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Pharma innovation needs a fillip

The government can facilitate double-digit growth in the pharmaceutical sector by giving incentives.

  • February 19, 2016  
  • |  
Saravana Kumar, CIO, LIC Nomura Mutual Fund

India enjoys an important position in the pharmaceutical sector. The Indian pharmaceutical market is the third largest in terms of volume and 13th largest in terms of value, as per a report by Equitymaster. India is the largest provider of generic drugs globally, with Indian generics accounting for 20 per cent global exports in terms of volume.

From primarily being a generic manufacturer to supplying complex formulations to global pharmaceutical markets, the Indian pharmaceutical sector has witnessed a significant evolution over the last few decades. Moreover, it has shown consistent performance despite the economic slowdown.

The government's 'Make in India' campaign is further expected to propel domestic pharmaceutical manufacturing, taking India a step closer to becoming a global manufacturing hub. The Indian pharma industry, which is expected to grow over 15 per cent per annum between 2015 and 2020, will outperform the global pharma industry.

However, despite all these advancements, the industry is engulfed by issues that may hold it back from its tryst with double-digit growth and innovation. Certain challenges like ambiguities around the FDI policy continue to lower the sector's attractiveness.

Moreover, instances of quality issues raised by the USFDA have impacted the image of Indian branded medicines. Increased competition from China and viability issues are further adding to the woes of Indian drug manufacturers. The new pricing policy, which has led to margin erosion, has put industry players in a very difficult situation and needs a quick resolution. In the previous Union Budget, total allocation for the health-care sector was Rs 33,150 crore.

There was hardly any tangible incentive other than the proposal for overall corporate tax reduction from 30 per cent to 25 per cent over the next four years, which may yield some savings in the medium term. Expectations of the pharma industry in India from the Union Budget are very modest this year too.

Here are some of them:

  • To encourage innovation, the inhouse R&D exemption limit is expected to be raised from 200 per cent to 250 per cent; this should also include expenses related to overseas clinical trials, product approval and patenting.
  • The government needs to provide a clear roadmap for implementing the long-awaited GST. It should not only be a tax change but also a business change, thereby enabling growth.
  • Excise duty on formulations (5 per cent) and API (10 per cent) expected to be rationalised.
  • To revive the API industry, the government should offer fiscal incentives during the formative years to encourage setting up of large-scale pharma and chemical clusters in close proximity with each other, to enable companies to build scale and go for vertical integration.
  • On Intellectual Property Rights, there is a need to set up specialised courts that are equipped to adjudicate technical and scientific issues involving pharmaceutical patents. • Finally, on biosimilars, or biobased pharma products, the industry is seeking clarity on the regulatory framework and export incentives apart from tax and excise holidays.

 Written by Saravana Kumar, CIO, LIC Nomura Mutual Fund