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‘RoDTEP, Capacity Expansion, Streamlining Regulatory Processes To Help Pharma Sector’


India's pharmaceutical sector is currently valued at $50 billion and is expected to reach $120 billion by 2030. (Photo: Shutterstock)

India’s pharmaceutical sector is currently valued at $50 billion and is expected to reach $120 billion by 2030. (Photo: Shutterstock)

Government has taken several initiatives, including the PLI schemes and the Scheme for Promotion of Bulk Drug Parks, among others, for strengthening the pharmaceutical sector

India’s pharmaceutical sector is currently valued at $50 billion and is expected to reach $120 billion by 2030. The growth will be led by the increasing healthcare needs of Indian consumers as well as the global population and supported by the government’s vision of Aatmanirbhar Bharat and Make In India initiatives. The country is home to over 3,000 pharma companies with more than 10,500 manufacturing facilities, including the highest number of USFDA-compliant plants outside of the US.

The strong domestic manufacturing capabilities make India the third-largest producer of pharmaceutical products. However, India is placed 14th in terms of production by value. Further, there is a strong dependence on imports for active pharmaceutical ingredients (APIs), key starting materials and drug intermediates. China supplies about 70 per cent of the total API procured by the pharmaceutical companies in India.

The government has taken several initiatives, including the production-linked incentive (PLI) schemes and the Scheme for Promotion of Bulk Drug Parks, among others, for strengthening the sector. With the Union Budget 2023-24, we need to continue the momentum achieved in this “Sunrise” sector and following are the key expectations:

Firstly, we need to further promote capacity expansion by increasing the allocation for PLI and going beyond the list of identified products. Globally, we will witness multiple patent expiries in the biologics segment in the near term and this is the opportune time to encourage capacity and capability-building activity in the biosimilars space. Additionally, minimizing the taxation of royalty income from the use of technology, Intellectual Property Rights at least during the initial few years would bring the latest technology to India. Initiative to encourage capital investment will boost the overall economy amid concerns of slowdown and also create jobs.

Secondly, the sector accounts for only about 6 per cent share in the country’s export, led by formulations and biologicals. The inclusion of pharmaceuticals under the RoDTEP Scheme (Remission of Duties and Taxes on Exported Products) was a welcome move. Additional sops to incentivise exports will strengthen India’s ‘Make in India for the World’ proposition. This also ties up with India’s G20 Presidency agenda of strengthening the cooperation in the pharmaceutical sector and ensuring availability and access to safe, effective, quality and affordable medical countermeasures to a wider population, as mentioned recently by Union Health Minister Mansukh Mandaviya.

Thirdly, while we ramp up the domestic manufacturing capabilities, it is critical to also move up the pharma value chain. Pharmaceutical R&D is a long-drawn process with high levels of uncertainty and may take 7-9 years. Attracting foreign investors for R&D in the pharma sector will be crucial to actualising this. The industry will immensely benefit if the much-awaited research investment-based incentive scheme, similar to PLI is announced in this Budget. Further, the industry expects tax breaks and incentives for R&D to commit capital for activities like molecule discovery. Restoration of weighted deduction to 200 per cent for expenditure incurred on in-house R&D activities under Section 35(2AB) has been a long-standing demand of the industry.

The pandemic demonstrated the results of swift collaboration between academia and the industry. The government’s work towards creating a common platform for academia, industry and the vibrant IT sector to harness the true potential of India’s technology capabilities and skilled workforce will be highly beneficial for the advancement of the sector. Further, investment in the creation of common infrastructure for R&D purposes, such as Centres of Excellence, technology transfer centres, incubation centres, etc, would promote innovative startups and encourage smaller players. Many large foreign companies are setting up Global Capability Centres (GCC) in India and encouraging these initiatives can further enhance India’s role as an innovation hub.

Finally, the efforts to support manufacturing and R&D in the sector need to be complemented by measures to enhance the Ease of Doing Business. Consistent efforts to streamline regulatory processes will bring greater clarity, transparency, and efficiency to the ecosystem. Initiatives around the elimination of multiple clearances, protection of intellectual property and patent rights, etc. would reduce costs as well as time-to-market for new drugs.

Additionally, the applicability of Section 194R to free samples where the patient is really the beneficiary and not the doctors who pass on such samples to patients is a matter of debate. Further, valuation issues around the applicability of section 194R on the distribution of free medicine samples to professional doctors, especially where the medicine is not a marketable product, need clarification.

In the emerging new world order post-pandemic, the sector has seen a shift in dynamics with businesses increasing their focus on their core offerings and realigning their operations & supply chain to address disruptions and in line with the China plus One strategy. The industry has done well to seize the opportunity, enabled by the government’s unwavering support. Hopefully, the announcements in the upcoming Union Budget will go a long way in truly making India the pharmacy of the world.

(The author is partner and sector leader-healthcare & life sciences at Grant Thornton Bharat LLP)

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