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The Rediff Budget Special/Habil F Khorakiwala

Good on social Front, neutral on pharmaceuticals

BUDGET 2000

In presenting the Union Budget 2000, the finance minister has proved to be very positive on the social front by providing a Rs 130 billion increase in the outlay on education, health and water system. So improvements in basic amenities are being addressed adequately.

However, one would like to caution that the implementation of the schemes would be as important as the finance minister's budgetary allocation.

There was a general expectation that this government would manage its affairs better. But while revenues increased 13 per cent, the government expenses went up 17 per cent. Unfortunately, no strategies for curtailing wasteful government expenses have emerged in this Budget.

Specific to the pharmaceutical industry, the Maximum Retail Price-based excise valuation system is welcome. This is viewed positively because it rationalises the duty structure. This will also reduce the motivation for contract manufacturing and therefore, in the medium term, will improve quality of medicines produced in India.

Similarly, the Central VAT system also rationalises the excise duty in pharmaceuticals. The only concern is the additional excise duty could complicate the whole system as well as open the gates for introducing a new element of taxation.

The pharmaceutical industry in the WTO era will only thrive on research & development and the industry was hopeful of seeing some path-breaking direct positive encouragement in the budget.

To his credit, Sinha has attempted an indirect boost to indigenous R&D, by providing two sets of grant of Rs 500 million each to government research agencies.

He has also encouraged industry-public laboratories partnership to further research efforts. It is particularly pleasing to see his attempt to modernise the patent and trade-mark systems in India.

However, one would have preferred to see some schemes relating to taxation and customs duty relief to the large private sector R & D establishments.

The budget outlines a scheme to gradually tax export earnings over a five year period. This is a requirement under the WTO and the finance minister has been very transparent with his five year plan on this subject.

The increase in dividend tax to 20 per cent seems like a discouragement to channeling public saving into the capital market.

As the first budget of a new government, this was a golden opportunity for the finance minister to set the tone of things to come for the next five years. He has however seemed to miss the bus!

Habil Khorakiwala is chairman, Wockhardt Group

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