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Run-up to the Union Budget 2002-03: Pharmaceuticals Sector

Background

In the absence of product patent regime, Indian companies have concentrated on reverse re-engineering patented drugs and selling them in the domestic market at a price much cheaper than what they cost globally. However, the country will be adopting product patents from 2005.

Indian companies have started gearing for the product patent regime by increasing their emphasis on the discovery of new chemical entities (NCEs). However, R&D expenditure for Indian companies is still very low compared to their global counterparts.

  • In 2001, the domestic formulations market grew by 5.5% compared to a growth of 8.4% in 2000.
  • In the period Apr-Oct 01, exports of drugs and pharmaceuticals grew by 11.8% compared to the corresponding period of the previous fiscal. Export of generic drugs is expected to be a major growth area for domestic pharmaceutical companies as a large number of major drugs are expected to go off patent in the near future. The generic prescriptions in major markets are also expected to get a boost with several drugs going off patent.

    Inputs for Bulk Drugs:
    Chemicals and Intermediaries

    Inputs for Formulations:
    Bulk Drugs

    Duty Structure

    Product

    Excise

    Customs (Basic)

     

    2000-01

    2001-02

    2000-01

    2001-02

    Bulk Drugs

    16%

    16%

    35%

    35%

    Drug Intermediates

    16%

    16%

    35%

    35%

    Drug Formulations

    16%

    16%

    35%

    35%

    Major announcements in the previous year's budget

    • Weighted deduction of 150% of the expenditure on in-house research and development in certain areas allowed to companies has been extended to biotechnology as well for clinical trials, filing patents and obtaining regulatory approvals.
    • New Transfer Pricing norms announced.

    Industry's demands from Union Budget (2002-03)
    Major demands made by industry associations like Organisation of Pharmaceutical Producers of India (OPPI), Indian Drug Manufacturers Association (IDMA) and Confederation of India (CII) are as follows:

    • Excise duty on formulations should be brought down to 8% from the current level of 16%, while excise duty on essential drugs along with all their salts and esters should be reduced to nil from the current level of 16%. Moreover bulk drugs and formulations used for treating cancer and HIV should be exempt from excise duty.
    • Customs duty of 35% on drug intermediates, bulk drugs and formulations should be brought down to 15% in case of drug intermediates & bulk drugs and 25% in case of formulations. In addition, intermediate material fully consumed for manufacturing exempted products, should also be exempted from excise duty.
    • In order to boost R&D, new drug sample for clinical trials should be exempted from custom duty, which is currently at 35%. Moreover goods imported for R&D activities should be exempt from customs duty.
    • Vaccines should be exempted from custom duty, which is currently at 35%. Vaccines manufactured in India should be exempted from excise duty.
    • Corporate tax should be brought down to 30% from the present level of 35%.

    Key Players
    Dr Reddy's Laboratories, Ranbaxy Laboratories, Cipla, GlaxoSmithKline, Novartis, Pfizer, E Merck, Wockhardt, Sun Pharmaceuticals, Nicholas Piramal, Knoll Pharmaceuticals, Aventis Pharmaceuticals, Lupin, Torrent Pharmaceuticals. Morepen Laboratories

    YOU MAY ALSO WANT TO READ:
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    The Rediff-Dun & Bradstreet Budget Analysis
    Run-Up To The Budget
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