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Budget expectations: Pharmaceutical sector

Being research-intensive, the pharma sector incurs significant amount on R&D. Providing fiscal (higher tax deductions) and non-fiscal incentives for R&D expenses will support higher investments in developing new drugs. Investments in novel and specialty drugs are subject to higher risk of failure leading to risk averseness.

January 21, 2022 6:48 IST | India Infoline News Service
“More than 65% of the Active Pharmaceutical Ingredient (API)/ Key Starting Material (KSM) required by pharma companies are imported from China. Recent events, such as the Covid-19 pandemic leading to supply chain disruptions coupled with geo-political issues, have brought into focus the risk of such high import dependence. Last year, the GoI had announced a production-linked incentive (PLI) scheme of Rs. 150 billion for API manufacturers, covering around 53 APIs, which are critical in terms of import dependence on China. Similar incentives for other import dependent APIs will boost local manufacturing and reduce dependence on import.

Medicines are taxed under four categories—nl, 5%, 12% and 18%. Certain life-saving medicines are taxed at a nil rate, while the rest are taxed at 5.0%. Most medicines fall under the 12.0% GST slab. Last year, the GoI had reducted the GST rate on various Covid-19 treatment medicines and also brought down the GST rate for certain cancer treatment medicines and exempted certain other life-saving medicines. Similar incremental changes will increase affordability and higher consumption of such drugs leading to higher demand.

Being research-intensive, the pharma sector incurs significant amount on R&D. Providing fiscal (higher tax deductions) and non-fiscal incentives for R&D expenses will support higher investments in developing new drugs. Investments in novel and specialty drugs are subject to higher risk of failure leading to risk averseness. Higher tax incentives for R&D spends will incentivise Indian players to spend more, thereby providing impetus to newer research initiatives.”

Source: ICRA

The views and opinions expressed are not of IIFL Securities, indiainfoline.com

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