EFFECT OF INDIAN BUDGET 2008

ON
PHARMACEUTICALS AND HEALTH
CARE

Kuldeep More
1. Require incentives for R&D
2. Extend weighted tax deduction
3. Reduce cost of life saving drugs
4. Lower central excise duty
5. Relook norms for SEZ units
6. Relief from custom duty
 Extended Weighted Tax
Deduction
 Weighted deduction should be renewed and
extended up to 31st March, 2012
 with a view to encourage more such
companies to dedicate themselves to the cause
of long term R&D by availing tax shelter

Reduce Cost Of Life Saving Drugs

Custom duty 12.5 percent
 Lower Central Excise Duty
 Central excise duty on allopathic, ayurvedic
drugs and pharmaceuticals should be lowered
from the present 16 percent to eight percent.

 The bulk drugs and formulations thereof

falling under categories of anti-AIDS, anti-
cancer, anti-TB, immune suppressants and
other life-saving drugs should be totally
exempted from the excise duty.
 Physician's samples should be exempted from
excise duty.
Relook norms for SEZ units
 There must be a clarification whether export of
services rules would apply to services rendered
from an SEZ.

Relief from custom duty

Import of capital goods, raw materials,
consumables, reference standards for R&D
purposes should be totally exempted from
customs duty.
 Increase
in allocation to the health sector by 15% over
2007-08.

 Allocationto the National Rural Health Mission (NRHM)

increased to Rs 12,050 crore.

 Provisionof Rs 993 crore to the National Aids Control

Programme and allocation of Rs 1,042 crore for the
eradication of polio with focus on high risk districts in
Uttar Pradesh and Bihar.
 Customs duty to be reduced from 10% to 5% on
certain specified life saving drugs and on bulk drugs
used for their manufacture. These drugs are also
exempted from excise duty.

 Excise
duty on all goods produced in the
pharmaceutical sector reduced from 16% to 8%.
 Anti-AIDS drug, ‘Atazanavir’, as well as bulk drugs
for its manufacture to be exempted from excise duty.

 In
order to promote outsourcing of research, weighted
deduction of 125% on any payment made to
companies engaged in R&D.
MAJOR DECLARATIONS ON
THE HEALTH SECTORz
 The allocation that is provided to the health and
educational sector has been increased to 20%
 The excise duties on the anti-AIDS drugs have been
brought down
 The sanitation program would receive Rs. 1200
crores
 The customs duties on some of the bulk-drugs have
been brought down to 5%
 17 lakh families of weavers have been included in the
Health Insurance program
 The allocation provided to the National Rural Health

Mission has been increased by 15%.

 Life Insurance Corporation would provide coverage to

all the women Self-help Groups that are connected to

banks
 All the people working in the unorganized sector

would receive health coverage of Rs. 30,000.

 Rs. 12,050 crores would be allotted to strengthen the

health services in the villages

 Increase in allocation to the healthcare sector is a
positive given the need to ramp up the healthcare
infrastructure in the country and improve the
accessibility of quality healthcare to a larger section
of the population.
 Reduction of excise duty from 16% to 8% is a

positive for all pharma companies enabling them to

boost profitability going forward given that the excise
duty is being paid on MRP.
 Increased allocation of funds for eradication of
HIV/AIDS and polio and reduction in customs duty
on certain life saving drugs from 10% to 5% is a
positive for companies having product pipeline
catering to these segments.
 Weighted deduction of 125% on payments made for

outsourcing research services is a positive for the

sector as a whole given that the emphasis on R&D has
increased.
 STRONG GENERIC FUNDAMENTALS - Though the pricing
pressure witnessed in the generic markets of US and Europe, the
fundamental factors driving the generics industry remain strong.

 COST COMPETITIVENESS - A new concept that is gaining

momentum in the pharma industry is contract research apart from
contract manufacturing. Given the low cost high quality advantage

 STRUCTURAL CHANGES - The penetration of health insurance

is badly low in the country. The entry of private players would not
only bring in quantum leap in the health insurance business but also
increase capital inflows into this sector.
 NEW GROWTH OPPORTUNITIES - In spite of the price
war, the domestic pharma industry continues to show decent
growth rates, led by the chronic therapeutic (lifestyle)
segments like anti-diabetic, cardiovascular and central nervous
system. chronic/lifestyle segment. This trend is likely to
continue going forward.

 INCREASING R&D FOCUS - One of the positive

developments has been the shift towards product patent regime
from 2005 onwards. This will lead to a structural change in the
industry, which will encourage innovation and greater
investment in R&D. While there would not be any impact in
the short term, in longer term this will lead to strengthening
and consolidation of the industry
 CHALLENGING GENERICS ENVIRONMENT - Competition in the US
and European generics market has intensified in the past couple of years on the
back of increased competition leading to brutal price erosion. While the
product flow is set to increase in the coming couple of years, pricing pressure is
expected to continue.

 IMPACT OF THE PATENT REGIME - The new patent regime brings in lot
of promises for the industry in India, but it might not be good for the smaller
players in the industry, as they will not be able to survive in the environment
leading to consolidation of the industry

 GOVERNMENT CONTROL - This attribute simply refuses to go away,

despite all the overall moves to liberalize the industry. DPCO still continues.
 Although The average R&D spend is less than 4%
of the turnover in this industry, there are many
companies which spend more than 12 % of their
sales on research without any results expected in the
near future. Unlike in other industry segments,
Research in pharmaceutical sector takes 10-12 years
and several million of dollars to get a successful
molecule. So Finance ministry could have taken
these factors into consideration while finalizing
budget proposal.
 COMPANY IMPACT
 Reduction of excise duty from 16% to 8% is a positive for all pharma
companies namely domestic companies such as Cipla, Ranbaxy and
the likes and MNC pharma companies such as GSK Pharma, Pfizer
and Aventis.

 Emphasis on allocating funds for the eradication of HIV/AIDS and

polio is a positive for Cipla (which has a strong presence in the
manufacture of anti-AIDS drugs) and Panacea Biotec (which largely
manufactures oral polio vaccines).

 Weighted deduction of 125% on payments made for outsourcing

research services is a positive for R&D focused companies such as
Ranbaxy and Nicholas Piramal.
THANK YOU