The Union Budget presented last week was the first ever digital-only Budget in India’s history. However, this is not the only reason why it is unprecedented. It has been presented in the backdrop of a ‘once in a century’ pandemic which has not only caused tragic loss of human lives globally but also pushed the global economy into a deep recession. The Indian economy has not been an exception, with the annual GDP contraction for FY20 estimated at 7.7%.
Amid all these developments, the life sciences and pharma sector has been at the forefront in recent times while managing the Covid-19 crisis. Given the historically low public expenditure on healthcare in our country, hovering around 1.3% of GDP, there was broad consensus that the sector deserved an increased budgetary allocation. The National Health Policy 2017’s target of public health expenditure was to hit 2.5% of GDP by 2025. There were also expectations regarding Covid-19 vaccine allocation; higher tax deductions for research and development (R&D); reduced import duties, etc.
The Budget has largely met the sector’s expectations on the budgetary allocations, though it is better to view the exercise as just one step in a series of mini Budgets announced over a period of 12-18 months. The current Budget has carried the momentum from the earlier mini Budgets to further accentuate the focus on better health infrastructure and an increased access to universal affordable healthcare.
Health & Wellbeing was clearly the most important one among the six pillars of Budget outlined by the finance minister.
1) The finance minister announced ₹2.83 lakh crore for the health and wellness sector, an increase of 137% over last year. This includes ₹35,000 crore on Covid-19 vaccine development and inoculation.
2) A new centrally sponsored scheme, ‘PM AtmaNirbhar Swasth Bharat Yojana’ with an outlay of ₹64,180 crore over six years was launched to develop and strengthen capacities across primary, secondary, and tertiary healthcare systems.
3) Another initiative that the government has proposed is a national institution for One Health which is envisioned as a research platform for WHO South East Asia region.
Further, the following announcements would also complement the above measures:
1) Mission Poshan 2.0 to improve nutritional outcomes across 112 aspirational districts.
2) An urban Jal Jeevan Mission to be launched and implemented over five years with an outlay of ₹2.87 lakh crore.
3) To tackle the burgeoning air pollution problem, ₹2,217 crore allocated for 32 urban centers.
4) National Research Foundation (NRF) outlay of ₹50,000 crore over five years with a focus on national priority areas.
5) Measures to improve the overall ‘ease of doing business’.
In the sphere of taxation, the sector will also benefit from many positive Budget announcements such as the establishment of the ‘National Faceless Income Tax Appellate Tribunal Centre’, which will facilitate a faceless appeal before the tax tribunal. Taxpayers in the sector will also experience a greater degree of tax certainty due to reduced time limits for reopening of assessments from six years to three years. The sector has also gained from the production-linked incentive (PLI) scheme announced by the government last year.
The above steps would help kick-start the ambition for self-sufficiency, innovation and PLI schemes to integrate India with the global supply chain to help Indian pharma gain a competitive edge in the global landscape.
Of course, there are a few more areas that the Budget could have targeted:
1) Incentivised R&D by additional tax deductions to further support greater investments in new drug developments.
2) Reduced GST on life-saving and essential drugs as they currently attract 12%.
3) A structured road map intervention supported by strong policies to promote the tele-medicine industry would have been helpful.
4) Upgradation of MSME to WHO-GMP norms by way of interest subvention on capital goods investment as well as investment on upgrading quality assurance systems.
Overall, this Budget has many positives for the sector. Hopefully, there will be a few more mini Budgets going forward to fully accomplish the growth potential of this sector.
Views are personal. Singh is Partner-Deal Advisory and Head, Life Sciences, KPMG in India. He was assisted by Ravi Gupta, a Chartered Accountant, and Nikhil Patil, Director, KPMG in India.
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