Union Budget 2014: Pharma sector expects steps that incentivise innovation

Given the optimistic mood in the country about the reform process, Satish Reddy, President of the Indian Pharmaceutical Alliance (IPA) and Chairman at Dr Reddy's Labs, said on Wednesday that "the industry will be looking for signals of revival of the growth story". Speaking to journalists on his Budget expectations at his office in Hyderabad, Reddy said, the pharma industry expects measures that will "incentivise innovation".

"Currently," he said, "the spend on R&D as a percentage of GDP is just 0.9 per cent.... we need an ecosystem which nurtures incubation and encourages the private sector to invest into research." There are some tax incentives that are already available, such as the 200 per cent weighted deduction on R&D available and this could be raised to 250 per cent, apart from expanding its coverage. For instance, Reddy said: "Pharma companies also need to undertake bioequivalence studies and conduct clinical trials abroad apart from doing patent filings abroad, but these are not eligible for this deduction."

On the bulk drug industry, which is facing some challenges from China in select segments, Reddy said that creating industry clusters where basic infrastructure is created and common utilities such as power are provided by the government at a competitive price, would go a long way to improve the cost competitiveness of Indian pharma in the bulk drug space. He said this may be the best way to reduce dependence on China in the supply of bulk drugs for select essential drugs, such as Penicillin-based antibiotics where India is totally depended on imports from China.

He also pointed out that the pharma industry would be keenly watching if health is really a priority for the country and what measures the government wants to take to increase public spend on health. "It is just 1.2 per cent of the GDP and our expectation is that it will move to 2.5 per cent of the GDP in the next five years."

Further, Reddy said, "we need concrete signals in the form of ways to improve reach of health-care, improving capabilities in terms of skill availability (doctors, nurses and health workers) and the public-private partnerships measures". He was also in favour for a relook of the MAT (minimum alternate tax) imposed on the Special Economic Zones (SEZs), with perhaps ideally lifting the 18.5 per cent MAT for pharma SEZs.