Budget 2022: Will it impact ‘Gati’ of pharmaceutical industry?

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COVID-19 pandemic has posed unprecedented challenges for the world economy. The Indian pharmaceutical industry, which ranks third in the world in terms of production by volume, has emerged as a key player in providing the much-needed support and impetus to the healthcare system and the economy.

The Government of India (GoI) has been equally proactive in recognising the need to boost and support the healthcare and life sciences sector at large.

Recently, the GoI released the Economic Survey 2021-22. The Economic Survey considered the existing circumstances which demonstrate volatility, uncertainty, complexity and unambiguity. Therefore, the central theme of ‘agile’ approach was adopted in contrast to the pre-determined ‘waterfall’ approach.

The Economic Survey suggested that the overall health of the economy has reached pre-pandemic levels. Particularly for the pharmaceutical industry, the Economic Survey indicated extraordinary growth of Foreign Direct Investment (FDI) during 2020-21 mainly on account of investments to meet COVID-19 related demands for therapeutics and vaccines.

Below are a few noteworthy initiatives by the GoI in the recent past for the pharmaceutical industry:

  • Production Linked Incentive (‘PLI’) scheme for pharmaceuticals sector approved on 24 March 2021 with a total financial outlay of Rs 15,000 crores.
  • To reduce import dependence on bulk drugs (varying from 80-100 percent in certain cases), one of the measures introduced is the PLI scheme for bulk drugs with a budget of Rs 6,940 crores for 8 years.
  • Scheme for promotion of bulk drug parks envisaging the creation of world-class infrastructure facilities to make the Indian bulk drug industry a global leader approved on 20 March 2020.
  • PM Gati Shakti, an integrated plan ensuring multi-modal and seamless connectivity for people goods and services, was introduced. Through the development of economic zones like pharmaceutical clusters, Gati Shakti will improve connectivity thereby making Indian businesses more competitive.

With the hope that a ‘once-in-a-century’ pandemic will soon be behind us, the finance minister presented the second Union Budget in digital form which lays down a plethora of initiatives to move the economy forward. While the Union Budget focused on the growth agenda, the central theme revolved around capital expenditure, infrastructure development, augmenting the digital ecosystem and promoting ease of doing business.

Certain amendments in the Union Budget which may be of relevance to the pharmaceutical industry are:

  • Introduction of National Digital Health Ecosystem, an open platform consisting of digital registries of health providers and health facilities, unique health identity, consent framework and universal access to health facilities
  • Launch of National Tele Mental Health Programme with 23 tele-mental health centres of excellence for better access to quality mental health counselling and care services.
  • Extending the time limit for commencement of manufacturing or production to avail concessional 15 percent tax regime for new manufacturing facilities to March 31, 2024.
  • Non-taxability in recipient’s hands of the sum received to be spent on COVID-19 related illness and receipt of funds by a family from an employer or any person on death of individual subject to conditions prescribed.
  • Provide sunrise opportunities to pharmaceutical companies to assist sustainable development at scale. For R&D in these sunrise opportunities, in addition to efforts of collaboration among academia, industry and public institutions, government contribution will be provided.

While the above coupled with certain other amendments to reduce litigation may be viewed favourably, certain proposed amendments like allowability of business expenses (subject to conditions) and introduction of the new provision for deduction of tax on the benefit of perquisite in respect of business or profession, may require discussion with relevant stakeholders for smooth implementation.

While India’s estimated economic growth is pegged at 9.2 percent, the effective capital expenditure of Rs 10.68 lakh crores in 2022-23 is approximately 4.1 percent of Gross Domestic Product (GDP), and seems to be receiving a positive response from investors and markets.

Given the policy-related initiatives like the PLI scheme, tele mental health programme, etc., there is a bright road ahead for the Indian pharmaceutical industry. With price competitiveness and good quality medicines coupled with infrastructure and policy-level initiatives, the industry is well-advancing towards being dominant players of the world and strengthening India’s image as ‘pharmacy of the world’.

Ashish Jain is Partner, EY India; Manthan Shah – Manager, Tax & Regulatory Services, EY India also contributed to this article. Views are personal.

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Ashish Jain

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