Pharmaceuticals industry awaits Budget 2023 for policy direction

budget 2022 pharmaceuticals industry
India can aspire to be a global manufacturing hub for pharmaceuticals, but it needs to reduce dependence on imports.

The Indian pharmaceuticals industry has proven itself globally. India ranks third globally for pharmaceutical production by volume and 14th by value. Recently, India has set a benchmark for the world with its successful covid-19 vaccination campaign. The sector is significant for India, from an export perspective as well as domestic market potential.

India is the 12th largest exporter of medical goods globally – it supplies 20% of the worldwide volume of generic medicines, making it the world’s largest supplier of generics, and also fulfils about 60% of global vaccination demand. Apart from its prominence in the global arena, the domestic market is expected to expand 3 times in the next decade – the domestic pharmaceuticals market is likely to reach $120-130 billion by 2030 and medical devices market to $50 billion by 2025.

India has enormous potential in pharmaceuticals but is considerably dependent on imports. With the right stimulus and policy support, India can aspire to produce quality medicines at affordable cost. The government has recognised this and has started taking steps in this direction.

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The Profit Linked Incentive scheme clearly reflects the intent of creating a self-reliant India (Atmanirbhar Bharat) in this crucial sector. While this is certainly welcome, overall success in coming times will considerably depend on availability of a conducive framework and fiscal support which enable quality manufacturing at competitive prices and encourage adoption of innovation and technology. Against this backdrop, expectations are high from Budget 2023.

Expectations of pharmaceuticals industry

For one, it is critical to encourage investment in research and development. While the R&D policy is under finalisation after stakeholder consultations, budgetary support and fiscal benefits should be mobilised without time lag. Tax benefits to incentivise private sector and venture capital investment and making CSR funds available for R&D would help gain necessary traction. Also, greater allocations for research-linked areas like biologics, biosimilars, cell and gene therapies would help progress in these fields, alongside generics.

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Another key area is technology and digitisation. Encouraging HealthTech and MedTech sectors and promoting initiatives such as telemedicine and digital health would help to improve accessibility, overcome low doctor to population ratio and enhance patient outcomes, including through preventive healthcare.

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While Ayushman Bharat Scheme is working, more hospitals are expected to provide the benefit of that scheme and suitable budgetary allocations are expected in that space. Besides hospital coverage, there is a need to strengthen allied areas like diagnostic testing facilities, Emergency Medical Services, specialist nurses and doctors through skilling and training, etc. to enhance the healthcare capabilities and capacity.

Policy measures and budgetary spend should be supplemented by tax benefits necessary for the industry such as:

  • Promoting health and mental well-being: Deduction for expenditure on wellness and mental health, increased deduction for medical insurance premium and for preventive health check-ups.
  • New domestic manufacturing companies can benefit from an income-tax rate of 15% (plus surcharge and cess) subject to conditions. In this regard, to attract more investments and for tax certainty the Budget should (i) relax the sunset date for eligibility, (ii) clarify that the tax rate would continue even if the eligible companies undertake restructuring, or amalgamation amongst themselves. It should clarify if assembly of products would qualify as manufacture in the case of medical devices.Other direct tax incentives: Tax holiday for setting up hospitals in rural areas, special benefits for exports, capex investment and R&D.
  • Indirect tax: Healthcare services are presently exempted; therefore, the Input Tax Credit becomes a cost. In order to address this issue, the healthcare services may be brought under the ambit of Zero rating. Similarly reducing GST on medical devices and allowing Input Tax Credit of GST in respect of expired goods should help to reduce cost of healthcare.

With India’s G20 Presidency this year, it is expected that greater emphasis will be given to digital health innovation, universal health coverage and healthcare infrastructure. Budget 2023 should position India to seize opportunities and achieve leadership.

(Shuchi Ray is Partner, Shivali Valecha Director, and Ruchi Shah Manager at Deloitte Haskins & Sells LLP.)