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      A Pep for Indian R D

      Posted AtExpress PharmaPulse

      The proposed tax grant for Pharma companies involved in research and development may give a serious boost to R&D initiatives in India from both domestic and international companies. By Sapna Dogra

      The government’s plan to grant a 10-year tax holiday to pharmaceutical companies involved in research and development has been welcomed in all quarters. According to official sources, this step has been taken to encourage research and development (R&D) in the country under the product-patenting regime. The details of the policy are being worked out and it is likely to be presented in the upcoming Parliament session.

      Industry experts have welcomed the suggestion, but feel the tax rebate should be for 20 years. Harinder Sikka, President, Corporate Affairs, Nicholas Piramal, sees it as a positive move and adds, “The tax rebate should be for 20 years, however, any effort made by the government to help R&D is crucial for growth.”

      Research activities cannot be done within a stipulated period, opines DG Shah, Secretary-General, Indian Pharmaceutical Alliance (IPA). Shah adds that the industry has been advising the government that instead of extending the tax rebate year-by-year, it should directly be expanded for 10 years. The government has now proposed the 10-year tax rebate and Shah hopes that by 2011-2012 it could be further extended.

      Dr Rama Mukherjee, President, Research & Development, Dabur Pharma, also welcomes the proposal: “It will help companies put their money back into research as presently there’s a high risk in R&D (the attrition rate is 80 percent).” Companies are already enhancing their R&D investments, she says, revealing that Dabur’s expenditure in R&D activities is 12 percent of its turnover.

      According to Mukherjee, tax benefits like these can be major incentives that besides enhancing the profits of companies, will also help in the general growth of science in the country. “Such steps are needed for the growth and development of research activities in universities to bring out innovative technologies that can be transferred to companies for commercial use,” she avers.

      For further growth of the pharmaceutical industry, the government can facilitate incubation of R&D and encourage the entry of venture capitalists in the product-patenting regime. Not just companies but anyone investing in R&D should be given the tax rebate, and foreign investment should be welcomed, concludes Mukherjee. “The domestic pharma industry will have to focus on innovation, research and investment in world-class facilities in manufacturing and R&D,” she says.

      Incidentally, the recent FICCI report on ‘Competitiveness of the Indian Pharmaceutical Industry in the New Product Patent Regime’ also points out that the regulatory framework should be designed to encourage domestic industry to invest in R&D. Among steps needed to address the issue, it suggests extension of the deduction of 150 percent of R&D expenses to encourage companies to invest in R&D, as well as augmentation of the government R&D allocation of Rs 150 crore to Rs 2,000 crore.

      The FICCI report also suggests giving income tax exemption on clinical trials and contract research done outside the company and overseas. Companies should be encouraged to set up USFDA-compliant plants by providing tax holidays for a specified period so that Indian firms can exploit the opportunity for patented drugs and market generics in developed countries like the USA.
      According to RC Juneja, MD, Mankind Pharma, whose firm is coming up with an R&D plant at Poanta Saheb on Himachal-Uttar Pradesh border, the proposed grant will help the development of new molecules by the domestic pharma industry. Juneja cites low profitability as the prime reason for low investment in innovative pharma research in India: “Development of new molecules is expensive but tax rebates such as this help bring down the prices of formulations. The tax holiday should be at least 20-25 years because the development of any molecule takes at least 15-20 years. This move will encourage midsize companies like ours.” According to SK Arya, a member of the Indian Drug Manufacturers’ Association, (IDMA), the proposal to grant a 10-year tax holiday was a long-standing demand of the industry. However, he is doubtful about when the proposal will turn into reality.

      Arya questions whether smaller companies will be able to take advantage of the tax rebate: “Their survival is at stake with excise duty problems and the Schedule M issue, therefore it is very difficult to say whether it will help them or not.”

      Experts opine that smaller companies will not benefit from this move because they are not into R&D. However the government can encourage them to open testing labs in their factories and give them some kind of incentive, which will result in good quality formulations. The investment in R&D in pharmaceuticals has grown by four to five percent in the past couple of years. According to OP Charna, Director, Organisation of Pharmaceutical Producers of India (OPPI), “Ideally the tax rebate should be given in perpetuity but if the government implements the 10-year tax rebate, it is as good. In 10 years we will see whether the industry has really benefited or not. Moreover, it is possible that by then our politicians will be more open to encouraging our industry.” Actually, cashing in on such benefits depends entirely on companies’ zeal to succeed because some mid-size firms even now are investing in R&D, government policies notwithstanding.

      VK Mehta, MD, Ind-Swift Limited, Chandigarh, also hails the move because it will boost R&D and companies will increase their R&D expenditure. “Last year, Ind-Swift invested 11 percent of its turnover in research activities and is gradually enhancing its R&D budget. In fact, Ind-Swift is now building a new R&D centre in Mohali with a capital outlay of $US 500 million. The centre will be ready next year,” announces Mehta, who would prefer better infrastructure to tax benefits.

      August 04, 2005


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