Budget 2024: Pharma sector seeks quick approval process and tax benefits

As Finance Minister Nirmala Sitharaman prepares to present the Budget 2024-25, the pharmaceutical industry is hopeful for a boost in budgetary allocation. This increase is aimed at accelerating the approval process through the digitisation of regulatory submissions, which will expedite the market introduction of new drugs. By streamlining the approval timeline, this initiative aims to bring it in line with international standards. Moreover, there is an expectation of new policies offering tax benefits to encourage and incentivise research and development (R&D).

Healthcare received a budget allocation of ₹89,160 crore in the Union Budget 2023, reflecting a modest increase of less than 3% from the previous year's ₹86,606 crore. In the prior fiscal year (FY23), healthcare spending accounted for just 2.1% of GDP, despite the ongoing challenges of the pandemic.

Focusing on the tax benefits that pharma industry wishes, Aniket Dani, director - Research, CRISIL Market Intelligence & Analytics says, “The industry expects certain indirect tax benefits, such as streamlined access to imported materials (particularly APIs) through reduction in import duty and Goods and Services Tax (GST). Additionally, industry stakeholders advocate for the introduction of new policies to provide direct or indirect tax benefits to encourage and incentivise (R&D) efforts. Specifically, an extension of the scope and timeframe of Section 115 BAB of the Income Tax Act, 1961, is widely advocated for newly established companies solely engaged in pharmaceutical R&D, providing them deductions on R&D expenditures."

Until March 2024, Section 115 BAB applied only to existing greenfield domestic manufacturing companies in India and did not cover R&D companies. Dani suggests including newly established companies that are purely engaged in pharma R&D.

"An extension of the timeline for existing companies, and broadening of scope to include newly established companies purely engaged in pharma R&D, will help support R&D for domestic companies, ultimately helping them improve product quality, revenue, portfolio coverage, etc.,” Dani adds.

Highlighting the need of incentives to promote investments in private sector to improve healthcare facilities in pan India, Kinjal Shah, senior vice president & co-group head - Corporate Ratings, ICRA Limited says, “Incentives to promote private sector investments (both greenfield and brownfield expansions) to improve the penetration of healthcare facilities in both urban and rural areas will be a welcome step. Further, given the low doctors to people and nurses to people ratio and increasing opportunities available to people outside India in the medical field, increased allocation towards training medical personnel is also a key requirement.”

Emphasising the significant costs of R&D, Shah states that the pharmaceutical sector, being research-intensive, incurs significant spend on R&D. Providing fiscal incentives, such as higher tax deductions, and non-fiscal incentives for R&D expenses would support increased investments in development of 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," Shah adds.