Budget 2024: Pharma firms hope for increased expenditure for healthcare, support for R&D

Healthcare spend in India is currently around 3 percent of the GDP, which analysts feel is quite low compared to global standards.

Pharmaceutical companies are hoping that Finance Minister Nirmala Sitharaman will have some good news for the sector by way of higher allocation for healthcare spending in the Budget.

The industry is also expecting some tax breaks on research and development spends as more companies are shifting their focus to complex drugs.

Healthcare spend in India is currently around 3 percent of the GDP, which analysts feel is quite low compared to global standards. Most advanced economies like the US, Uk, France, Germany, Japan, China and South Korea allocate 7-17 percent of their total GDP towards healthcare.

Broking firm Prabhudas Lilladher feels the government will likely up its allocation for healthcare in this Budget.

"Strengthening basic healthcare facilities would not only enhance public health outcomes but will also increase demand for pharmaceuticals," said Dr. Satish Wagh, Chairman & Managing Director, Supriya Lifesciences.

R&D boost

Morgan Stanley analysts Binay Singh and Trisha Waghela expect the government to increase support through its Promote Research and Innovation Program (PRIP) which was launched in 2023.

"India's pharmaceutical R&D investment currently at 8-10 percent of its revenues, which is lower than the global average of 15-20 percent. Enhanced tax breaks and R&D funding may drive industrial innovation, allowing us to compete worldwide and contribute to the 'Make in India' goals," Wagh added.

The Indian pharmaceutical market is projected to reach $130 billion by 2030. Morgan Stanley feels it is important for the government to create an environment that encourages cutting edge research by pharma companies. This is important as drugmakers pivot towards specialised and complex drugs, moving away from generics, in a bid to diversify offerings towards high-margin, low-competition products.

Major drugmakers like Lupin, Dr Reddy's Labs, Sun Pharma, Cipla and others are raising their R&D expenditure to focus more on specialised drugs and the government's support on this front remains imperative for the industry.

Affordability

Analysts at CareEdge are expecting the government to increase budget allocations towards incentives for companies to set up facilities under the PLI scheme for bulk drugs to reduce reliance on China.

Pharmaceutical firms stand to benefit from this scheme since it drives demand for medicines and boosts manufacturing in the domestic market, a segment which is expected to spearhead growth for drugmakers in the coming times.

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Wagh also hopes for the government to address issues related to pricing controls for drugs and ensure a balanced approach that safeguards public interests while allowing businesses to thrive. "A predictable and transparent pricing policy is crucial for sustainable growth," he said.

Currently, the National Pharmaceutical Pricing Authority (NPPA) fixes the prices of controlled bulk drugs and formulations, to ensure availability of the life-saving medicines at affordable prices.

Hospitals

Analysts at Prabhudas Lilladher expect an expansion of the Ayushman Bharat Scheme to more sections of society. In addition to that, the brokerage anticipates a likely doubling of the tax deduction limit for health insurance premiums under Section 80C and 80D Deductions.

These schemes are seen as a major positive for the hospital industry as it opens the doors for healthcare inclusivity to all strata of society, thereby boosting demand.

Pharma and healthcare companies have been on a spending spree in the last couple of years, investing in R&D, and capacity expansion to drive the next leg of growth for the sector. The Street has also noticed this changing trend in the industry which has triggered a fresh spree of buying within the sector in the past two years. Most pharma have delivered solid returns between 23-270 percent in the past two years.

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