Budget 2020: Policy reforms, additional outlay only way to boost life science, healthcare and pharmaceutical industry

  • Amid a rapidly changing demography and government initiatives, large gaps continue to remain in the ability of the healthcare, pharma sector to contribute significantly to the GDP of the country

  • It would be interesting to see how the Modi government 2.0 would bring in policy-level changes and ease other regulatory norms to provide an impetus for augmentation of investments and participation in the overall pharmaceutical and life science sector

  • Given the ambition of the government to make India a $5 trillion economy in the next five years, pharmaceutical and life science could be the ‘Target sector’ in Budget 2020 for reforms

Currently, India is the third-largest manufacturer of pharmaceutical products in terms of volume and the largest provider of generic drugs globally. With the government of India trying to implement policies around ‘Make in India’, promoting universal healthcare, medical tourism and Digital health ecosystem, policy reforms and additional budgets for the life science and the pharmaceutical sector should ideally be one of the key focus areas for this Budget 2020.

In addition to the above, the Finance Minister Nirmala Sitharaman in her maiden budget speech last year, with the slogan mazboot desh ke liye mazboot nagrik, introduced the Vision of Healthy Society– Ayushman Bharat.

Having said that, amid a rapidly changing demography and government initiatives, large gaps continue to remain in the ability of the sector to contribute significantly to the GDP of the country. Also, the life science and the pharmaceutical sector may not be in the pink of health as their growth and ability to perform exceptionally are saddled by a number of issues, such as:

  • Lack of capabilities in the innovation space;
  • Lack of stable pricing and policy environment favourable for long-term investment decisions coupled with lower margins due to government pricing policies;
  • Lack of stronger IP regulations

Accordingly, the sector is currently going through a phase of challenges and opportunities. On the one hand, the recent initiative emphasises the current government is keen on playing a bigger-than-ever role in focusing on policies which would be the drivers for growth in these sectors. On the other, the Narendra Modi Government 2.0 is keen on continuing its earlier commitment of phasing out the deductions and simplifying the overall direct tax code. Further, as the changes to GST law and related decisions are taken by the GST Council, we may not expect some Big Bang reforms/proposals from an overall tax standpoint.

It would be interesting to see how the Modi government 2.0 would bring in policy-level changes and ease other regulatory norms to provide an impetus for augmentation of investments and participation in the overall pharmaceutical and life science sector.

 Budget 2020: Policy reforms, additional outlay only way to boost life science, healthcare and pharmaceutical industry

Representative image. Reuters

Having said that, given the fresh commitment of the Modi Government 2.0 to focus on the upliftment of the overall health standards of the people of the country and allowing universal access to best in class health-care facilities, one may want to see the following announcements in Budget 2020:

  •  To spur innovation in the generic drug and API sector, the government could look to setting up a dedicated innovation fund to encourage research and development, and innovation. While the government has been keen on phasing out of tax incentives, as an exception, it could consider introducing a tax holiday regime in the initial years for such innovators;
  • Tax incentives/weighted deductions may be announced for companies that are keen on moving towards the maintenance of Electronic Health Records (‘EHR’) and Health IT Systems in the back-drop of ‘Digital India’ initiative of the government;
  • Policy-level changes may be announced to address the instability in the pricing and policy environment for the sector to encourage investment and boost exports;
  • With Ayushman Bharat initiative backed by recommendations from the NITI Aayog , 100 percent deduction for capital expenditure may be extended to hospitals having a minimum of 50 beds in Tier II and III cities and minimum of 25 beds in rural areas to foster growth;
  • The Safe Harbour Rules (‘SHR’) were applicable only till FY 2018-19. It is expected that Budget 2020 could extend the same. Further, the scope of SHR may be extended to cover contract manufacturing of API and Finished Dosage Formulations (FDFs) and captive R&D services (other than R&D in information technology). Further, Budget 2020 could look at rationalisation of the high rates prescribed under the SHR to align with the rates agreed in the Advance Pricing Agreements (‘APAs’).
  • It can be expected that a scheme similar to the Sabka Vishwas Legacy Dispute Resolution Scheme be introduced to settle the long-pending Customs litigations. Further, from a trade facilitation standpoint, the Budget could bring out changes in customs law to further the ease of doing business. The possibility of introducing legislative changes required to support the concept of virtual assessment under the “Turant Customs Scheme” could be one such example. Customs duty concessions for life saving medical equipments/medicines could also be expected.

Given the ambition of the government to make India a $5 trillion economy in the next five years, pharmaceutical and life science could be the ‘Target sector’ in Budget 2020 for reforms, given its immense growth potential to help the government reach its target and further its policy on Universal Healthcare in India.

(The writer is Tax Partner-Life Sciences practice, EY India. Rahul Kakkad, Tax Director and Dipesh Chauhan, senior tax professional, EY also contributed to the article)

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Updated Date: Jan 28, 2020 13:05:13 IST