Representative image for Union Budget 2025
Credit: iStock Photo
India’s pharmaceutical and healthcare industry has consistently displayed strong competence and emerged as a global force, especially in generic medicines and low-cost vaccines. India’s pharma exports have a substantial outreach to 190+ countries, catering to ~20 per cent of the global exports of generic drugs. With this, India is already acknowledged as the pharmacy of the world.
India has demonstrated prowess in R&D and attracted contract research opportunities. It is also emerging as a favoured location for the industry’s global capability centres. Additionally, it has become a leading destination for international patients, driving the Medical Value Travel (MVT) market, valued at $5-6 billion, and attracting 500,000 international patients annually.
In coming times, while emphasis on quality manufacturing with operational and cost efficiency will be critical, digital transformation, disruptive innovation, next-gen therapeutics, and health-tech are likely to be key drivers of growth.
Considering this, it is essential to give immediate and comprehensive thrust to research and innovation, including fiscal measures and a conducive policy framework.
Recent schemes
The government has embarked on this path with recent initiatives such as the 2023 Scheme for Promotion of Research and Innovation in the Pharma MedTech Sector (PRIP), which aims to transform the Indian pharmaceutical and medtech sector to innovation-based growth by strengthening research infrastructure through industry-academia linkage for R&D in priority areas and nurturing the scientist pool.
In 2020, the government introduced the Scheme for Promotion of Bulk Drug Parks to reduce manufacturing costs and increase competitiveness by providing access to standard testing and infrastructure facilities. It also launched the Scheme for Promotion of Medical Devices Parks to create world-class infrastructure facilities and develop a robust ecosystem for medical device manufacturing.
It is hoped that as these schemes progress, a truly collaborative environment for research and manufacturing will emerge.
Expectations from Budget 2025
So far, India has not invested heavily in R&D and lags the United States and China. As per the Standing Committee on Health report, in 2022, the US spent about 2 per cent of its GDP on health research, while India only spent ~0.01 per cent. This emphasises the need for substantial budgetary support to boost innovation. The PRIP scheme is a welcome step in this direction, with a planned financial overlay of Rs 5,000 crore from 2023-2024 to 2027-2028.
However, given that the Indian pharma industry sees considerable potential and aims to reach Rs 11,20,600 crore ($130 billion) by 2030 and Rs 38,79,000 crore ($450 billion) by 2047, significant strides will be required to attract investment for R&D and manufacturing.
Given this, the focus is on the 2025 Union Budget. The industry expects fiscal measures, tax and non-tax, to boost innovation and manufacturing and give impetus to the services sectors. The industry will look to a significantly higher budgetary allocation, signalling tangible progress envisaged and commitment to enable the industry's next growth wave.
Furthermore, for schemes announced, expeditious and effective implementation is key. A consultative approach should be adopted to address any roadblocks being faced and include a wider set of participants where possible, such that the objectives of the schemes are met with speed. Besides, revamped follow-on schemes and new schemes should be announced on priority, building on experiences and learnings from previous endeavours.
For instance, more widely accessible Production Linked Incentive (PLI) schemes could propel manufacturing in India and other Research-Linked Incentives would be useful. Novel measures such as preferential treatment to companies participating in the PRIP and PLI schemes in other aspects, such as the public procurement process, can increase scheme attractiveness. Grants, incentives, and funding support should be provided to private organisations and startups to support participation in early discovery and clinical research in India.
Equal focus should be on developing other facilitating elements such as a streamlined regulatory framework with a ‘one regulator’ approach, obviating the need for local/state-level or other approvals, improved patent process and protection measures, etc.
There are significant asks from a tax standpoint that can support the growth aspirations:
From a manufacturing perspective, the sunset date for qualifying for a concessional tax rate of 17.16 per cent on the income of new domestic manufacturing companies, which expired on March 31, 2024, should be extended to March 31, 2026, or later.
Considering the focus on promoting research, innovation, and development in India, companies involved only in such activities should also be made eligible for the said concessional tax rate.
Weighted deduction for R&D should be re-introduced. Considering that innovation/service improvements could take place during service delivery, it should also include the service sector to encourage further outsourcing to India. In addition, eligibility for weighted deduction should also be extended to companies that have opted for the new tax regime, as several companies have already opted for this tax rate of 25.17per cent.
As India moves forward with ambitious economic plans in the coming years, it is time to capitalise on the foundations laid and tap into under-tapped opportunities with conscious steps to unleash the potential and enhance India’s role in the global healthcare space.
It is hoped that Budget 2025 will recognise these aspirations and initiate a new chapter of unprecedented growth for the industry.
Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.
(Shuchi Ray is Partner, Shivali Valecha is Director, and Manisha Pal is Assistant Manager, Deloitte India.)
Union Budget 2025 | Nirmala Sitharaman, who continues to be Finance Minister, will present her record 8th Union Budget this time. While inflation has burnt a hole in the pockets of 'aam janata', reports suggest there might be a tax relief for those making up to Rs 15 lakh per year. Track the latest coverage, live news, in-depth opinions, and analysis only on Deccan Herald. Also follow us on WhatsApp, LinkedIn, X, Facebook, YouTube, and Instagram.