BUDGET VIEW - Pharma seeks export incentives, R&D tax sops

The pharmaceutical industry wants the forthcoming federal budget to grant incentives to boost exports and extend the scope of tax breaks given for research and development work.

Last year's budget extended tax breaks of up to 150 percent of a firm's research expense by five years to 2012. Currently, only companies doing in-house research are eligible for this.

These sops should be extended by another five years to 2017, said a note from the Organisation of Pharmaceutical Producers of India, largely a group of research-led multinational firms.

Tax breaks should also be given to drug firms involved solely in R&D and should cover all expenses incidental to basic research, including clinical trials, done in India or abroad, said a note from the Federation of Indian Chambers of Commerce and Industry.

"This will catalyse the R&D industry, the innovation-based industry, which is completely lacking in India," said Swati Piramal, director of Strategic Alliances and Communications at Nicholas Piramal India Ltd.

"Pharma spends 10 times as much as the IT or auto industry and the research takes 10-12 years," she said. "So five years is not enough in an industry where 10-12 years is the gestation period."

Most of the top Indian drug firms, including Ranbaxy, Dr. Reddy's, Sun Pharmaceutical, Nicholas Piramal and Wockhardt, have either spun off or are planning to spin off their R&D wings into separate entities.

The domestic pharmaceutical industry, being a net exporter, has also taken a beating due to the rupee's rise, which gained more than 12 percent against the dollar in 2007.

The industry is hoping for some exemptions for export activities as tax breaks for export-oriented units, which were set up to encourage exports, are set to expire in 2009.

The industry is also seeking reduction of excise duties on drugs to 8 percent from 16 percent now.

The union budget will be presented at the end of February.