The pharmaceutical sector has played a pivotal role in recent times while responding to unprecedented health crises. Challenges for the sector ranged from allocating capex, R&D and manufacturing for COVID-related drugs and managing raw material supply chain particularly those flowing from abroad.
Budget 21 has a task cut out to meet both transitional and strategic needs of the sector. Transitional part – which itself is a multi-year challenge – is the need to control COVID spread through an effective vaccination drive. If we go by the price of vaccine been negotiated between Serum Institute and Government of India, cost of two doses come out to be Rs 500. This translate to Rs 30,000 crore budget allocation just to cover vaccine procurement to meet 50 percent population coverage. Including need for storage, transportation and distribution of COVID-19 vaccines, this one-time allocation could be of the order of Rs 80,000 crore. To provide a perspective, such allocation would be more than the current allocation to the healthcare sector from the central government.
Coming to the strategic bit, there are two elements to it. One total public health expenditure in India, including that of state and central government, has been hovering close to 1.3 percent of GDP which is quite abysmal compared to OECD countries average of 7.6 percent and other countries in the BRICS bracket of 3.6 percent. Note that public health comes under state list and hence larger participation from the fiscal side is from the state government. However, the central government has a crucial role in terms of enabling health policies, programmes and resources. Overall, low public health expenditure has led to the stage that India's out-of-pocket expenditure is one of the highest. This amounts to about 63 percent of total spending on health. The current pandemic has accentuated this gap and we expect higher allocations to schemes such as Jan Aushadhi Scheme (Rs 50 crore currently) and Ayushman Bharat. Note that as per the National Health Policy 2017, total public health expenditure is targeted to reach 2.5 percent of GDP by 2025.
Other strategic element is the theme of self-reliance i.e. need to reduce the dependency on imports particularly – for APIs (Active Pharmaceutical Ingredients) and KSM (Key Starting Materials). Global pandemic has almost transformed this as a global theme. Buyers from developed countries are concerned about reliability of supply chain and are looking for reliable partners in countries other than China. Broadly, to address this Government of India has introduced a series of product-linked incentives (PLI) incentivising investment for APIs, KSM, medical devices.
While the industry has shown interest in these schemes, there are several apprehensions given the gestation period, committed investment needed and China’s predatory pricing practices. Hence, the industry would be looking for further incentives in this direction in the upcoming budget. Additionally, the pharma industry would also be looking for incentives for innovations and affordability. This includes tax incentives for pharma R&D/patents and need for life-saving drugs to be categorised at the lowest rate of tax under GST.
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