Finance Minister Nirmala Sitharaman is all set to present the Interim Budget for 2024-25. The economic context in which it is being presented is encouraging. Despite global volatility between 2020 and 2023, India’s GDP grew 7.2 percent in 2022-23, making us one of the fastest growing major economies in the world. Good macroeconomic fundamentals—as reflected in a stable rupee, slow but steady growth in merchandise exports and controlled inflation—are expected to translate into a projected 7.3 percent economic growth in 2023-24. In contrast, the global economy’s growth is projected at 2.4 percent in 2024 amid geopolitical tensions, trade protectionism and supply chain issues.
In this Budget, India Inc is anticipating a series of announcements aimed at boosting consumption, policy reforms to encourage domestic manufacturing, and an increase in infrastructure spending. As a key stakeholder in the pharma and biopharmaceuticals industry, I would like this Budget to focus on research and innovation-led economic growth.
Labelled the ‘Pharmacy of the World’, India caters to 20 percent of the global supply of generic drugs and provides 60 percent of the world’s low-cost vaccines and 80 percent of antiretroviral drugs. In 2023, the Indian pharmaceuticals industry generated about $50 billion.
To reach its aspirational target of $120-130 billion by 2030, the industry needs to achieve a 13-15 percent compounded annual growth rate. To propel itself to a higher growth trajectory, the industry will have to move up the value chain and emerge as a global hub for pharmaceuticals and life sciences innovation. Currently, India is ranked third in global pharma production by volume, but 14th by value.
Spur investment through NRF
The government has exhibited great foresight in passing legislation to set up the Anusandhan National Research Foundation (NRF) for seeding, growing and promoting research and innovation in India through a Rs 50,000-crore fund, of which about 80 percent is envisaged to come from the private sector.
To realise the potential of the NRF, I look forward to the finance minister decoupling it from private sector investments, especially when it comes to boosting spending in academic research. The government needs to take lead in investing robustly in promoting basic research at our colleges, universities and R&D-led academic institutions to ensure that it translates into high-value applied research.
The government can lean on the private sector for funding ‘moonshot’ projects, where industry will need to play a major role in promoting pharmaceutical research and innovation through centres of excellence. NRF funding can go towards sponsoring industry-academic partnerships in moonshot areas.
Reinstate tax cut on R&D
There are steep scientific, technical and regulatory bars to developing new and advanced therapies, making it a challenging, time-consuming and expensive proposition. Considering this, the government should reinstate the weighted tax cut on R&D expense, which was available till March 31, 2020.
It should consider offering 200 percent weighted tax deductions on all R&D expenses, including capital expenditures by both in-house and outsourced R&D setups (including contract research and development organisations). The reinstatement of this tax incentive was also recommended by the Parliamentary Committee on Commerce in 2021. The weighted deduction should also allow for costs incurred in training, nurturing and skill development of R&D talent.
Further, the government should waive GST on proprietary drugs to provide financial impetus to new drug innovation in the country.
Recalibrate patent box regime
The scope of the current Patent Box regime under Section 115BBF is limited to a concessional tax rate of 10 percent on royalty income. The scope of this section should be extended to cover all forms of income generated from the patents, such as income from manufacturing and licensing of such patented products. The income from exploitation of intellectual property registered overseas whose exclusive license is with Indian companies should also be eligible for the concessional tax rate. Moreover, the recommendation is to shift from the current gross basis of taxation to a net basis, allowing for deductions of R&D expenses when calculating taxable income.
In addition to incentivising R&D, my wish list for this year’s Budget includes impetus to manufacturing and digital transformation initiatives, which can transform India into a global pharmaceutical innovation hub.
Lower supply chain GST rates
Currently, APIs or active pharmaceutical ingredients are taxed at a higher 18 percent rate of GST and formulations at the lower rate of 12 percent. Even as there is a provision of input tax credit, there are possibilities of inordinate delays in getting the refund. So, the government must consider bringing the entire supply chain under the lower rate of 12 percent to effectively deal with the issue of credit accumulation.
Extend tax holiday for SEZ
India is planning to transform its special economic zones (SEZs) into domestic-focused industrial hubs, shifting the emphasis from exports to bolstering manufacturing for the local market. A tax holiday under the SEZ regime was available for units that had obtained relevant approvals on or before March 31, 2020. It is recommended that these benefits be extended to units set up till March 31, 2025 to enable SEZs to achieve the broader economic goals such as promoting manufacturing and generating employment.
The government should consider extending the benefits under the RoDTEP (Remission of Duties and Taxes on Exported Products) scheme to SEZ units as well. Without such incentives, SEZs would lose their competitive edge.
Incentivise digital transformation
India Inc is implementing various initiatives related to digital transformation to remain globally competitive in a fast-changing world where technology is pervasive.
To get corporates to invest more in adopting Industry 4.0 tools such as AI, machine learning, Big Data and automation, the government should consider providing incentives such as weighted deduction on spending in digital transformation initiatives or certain GST exemptions.
To propel innovation and establish the Indian pharma and biopharma industry on a global scale, there is a need to offer fiscal incentives, implement supportive policies and develop essential infrastructure. A forward-looking Budget that supports research-led breakthrough advancements in science and technology will signal the government’s commitment to its long-term vision of building a robust Indian economy.
Kiran Mazumdar-Shaw
Executive Chairperson, Biocon and Biocon Biologics
Views are personal