Budget could push R&D spend by 25-50%: pharma players

The R&D spend of drug companies could increase to the tune of 25 to 50 per cent thanks to the Budget push, feel Gujarat based pharma majors. This year's Union Budget has increased the weighted deduction for research and development (R&D) expenditure to 200 per cent from 150 per cent, thereby enabling an improved cash flow by reducing the tax burden.

As I A Modi, chairman of Ahmedabad based Cadila Pharmaceuticals explained, "If a company is spending Rs 100 crore on R&D, it will now be eligible for a Rs 200 crore deduction from its taxable income that will directly impact its profit after tax. If we consider a 33 per cent tax on income together with surcharge, that amount is saved directly." This would definitely boost companies to direct more money into research, he added.

"This was a long pending demand of the pharma industry", said a senior official in Intas Biopharmaceuticals Ltd a research oriented pharma major in Gujarat.

Welcoming the move, Ketan Patel, managing director Troikaa Pharmaceuticals said, "Many research based companies that are constantly striving to develop authentic, innovative products to survive in the market, will now get a filip. Research is essential for growth." He felt that the R&D spend could, therefore, rise by 25 to 50 percent.

Troikaa Pharma is in the process of getting patent approvals for its novel drug delivery system for Diclofenac injections, Dynapar AQ from several countries.

It has received patent approvals for Dynapar AQ from nine countries in Eurasia besides 31 countries in Africa and had originally applied for patent approvals in 99 countries.

While Pankaj R Patel, chairman and managing director, Zydus Cadila said that the move will provide much needed support for initiatives in research, he, however, added that "Reduction in state excise duty on products to 10 per cent from 16 per cent is a positive step but this is offset by the overall tax burden increasing on account of minimum alternative tax (MAT) rate being raised from 15 per cent to 18 per cent, when industry was demanding a cut down to 10 per cent".

Echoing the same concern, Sunil Parekh, advisor to Crisil and Zydus Cadila said, "The unexpected increase in MAT to 18 per cent is a dampener. This could habe a negative impact on industry in general and serious R&D establishments." He, however, added that the raising the weighted deduction on R&D will, however, not only boost pharma companies but also many chemical and engineering companies that invest in R&D.

Upbeat from the move, Gujarat wing of the Indian Drug Manufacturers' Association (IDMA) said that now small and medium enterprises could also take interest in R&D. "Currently, the SMEs are not involved in R&D activities, but this move could act as an encouragement.” said Kamlesh Patel, chairman,IDMA, Gujarat State Board. He also welcomed the Union government's move to not increase excise on pharma from a current 4 per cent. IDMA-Gujarat wing had earlier told Business Standard that total abolition of excise on pharma products could attract Rs 5000 crore worth fresh investments in the state.