Union budget-2008 and Indian pharma sector : Part 2

Indian pharmaceutical sector gained a few but important benefits from the 2008 budget. P. Chidambaram’s budget may be a turning point to the Indian pharmaceutical industry and really a boost to the pharmaceutical companies.

The main measures of this budget related to the health and pharma sector are:

• Increase in allocation to the health sector by 15% over 2007-2008
• Allocation to the National Rural Health Mission (NRHM) increased to Rs 12,050 crore.
• Provision of Rs 993 crore to the National Aids Control Programme and allocation of Rs 1,042 crore for the eradication of polio with focus on high risk districts in Uttar Pradesh and Bihar.
• Customs duty to be reduced from 10% to 5% on certain specified life saving drugs and on bulk drugs used for their manufacture. These drugs are also exempted from excise duty or countervailing duty.
• Excise duty on all goods produced in the pharmaceutical sector reduced from 16% to 8%.
• Anti-AIDS drug, ‘Atazanavir’, as well as bulk drugs for its manufacture to be exempted from excise duty.
• In order to promote outsourcing of research, weighted deduction of 125% on any payment made to companies engaged in R&D.

The major impact of this budget on Indian pharmaceutical sector and the companies can be shortlisted as below;

• Increase in allocation to the healthcare sector is a positive given the need to ramp up the healthcare infrastructure in the country and improve the accessibility of quality healthcare to a larger section of the population.
• Reduction of excise duty from 16% to 8% is a positive for all pharma companies enabling them to boost profitability going forward given that the excise duty is being paid on MRP.
• Increased allocation of funds for eradication of HIV/AIDS and polio and reduction in customs duty on certain life saving drugs from 10% to 5% is a positive for companies having product pipeline catering to these segments and these life saving drugs will be available to the patients in cheaper prices.
• Weighted deduction of 125% on payments made for outsourcing research services is a positive for the sector as a whole given that the emphasis on R&D has increased.
• Reduction of excise duty from 16% to 8% is a positive for all pharma companies namely domestic companies such as Cipla, Ranbaxy and the likes and MNC pharma companies such as GSK Pharma, Pfizer and Aventis.
• Emphasis on allocating funds for the eradication of HIV/AIDS and polio is a positive for Cipla (which has a strong presence in the manufacture of anti-AIDS drugs) and Panacea Biotech (which largely manufactures oral polio vaccines).
• Weighted deduction of 125% on payments made for outsourcing research services is a positive for R&D focused companies such as Ranbaxy and Nicholas Piramal.

To be continued….