One of the most inclusive budgets in recent times: Ramesh Swaminathan, CFO, Lupin Limited
Ramesh Swaminathan March 1, 2016
The budget presented by the Finance Minister is a well-balanced one given the way the global economy has been over the last one year. The good part is that the FM has chosen to maintain the fiscal deficit at 3.5 per cent. This has to be one of the most inclusive budgets in recent times, given the government's tilt towards stepping up on developing rural infrastructure and providing impetus to India's rural economy.
This year's union budget also has some measures for the pharmaceutical sector such as encouraging innovation in the industry with a 10 per cent rate of tax on income from worldwide exploitation of patents developed and registered in India by a resident. In addition, service tax on services provided by Biotechnology Industry Research Assistance Council (BIRAC) approved biotechnology incubators to incubates being exempted will provide an impetus to start-up biotech enterprises and new units, as this exemption could have a direct impact of 14 per cent on the bottom-line of such enterprises.
Having said that, the deduction for expenditures on scientific research (R&D) being cut from 200 per cent to 150 per cent beginning in April '17 and eventually phasing out from 2020 will have a negative impact on the Indian Pharmaceutical Industry. The duty drawback schemes have also been widened and deepened to include more products and countries which would be a positive for export-oriented pharmaceutical companies.
Service tax credit can now be distributed to outsourced manufacturers, i.e., to LLM and P2P manufacturers. This would result in lesser burn-out of service tax at the time of distribution, going forward.
Interest rates have been standardised at 15 per cent p.a., w.e.f. 1 April 2016, a move away from the variable rates presently applicable (between 18 per cent and 30 per cent). This would provide relief to assessees as a potential tax liability on an interpretation matter could actually result in a huge interest burden.
A clause has been inserted (w.e.f. 1 March 2016) restricting the quantum of rebate to the value of such goods sold in India. Due to this change, the Central Excise rebate which is presently being claimed on export of goods may get restricted on high margin export consignments.
Even though the budget has increased healthcare spends with announcements such as the health protection scheme, which will provide health cover up to Rs 1 lakh per family, and ensuring quality health services to a larger populace which may entail increased demand for pharmaceutical products and ancillary medical equipment.
The proposed 'National Dialysis Services Programme' is a good initiative which would decrease the financial impact of prolonged and expensive treatment for dialysis patients. In addition to that, the proposal to open 3,000 stores for generic drugs is a step in the right direction for creating accessibility to affordable medicines, however demand for branded products could be impacted due to this. Having said that, the budget, as has been the case in the past 5 years needs to do more when it comes to making healthcare and medicines accessible.
The budget must focus on incentivizing the creation of requisite healthcare and medical infrastructure; it must incentivize research and development, encourage pharmaceutical manufacturing and exports from the sector. Also, last but not the least the implementation of the GST bill will give a big push to increasing ease of business across sectors.