India’s Union Finance Minister Pranab Mukherjee overnight unveiled a budget for the 2012–13 fiscal year set to start April 1, offering some incentives benefiting biopharma companies yet  disappointing the industry by failing to propose further tax cuts or incentives to research.

On the bright side, the government would extend its weighted in-house pharma R&D tax deduction of 200% for five years beyond its scheduled March 31 expiration and would fully exempt six “life-saving” drugs for HIV/AIDS and renal cancer from excise duty.

“The inclusion of funding for pharma research is a positive step,” Shivinder Mohan Singh, executive vice-chairman of Fortis Healthcare, told the Press Trust of India (PTI), echoing similar comments by an unnamed spokesman for drug maker Lupin that the R&D deduction was a small albeit important step in the right direction.

More disappointing to the biopharma industry was the extension of the alternative minimum tax (AMT) to partnerships and business units operating in reduced-regulation Special Economic Zones (SEZs). The move helped lower the share price of Sun Pharma 7% in Friday trading, since Sun will be forced to pay more in taxes; i.e., namely 18.5% AMT on profits earned during the upcoming fiscal year.

According to, industry had expected the proposed budget to exempt all life-saving drugs from excise duty; repeal the 2% central sales tax on interstate transfers to cut costs for pharma companies and ensure distribution and availability of drugs across India; reduce excise duty for APIs and formulations from 10% to 5%; and expand the exemption from central excise duty beyond the import of all capital goods, raw materials, consumables, to all excisable goods used for R&D purposes.

The duty reductions for APIs and all life-saving drugs were among recommendations made in a recent report by Dun & Bradstreet India, while PwC recommended extending weighted deductions for research funding to overseas affiliates that are not presently covered as well as creating SEZs targeted to pharma companies.

India was constrained in assisting biopharma and other industries by a declining GDP and a desire to rein in growing spending. The budget assumes that India’s GDP will grow at about 7.6% during 2012–13, up from a three-year low of sub-7% growth in 2011–12 but well below expectations of about 9%. India’s budget deficit is expected to reach 5.1% of GDP, down from 5.9% of GDP this fiscal year but well above initial 2011–12 forecasts of 4.6% of GDP. India was also hamstrung by a divestment of state enterprises projected to raise $8.1 billion but which netted only $3 billion due to weak equity markets.

Those constraints didn’t stop the finance minister from proposing a Rs. 5,000 crore (about $1 billion) India Opportunities Venture Fund to assist small- and medium-sized enterprises through the Small Industries Development Bank of India.

However, India also signaled it would pay more attention to public health in the coming fiscal year by raising spending on its National Rural Health Mission (NRHM) 15%, to Rs. 20,822 crore ($4.15 billion) from Rs. 18,115 crore ($3.6 billion) in 2011–12.

The extra funding will expand the duties of NRHM’s Accredited Social Health Activists (ASHAs) to include preventing iodine deficiency disorders, ensuring 100% immunization, and improving the spacing of children. “By modernizing existing units and setting up a new integrated vaccine unit near Chennai, the Government will achieve vaccine security and keep the pressure on disease eradication and prevention,” Minister Mukherjee was quoted by as stating.

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