Budget 2022 Series: Pharmaceuticals
Budget 2022 is upcoming on 1st February 2022. The market is usually turbulent on that day and presents many emotions for the investors. We, in this article, look at how government policies will impact Pharma and what to expect out of Budget’22 for them.
Nifty Pharma, over the past year, has increased by 10%. A large part of the rise was in the initial half of 2021. The second half has been tricky with USFDA checking increases, inflation affecting raw materials, and US business revenue declining. The rosy picture of Pharma had come thrashing down with a correction in the second half. They desperately need more incentives, and the Pandemic has made the Government realize their importance to the country. The Budgetary allocation to the sector increased significantly in the 2021 Budget for the same reason.
Production Linked Incentives to support the Atma Nirbhar Bharat notion has been developed for the Pharmaceutical Sector. Active Pharmaceutical Ingredients, Key Starting Materials, promotion of Bulk Drugs manufacturing are some areas focusses on. This has encouraged investment from players both domestic and international.
Industry Experts are demanding downward revision of GST Rates on clinical trials and research activities. This will help Research and Development activities to prosper. Research linked incentives where companies are incentivized to spend more on R&D, employment, and the outcome have also been considered. There needs to be an ecosystem of Research and Innovation; tax incentives may also be provided on R&D-focused funds. The weighted tax deduction on research was introduced in the 2010 Budget, which progressively came down to 100% until 2020. A reversal for the same has been lobbied for since the last budget.
Expansion of the PLI Scheme for APIs and Key starting materials, and then extending to Formulations would greatly benefit. India has been trying to benefit from the “China+1” factor and increasing API manufacturing to become closer to the goal of self-reliance in medicines. However, formulations have been left untouched for a while now. This extension would lead to incentives in the complete value chain of medicines, leading to stable supplies.
Research from Deloitte indicates expectations of tax cuts in Life-saving drugs and critical devices. Healthcare services are currently exempt from GST, but they still need to bear operational costs since the inputs or input services come under GST. A zero-rating would ensure affordable healthcare services. Moreover, tax holidays for new hospitals would encourage investment and help increase healthcare coverage in areas where the Indian Healthcare System has not been able to penetrate.
While these measures have been discussed repeatedly, it is upon the Government to prioritize and allocate their spending while keeping the fiscal deficit in control. We are in the midst of a third wave in the Pandemic; the Government should give more importance to this sector. Big Bang announcements would be well appreciated; we wait for 1st February!