NEWSLINKS
BUDGET 2000
BUY BUDGET
Y2K BIZ FEATURES
INDIA & THE W.T.O.
NEW GOVERNMENT
SPECIALS
INTERVIEWS
COMMENTARY
CREDIT POLICY
BUDGET 1999-2000
USEFUL INFO
ARCHIVES
SEARCH REDIFF

Budget may slash number of drugs under price control

Neena Haridas in New Delhi

The government is believed to be seriously considering the pharmaceutical industry's demand to reduce the number of drugs under price control.

The pharma industry has been complaining that the Drug Price Control Order is a major stumbling block for research and development in the country.

The industry claims that their production of essential drugs could be increased if price controls are withdrawn.

According to Suresh Prabhu, Union Minister for Fertilizers and Chemicals, "The government wants to understand from the pharma industry, the importance of removing the remaining 35 per cent drugs under the DPCO and how doing so would make funds available for R&D."

The minister hinted that the government is not averse to dismantling the DPCO and replacing it with another regulatory mechanism "as long as it is effective".

Prabhu is of the view that if 65 per cent of the drugs that are outside the price control is not able to generate enough resources for R&D, then the remaining 35 per cent is not likely to make much difference.

The recently constituted Drug Price Control Committee had said that more selectivity in the system was desirable for ensuring fair prices rather than controlling prices of all drugs and formulations irrespective of their importance.

The DPCO has been progressively decreasing the number of drugs under control from 3,787 in 1979 to just 74 in 1999. And now, if the government implements the committee's recommendation to prune the number of drugs under price control to 55, the price control turnover criteria for bulk drugs would double to Rs 100 million.

The Organisation of Pharmaceutical Producers of India has demanded that there is need to bring in foreign investment, new technology and a new tax regime keeping in view the Patent Law which will be applicable from 2003.

The OPPI in its pre-budget memorandum to the finance minister said, "The coming budget has to focus on tax structure modification, foreign investment and R&D investment to make Indian pharma industry globally competent."

K Anji Reddy, chairman, Dr Reddy's Labs, says, "It is necessary to attract greater investment into this sector in order to update the existing technologies and for bringing into the country technologies that are not currently available. Patents are the life of an R&D driven pharma company.

In a bid to give R&D a boost, Finance Minister Yashwant Sinha is expected to announce the creation of an autonomous Drug Development Promotion Foundation with a corpus of Rs 500 million in this Union Budget, that will be financed by the proposed Pharma R&D Support Fund.

The primary objective of this foundation would be to promote and protect R&D in the country through a coordinated effort by networking with various constituents and pooling their resources. The foundation will also promote analysis of international trends in new drug development and new process development as well as define areas of relevance and intensify work in areas by synergising core competence of the constituents. It is also aimed at enhancing basic research component with emphasis on risk-taking in the discovery of new drug delivery systems and plant-based preparations.

OPPI has also demanded full exemption on royalties received from certain foreign enterprises on account of R&D. The newly constituted Pharmaceutical Research & Development Committee has recommended that tax treatment applicable to infrastructure and software be extended to cover any company engaged in novel drug discovery research.

This committee has also asked for automatic approval for sourcing funds within defined limits, flow of funds to be made permissible on the basis of quarterly returns submitted by special purpose vehicles and no restriction on such SPVs for expenditure undertaken overseas for approved research activity.

The pharma industry has also demanded that the government should work towards increasing foreign investment by treating this sector as a high- priority area. Besides, the OPPI says, "It is required to treat companies with foreign equity upto 51 per cent on par with wholly-owned Indian companies."

Prabhu said a proposal is being considered to encourage companies with money but no background in research to tie up with Indian companies that have the manpower and the facilities to undertake research.

The minister said the government was also willing to give multinational companies the same concessions as those offered to domestic firms for R&D facilities in the country.

On the tax front, pharma manufacturers are demanding slashing of customs duty on drugs and reduction in indirect taxes on medicines that accounted for a staggering 37 per cent for the final price to benefit customers.

OPPI says the government should bring down the duty on raw materials from the present level of 35 per cent to 15 per cent and from 35 per cent to 20 per cent on drug intermediaries, and from 35 per cent to 25 per cent on bulk drugs.

Demanding a reduction in total indirect taxes to reduce the burden on consumers, OPPI says total tax component by ways of various indirect tax, customs duty, sales tax, excise duty et al was as high as 37 per cent of the final price of medicine. OPPI has demanded that the duty on vaccines should be reduced to the lowest possible level from the present 38.5 per cent.

OPPI has also suggested amendment in Medicinal and Toilet Preparations (Excise Duties) Act, 1955 to permit set-off of excise duties on inputs against the state excise duties on finished products. This amendment will allow products subject to excise duty to be treated in the same manner as the products subjected to central excise.

OPPI has also demanded exemption of upto 50 per cent of income tax on foreign remittances received from conducting clinical trials on behalf of foreign or parent company, saying that the results of the clinical trials are used outside the country and are therefore eligible for the deduction.

The Rs 120 billion Indian pharma industry has been witnessing rapid growth in the last decade in terms of infrastructure, technology and production. The bulk drugs sector has been growing at 15 per cent per annum while formulations have grown at 20 per cent even as exports have gone up by over 20 per cent.

Run-up to the Budget 2000-2001
Buy Budget 2000
Budget 1999-2000
Business