Budget 2024: Indian pharma industry expects tax breaks and funding for innovation

A file photo shows an employee with a pharmacy taking an order for generic drugs for a client in New Delhi. Image: Prakash Singh / AFP

The Indian pharmaceutical industry commands a significant share of more than 20 percent in the global medical supply chain. With the interim budget coming up, the Indian pharma industry is expecting tax breaks, benefits that are focussed on research and development (R&D) and a further boost in the production linked incentive (PLI) Scheme.

“While India ranks third globally in terms of production volume, the industry ranks 10th globally in terms of value addition. This highlights the need for improved local value addition capabilities that can be addressed through appropriate policy interventions,” says Joydeep Ghosh, partner and industry leader, Life Sciences and HealthCare Industry, Deloitte India.

Experts are hoping that the government will bring the Goods and Services Tax (GST) rate on APIs at par with formulations. “At present, APIs attract a higher GST rate of 18 percent vis-à-vis formulations that attract a lower rate leading to accumulation of credit for the pharma industry. Significant expenses on capital goods also add to credit accumulation… The GST rate across the supply chain should be around 12 percent,” adds Ghosh. Additionally, industry leaders are hoping that the centre offers additional incentives to promote manufacturing of pharma products.

Pharma manufacturers strongly feel that there is need to upskill people working in the industry, “particularly in the manufacturing and quality functions. To incentivise organisations for providing funding to such training institutes, the government can propose an additional deduction (1.25 times) on the funds spent by organisations for this purpose,” explains Ghosh.

While workforce being upskilled is key to better manufacturing standards in the country, Ghosh believes due to the multiplicity of regulatory processes and multiple regulators, undertaking operations become complex and time consuming. “We need to streamline the existing regulatory framework through a ‘one regulator’ approach,” he says.

It is also expected that the industry will see a further boost in the existing PLI scheme. So far, as part of the scheme, investments worth Rs 25,813 crore have been made and 56,171 new jobs were added as of September 2023. The PLI scheme was also launched for medical device manufacturing, where the government had given permission for investments of Rs 2,000 crore to 26 investors. The Indian pharma sector aims to grow to $120-130 billion by 2030 and $350-400 billion by 2047.

Also read: Budget 2024: What India's tech startups want

One of the key drivers for this growth would be the expansion of the industry’s presence in the innovation space which continues to account for two-thirds of the global pharmaceutical opportunity. “The pharmaceutical industry is a knowledge-driven sector. On an average, the global clinical trials process alone takes over 11 years with high risk of failure. Hence, continuous investment in R&D is critical,” reckons Satish Reddy, chairman, Dr Reddy’s Laboratories Limited. The announcement of the Promotion of Research & Innovation Program (PRIP) Scheme in 2023 of Rs 5,000 crore has been a positive step to spur innovation. “It has been a major move to incentivise funding for innovation and encourage collaboration among pharmaceutical companies, government research institutions, and startups,” he adds.

Sudarshan Jain, secretary general, Indian Pharmaceutical Alliance, agrees: “Given the high risk, long gestation period and low success rate in research, there is a need for continuous investments. Therefore, the budget for 2024-25 should outline conducive policies that provide benefits in terms of both direct and indirect taxes and also facilitate ease of doing business for the pharma companies.”