Neutral
No Proposals
'PHARMA TO BE ONE OF TOP THREE FDI ATTRACTING SECTORS IN

INDIA'
Over the past few years, the number of FDI investors has been increasing with keen interest
in the pharma Sector
Could you explain the sudden FDI interest and activities in the Indian pharma and
lifesciences sector?
The confidence of the international investors has been growing in the Indian pharma sector post
the enactment of product patents in January 2005. Many global pharma companies have/are in
the process of setting up their own base in India by increasing stake in their own Indian
subsidiaries or collaborating with local pharma companies. Post 2005, about 17 patents have
been filed in India for new products. This number is expected to increase over time as more and
more companies gain positive experience of doing business in India. The Indian pharma and life
sciences sector is expected to grow through the launch of new products from India's own New
Chemical Entities (NCE) pipeline, increasing number of in-licensing and out-licensing deals
between Indian and foreign companies and consolidation in the sector with Indian companies
acquiring assets in India as well as abroad.
Another factor is that for the production of drugs and pharmaceuticals, an FDI of 100 percent is
allowed, subject to the fact that the venture does not attract compulsory licensing and does not
involve use of recombinant DNA technology.
Who are the major global players in Private Equity (PE) activities, specifically for pharma?
32 | P a g e
In the developed markets, many PE funds have been created with specific focus on pharma and
life sciences sectors. Some of them have been increasing activity in India as well. Well known
names that have been operating in the US and European markets are Domain Associates, MPM
Capital, Alta Partners, SV Life Sciences Advisers, Burrill & Company, OrbiMed Advisors,
Quaker BioVentures and Venrock Associates. On the Indian side, the Ajay Piramal Group
sponsored IndiaVenture Fund. This fund is focused on making investments across the entire
healthcare and life sciences domain including hospitals, pharma and biotech, healthcare IT, retail
pharmacies, clinical research, medical devices etc.
In the current market situation, how are Venture Capital (VC) and PE companies
structuring their investments and returns from pharma companies?
While VC and PE firms looking at pharma and life sciences sector are being selective with their
money, the economic crisis has not had a substantial negative impact on their activities. Pharma
and life sciences investors are in it with intent to capture the opportunity offered by the sector as
they are not very susceptible to short-term problems. In fact, the sector's desperation for cash has
led to better deal terms for VCs. And companies that do secure funding are using it wisely, since
they cannot afford to waste money anymore. In many cases, the best business plans are able to
raise funding while less promising ideas fall by the wayside.
Mostly PE companies structure their investments in order to protect their returns and to ensure
that they are able to exit from their investments within their defined time frames (typically three
to five years). The nature of the sector is such that VCs need to look at all the avenues for value
creation once they have made the investment. In order to accomplish value creation, the PE
companies negotiate for at least one board seat. PE funds also look for opportunities to create
value through cross sector synergies across their portfolio of companies. In case of our
IndiaVenture Fund, we get benefited by the relationships of Ajay Piramal group that have been
created over two decades across the entire healthcare and life sciences domain.
What has been the estimated FDI in the pharma/lifesciences industry over the past five
years?
33 | P a g e
The total cumulative FDI that has come into India till date is about $110 billion. However, 80
percent of this FDI inflow has happened from April 2000 to March 2009 (nearly $90 billion). In
the financial year 2009, the total FDI was $27 billion and in the financial year 2008, the FDI
inflow was at $24 billion.
So far the Indian drug and pharmaceutical sector has attracted close to $2 billion in FDI in
cumulative value. The sector has been able to attract FDI amounting to $1.4 billion from April
2000 to December 2008. This sector has become one of the top sectors for FDI in India.
However, with the recent downfall in the global economies, PE investments declined 34 percent
to $303.0 million in 2008, compared to $459.2 million invested during first 10 months of 2007.
Average PE deal size in 2008 came down to $16.8 million from $30.6 million in 2007.
Till now, which country has shown keen interest in India? Why?
Mauritius has contributed the maximum (about 40 to 50 percent of the total FDI), $40 billion
from FY 2000 to FY 2009 and about $2.5 billion in FY 2010 so far. The top five countries with
highest cumulative FDI into India are--Mauritius (44 percent), Singapore (nine percent), USA
(seven percent), UK (six percent) and Netherlands (four percent). Mauritius and Singapore offer
significant tax and regulatory advantages to the investors. That is the primary reason majority of
the PE funds are housed in Mauritius and a few are based in Singapore.
What kind of returns have been observed by FDI investors?
There are not many examples in the Indian pharma and life sciences sector where the FDI
investors have exited their investments. However, just to give an example, early investors in
Biocon have made tremendous returns. ICICI venture paid Rs 18 crore for a 15 percent in March
2000, and sold its holding (it was diluted to 12.5 percent after intra-group mergers) in 2002 for
Rs 46 crore to AIG investments and GW capital. That's a 156 percent return in just over two
years. In March 2004, Biocon went in for an IPO at a price of Rs 315 per share. AIG investments
and GW capital made huge returns on this investment. Not every investment would yield these
kinds of returns, but the sector offers unique opportunities for making good returns if invested
properly.
34 | P a g e
Why are developed countries investing their funds via other countries, and how does this
channel of investment benefit them?
Each country has different regulations, taxes and exchange restrictions, as well as limitations on
personal freedoms of speech, privacy and petition of grievancesthat affects the decisions of
investors about where to put their investments. Some countries have become highly specialised
in attracting international investors and have created conducive environment for these investors.
However, countries where the growth investment opportunities exist may not necessarily offer
specialised tax or regulatory incentives even though they may have well defined tax treaties with
countries offering better tax and regulatory environment.
What are the factors affecting the growth of FDI investments?
FDI in any country, directly or indirectly impacts the environmental, governance and social
issues. Typically, the host country limits the extent of impact that may be made by the FDI to
ensure adequate protection for small scale businesses. At times certain foreign policies may not
be appreciated by the workers of the recipient country. Some disadvantage of FDI pertain to the
fact is that there is a chance that a company may lose out on its ownership to an overseas
company. This has often caused many companies to approach foreign direct investment with a
certain amount of caution. India showed initial resistance to FDI because of the above reasons.
However, the overall impact of the FDI investments has been positive for the growth of the
country.
The Government of India has a well-defined and transparent FDI policy. This includes opening
of many new sectors to FDI, raising FDI equity caps in sectors already opened and procedural
simplification. The FDI policy in India is widely reckoned to be among the most liberal in
emerging economies and FDI up to 100 percent is allowed under the automatic route in most
sectors and activities.
Given the critical role that technological innovation plays in the sector and the role that IPRs
play in the ability of the pharma sector to capitalise on that innovation, it is not surprising to find
a positive relationship between IPRs and FDI in the sector. The strength of IPR protection
35 | P a g e
appears to be one important factor, among others, influencing trade and investment decisions in
the sector.
Where do you see FDI investments in the pharma and lifesciences sector in India in the
future?
The Indian pharma and life sciences sector will continue to internationalise and seek to capitalise
on new market opportunities around the world.
Moreover, as intellectual property standards in India continue to provide increasing comfort to
the international community, one could reasonably anticipate geographic diversification in the
types of investments in the sector, including R&D.
In this context, one can expect growth in the FDI as firms seek to exploit locational advantages
of sites around the world and thereby contain costs or position themselves strategically.
In the coming years, I expect this sector to be one of the top three sectors attracting FDI in India.
36 | P a g e
CONCLUSION
The Indian pharmaceutical industry is a success story providing employment for millions
and ensuring that essential drugs at affordable prices are available to the vast population of
this sub-continent.
The increase in FDI Inflows to Drugs and Pharmaceuticals industry in India has helped in
the expansion, growth, and development of the industry. This in its turn has led to the
improvement in the quality of the products from the drugs and pharmaceuticals industry.
37 | P a g e
38 | P a g e

