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Run up to the Budget: Pharmaceuticals sector

Inputs for Bulk Drugs
Chemicals and Intermediaries

Input for Formulations
Bulk Drugs

Review

• The pharmaceutical industry in India achieved a turnover of Rs197.4 bn in FY 1999-2000, recording a 15.85% growth over the previous year. However, the margins were under pressure due to controlled prices and increasing competition

• The condition imposed by the World Trade Organisation (WTO) and Trade Related Intellectual Property Rights (TRIPS) would require India to recognise product patents from the year 2005 in place of the present process patent. This will prevent domestic companies from replicating patented drugs by reverse engineering.

• The Indian System of Medicine (Ayurveda) is a sunrise industry. The estimated potential for global ISM market is around $ 62 bn whereas the current Indian exports of Ayurvedic products are only around Rs 4 bn

• Generic medicines were brought on par with branded medicines with excise duty on the former being raised to 16 % from 8 %.
  
  
• Reduction of peak customs duty from 40 % to 35 %
  
  
• Levy of excise duty on medicines at Maximum Retail Price (MRP).
  
  
• Increase in dividend tax from 10% to 20% thereby affecting most pharma companies that have a track record of paying high dividend.
  
  
• Phasing out the export benefits over a five-year period, thereby affecting the pharma sector which traditionally has been a large exporter.

• The Organisation of Pharmaceutical Producers of India has proposed that the customs tariffs on raw and packing material, drug intermediaries and bulk drugs be reduced from 35% to 15%, 35% to 20% and 35% to 25% respectively.

• The industry has sought removal of import duty of 35% on reference standards (used for testing) and equipment used for R&D.

• To ensure a level playing field to domestic companies the Indian Pharmaceutical Alliance (IPA) has demanded that certain life saving drugs imported by MNCs which are currently attracting nil rate of customs tariff should attract a Countervailing Duty of 16% - equivalent to the excise duty charged on local manufactures.

• The drug industry has demanded rationalisation of the price control norms under the Drug Prices Control Order (DPCO) and increase in prices from the current mark up level of cost plus 100%.

• The industry is urging the Government to modify income tax provisions relating to research. The industry has demanded a ten-year tax holiday on research related income instead of the present ten-year tax holiday to pharma companies registered between 01/04/00 and 31/03/03 whose main objective is research. This is because companies who have set up research units prior to 01/04/01 are finding it difficult to spin-off research units and fund and sustain them. Moreover the industry has demanded that capital expenditure on R&D eligible for 125% deduction should also include the cost of land and buildings, as most of investment is in buildings.

• To promote the drug related research activities in the country the Government may increase the research related tax benefits currently available to pharmaceutical companies

Cipla, Ranbaxy Laboratories, Dr Reddy's Laboratories, Glaxo India, Novartis India, Hoescht Marion Roussel, Torrent pharmaceuticals, Lupin Laboratories, Nicholas Piramal, Knoll Pharmaceuticals, Kopran, Pfizer, Wockhardt, SmithKline Beecham Pharmaceuticals, Sun Pharmaceuticals, Wyeth Lederle

Rediff-Dun & Bradstreet Budget Impact Analysis
Budget 2001

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