Budget 2010 to boost research

Bangalore, Mar 03, 2010: Over the years, the finance ministry has given the life sciences industry due emphasis in budget. With India figuring low on various healthcare counts, increased allocation in healthcare shows the government’s commitment to tackle the situation.

Through the budget 2010, Finance Minister Pranab Mukherjee has proposed to extend the scope of weighted deduction on expenditure incurred on in-house Research and Development to 200 percent from 150 percent, to be effective upto 2012. Mukherjee has also proposed to increase the weighted deduction on payments made to national laboratories and research organizations for scientific research from 125 percent to 175 percent. But at the same time increase in MAT to 18 percent from 15 percent and input duty on raw materials from 8 to 10 percent has made the industry unhappy.


Reacting to the budget Sanjay Nagrath, Chief Financial Officer, Intas Biopharmaceuticals says, “It is a welcome move from Finance Minister to raise weighted deduction on in–house R&D expenditure from 150 percent to 200 percent and weighted deduction on payment made to national laboratories research association, colleges, and other institutions for scientific research is increased to 175 percent from 125 percent. Reduction in excise duty on goods covered under the Medicinal and Toilet preparation Act from 16 percent to 10 percent is also a positive move.”


"GST (Goods & Services Tax) implementation from April 2011 was expected however it is important that the government ensures timely implementation”, he said.


Commenting on the weighted R&D deduction, Satish Reddy, Managing Director and COO, Dr. Reddy’s Laboratories said, “From the pharmaceutical sector perspective, which is an innovation driven industry, increase in weighted deduction on expenditure incurred on in-house R&D is a positive and encouraging move.


“The Government’s commitment to ensure continued growth of Special Economic Zones augurs well for industrial development. While we await the fine print on specifics and implementation proposal, the aim to implement GST and DTC by April 2011 is a welcome move, he adds.


Praveen Gupta, VP-Business Development, Premas Biotech echoed the same point,“The increase in allocation of fundings for biotech R&D has been a great step which will boost the research into some major areas. But he lamented at the fact that nothing has been done on the import duty which according to him is a major bottleneck in the competition at global scale.


In addition, the industry is almost unanimous in claiming that the benefits, which would accrue from this incentive, would be more than neutralized by the increase in MAT to 18 percent from 15 percent . The industry had requested that the last year's MAT hike from 10 percent to 15 percent be reversed in this budget, however the industry feels disappointed as this was not done.


“The increase in the MAT rate is a negative step for industry as it will increase tax burden on the MAT paying companies,” says Sanjay of Intas Biopharmaceuticals.


Satish opines, “Reduction in corporate surcharge will provide marginal relief while the MAT rate increase, which is likely to balance out the benefits, could have been avoided.”


The 2010 budget may prove to be a mixed bag for life sciences sector as well as patients, with prices of medicines going up marginally by 1-2 percent, while concessions given to medical, surgical, dental equipment and ortho-paedic implants leading to reduction in prices.


Industry feels that prices may be increased on account of higher raw material costs due to the two percent excise duty rollback. But concessions given to medical equipment, and exemptions of custom duty on inputs for manufacture of orthopedic implants should lead to a reduction in prices of these devices. Also, if certain parts are imported for manufacture of equipment in India, no CVD and SAD will be levied and only five percent basic customs duty will apply.


Gautam Khanna, Executive Director - Healthcare Business, 3M India comments, “A concession of basic duty on the manufacture of parts and accessories of medical equipments is a welcome move. Also, full exemption on medical equipments will help manufacturers make it available for end users at a better price.”


He further comments, “Increase in healthcare budget allocation is going to be a welcome change as it will help boost public health, insurance and infrastructure. This will hopefully see a potential increase in the penetration of health insurance in India and the move is expected to have a direct positive impact on the demand and quality of healthcare services in India.”


V Raja, President and CEO, GE Healthcare South Asia says, “While the budget is a very balanced one, we would have been happier if infrastructure status was granted to the healthcare industry. Healthcare industry is one of the largest and most critical one for healthy people, healthy country and a healthy economy. Infrastructure status would have helped healthcare industry to have access to more funds, more benefits and thus resulted in increased and affordable healthcare to the masses. “


Overall the industry was not really enthused with this years' budget and termed the steps announced not enough to give the necessary boost to the sector. The industry was also expecting an increase in healthcare infrastructure, with creation of focused SEZs and tax holiday on exports, which remained unaddressed.