Union Budget-2008 and Indian pharma sector : Part 1

My first blog on Pharmainfo.net is dedicated to my dear parents…

Union Budget-2008 and Indian pharma sector.

As we know, Central Finance Minister P.Chidambaram has presented the Latest Union budget in the LokSabha on 29 February 2008.We heard from the media that it would make big impact in the Indian Pharmaceutical Industry in many ways. How many of us are aware of this matter which can be a turning point for the current scenario of our domestic pharmaceutical sector? Simply for asking, how many of us i.e. the persons from the pharmacy field have a clear picture of the term ‘budget’? We can’t keep distance from such questions thinking that there is no need for pharmacy professionals to deal with such complicated terms. As the persons involved in the pharmaceutical sector, we should have the clear cut vision of the things happening in our industry, in our government and in our society.

Budget generally refers to a list of all planned expenses and revenues. The budget of a government is a summary or plan of the intended revenues and expenditures of that government. In India, the Finance Minister prepares the Union (F Budget and presents it to the Lok Sabha, the House of Representatives on the last day of February month. It has to be approved by Parliament before April 1 which marks the start of the fiscal year in India. The day the Union Budget is presented is considered by many observers to be the most important of India's political calendar. It usually has an immediate effect on the nation's stock exchanges and also has possible short term political implications. This is in addition to the long term changes that some budgets may lead to, for e.g. Liberalisation of Indian Economy declared by Dr. Manmohan Singh in the 1991 budget when he was the Finance Minister of the country. All the industries of the country including the Pharmaceutical Industry will be influenced by the allocations in the budget for that specific industry.

Now, we should have a glance on the Indian Pharmaceutical industry which is highly fragmented with about 24,000 players (around 330 in the organised sector). The top ten companies make up for more than a third of the market. The revenues generated by the industry are approximately US$ 7 bn and have grown at an average rate of 10% over last five years. The Indian pharma industry accounts for about just more than 1% of the world's pharma industry in value terms and 8% in volume terms. In the recent past, Indian companies have targeted international markets and have extended their presence there. While some companies are exporting bulk drugs, others have moved up the value chain and are exporting formulations and generic products. India also offers excellent exports opportunities for clinical trials, R&D, custom synthesis and technical services like Bioinformatics.
The Drug Price Control Order (DPCO) continues to be a menace for the industry. There are three tiers of regulations – on bulk drugs, on formulations and on overall profitability. This has made the profitability of the sector susceptible to the whims and fancies of the pricing authority. The new Pharmaceutical Policy 2006, which proposes to bring 354 essential drugs under price control has not been officially passed as yet and has been stiffly opposed by the pharmaceutical industry. While the average R&D spending in India as a whole is a meager 2% of sales, the spend of the top five companies is about 5% to 10%. Despite growing at a CAGR (Compound Annual Growth Rate) of over 50% over the last four years, the ratio is still way below the global average of 15% to 20% of sales. However, despite the relatively low R&D spending, Indian companies are stepping up their research activities to make themselves more self sufficient in terms of product development, now that the product patent regime has come into force.

To be continued in the next blog…keep watching.