Economy of India: Fdi in Indian Pharma Sector

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FDI IN INDIAN PHARMA SECTOR

FDI IN INDIAN PHARMA SECTOR

GROWTH RATE OF INDIA.

Jun Sep Dec Average

FDI IN INDIAN PHARMA SECTOR

FDI IN INDIAN PHARMA SECTOR

OVERVIEW OF PHARMACEUTICAL SECTOR

FDI IN INDIAN PHARMA SECTOR

FDI IN INDIAN PHARMA SECTOR

According to Ministry of Commerce and Industry, Domestic investment in the

According to the Ministry of Commerce & Industry, Pharmaceutical sector is estimated

Strong manufacturing base

Network of laboratories and R&D infrastructure

Highly trained pool of scientists and professionals

FDI IN INDIAN PHARMA SECTOR

World-class quality products

Strong marketing and distribution network

Strong process development skills

Potential ground for clinical trials

Fast growing health care industry

Growing biotechnology industry

Highest Quality approvals from USFDA, EDQM, MHRA etc.

Ranks 4th in the world, accounts 8% by volume and 2% by value.

An excellent center for clinical trials.

Research and Development

FDI IN INDIAN PHARMA SECTOR

FDI IN INDIAN PHARMA SECTOR

Selected Contract Manufacturing Deals in India

Bulk and Formulations

FDI IN INDIAN PHARMA SECTOR

Orchid Chemicals and

Bristol Myers Squibb

Nizatidine (anti- ulcerant)

drugs and insulin

Penicillin- G Bulk Drug

Intermediates for Pantoprazole

FDI IN INDIAN PHARMA SECTOR

GROWTH OF INDIAN PHARMACEUTICAL INDUSTRY:

Globally, India ranks third in terms of manufacturing pharma products by volume

FDI IN INDIAN PHARMA SECTOR

Increased capital flow.

Access to international markets.

Amount of foreign direct investment in India

FDI IN INDIAN PHARMA SECTOR

Financial sector (banking and non-banking).

Hospitality and tourism

Software and Information Technology

Through financial collaborations.

Through joint ventures and technical collaborations.

Through capital markets via Euro issues.

Through private placements or preferential allotments.

Arms and ammunition.

FDI IN INDIAN PHARMA SECTOR

Coal and lignite.

An Overview of Advantages of FDI

FDI IN INDIAN PHARMA SECTOR

FOREIGN DIRECT INVESTMENT (FDI) IN PHARMA SECTOR

FDI IN INDIAN PHARMA SECTOR

FDI IN INDIAN PHARMA SECTOR

FDI IN INDIAN PHARMA SECTOR

INDIAN PHARMA ATTRACTS RS 2141 CR FDI IN 2007-09,

FDI IN INDIAN PHARMA SECTOR

FDI POLICY IN THE DRUGS AND PHARMACEUTICALS INDUSTRY IN