Pharmaceuticals Industry


 

OVERVIEW

Health is of paramount importance in the social and economic development of the world. It is in this regard, that the pharmaceutical industry is widely recognised as a predominant driver in the process of economic development. The Indian Pharmaceutical Industry has acquired a noteworthy position in the global pharma sector and has been achieving significant growth in the recent years.

In addition to catering to the needs of the domestic demand, the pharmaceutical industry is also engaged in contract manufacturing, contract research, clinical trials, contract R&D, and direct exports to developed and developing country markets. Globally, the Indian pharmaceuticals market is the third largest in terms of volume and thirteenth largest in terms of value.

The Indian pharmaceuticals market witnessed growth at a CAGR of 5.64 per cent, during 2011-16, with the market increasing from $20.95 billion in 2011 to $27.57 billion in 2016. The industry’s revenues are estimated to have grown by 7.4 per cent in FY17. By 2020, India is likely to be among the top three pharmaceutical markets by incremental growth and 6th largest market globally in absolute size.

Export

The exports of pharmaceutical products were valued at US$ 12.9 billion during the year 2015-16, registering a year-on-year growth rate of 11.8 per cent. The exports have displayed a compound annual growth rate of 14 per cent during the period 2010-11 to 2015-16, as the value of exports increased from US$ 6.7 billion to approximately US$ 12.9 billion. The exports of pharmaceutical products during 2016-17 remained stable at US$ 12.9 billion

Exports of Pharmaceutical Products from India
Year US$ bn Growth Rate (%)
2011-12 8.5 27.1
2012-13 10.1 18.6
2013-14 11.1 10.7
2014-15 11.6 4
2015-16 12.9 11.4
2016-17 12.9 0.2
Source: DGCIS
Major Export Destinations of Indian Pharmaceutical Products
Country Exports (US$ mn) Share (%)
USA 5,098.3 39.4
UK 444.5 3.4
South Africa 393.8 3.0
Russia 351.1 2.7
Nigeria 345.3 2.7
Kenya 292.8 2.3
Australia 213.8 1.7
Sri Lanka 200.7 1.6
Brazil 197.9 1.5
Philippines 191.0 1.5
Total 12,929.9 100
Source: DGCIS

Foreign Direct Investments

FDI Policy

  • 100% Foreign Direct Investment (FDI) is allowed under the automatic route for greenfield pharma.
  • 100% Foreign Direct Investment (FDI) is allowed under the government route for brownfield pharma in upto 74% FDI is under automatic route and beyond 74% is under government approval route.

Other conditions:

  • ‘Non-compete’ clause would not be allowed except in special circumstances with the approval of the Foreign Investment Promotion Board.
  • The prospective investor and the prospective investee are required to provide a certificate along with the FIPB application as per Annexure-1.
  • Government may incorporate appropriate conditions for FDI in brownfield cases, at the time of granting approval.

Outlook

Indian pharmaceutical sector remains under pressure from quite some time due to decline in revenues from the US markets, its largest overseas market, and increased competition. Moreover, generic adoption reaching saturation levels and regulatory overhang along with base effect catching up too remain a big concern for the sector.

Despite all these concerns, Indian pharmaceutical industry is expected to recover in coming time on the back of increasing consumer spending, rapid urbanisation, and raising healthcare insurance. Robust growth in Biotech Industry and higher spending in research and development by the major companies spread ray of hopes for the industry.

To bring the pharma industry on right track, the Indian government has taken many steps to reduce costs and bring down healthcare expenses. Speedy introduction of generic drugs into the market has remained in focus and is expected to benefit the Indian pharmaceutical companies.

The implementation of the Goods and Services Tax (GST) too is expected to provide fillip to the Indian Pharmaceuticals industry as it will lead to tax-neutral inter-state transactions between two dealers, thereby reducing the dependency on multiple states and increasing the focus on regional hubs.


 

SELECT GOVERNMENT INCENTIVES

  • SETU (Self Employment and Talent Utilization) to be established as a techno-financial, incubation and facilitation programme to support all aspects of a startup business. USD 15.38 million to be set aside as initial amount in National Institution for Transforming India (NITI) Aayog.
  • Atal Innovation Mission (AIM) to be established in NITI Aayog to provide an Innovation Promotion Platform involving academicians, and drawing upon national and international experiences to foster a culture of innovation, research and development. A sum of USD 23.08 million will be earmarked.
  • The threshold limit for applicability of transfer pricing regulations to specified domestic transactions increased from USD 0.77 million to USD 3.08 million.
  • Service Tax exemption for common effluent treatment plant operators.
  • Rate of income tax on royalty and fees for technical services reduced from 25% to 10% to facilitate technology inflow.
  • Time limit for taking CENVAT credit on inputs and input services have been increased from six months to one year

Area-Based Incentives

  • Incentives for units in SEZ/NIMZ as specified in respective acts.
  • Setting up of projects in special areas such as the North-east, Jammu & Kashmir, Himachal Pradesh and Uttarakhand.

Units in Clusters

  • A scheme for the development of common facilities like effluent treatment, testing centres etc.

State Incentives

  • Besides the above, each state in India offers additional incentives for industrial projects.
  • Incentives are in areas like subsidised land cost, relaxation in stamp duty on sale/lease of land, power tariff incentives, concessional rate of interest on loans, investment subsidies/tax incentives, backward areas subsidies, special incentive packages for mega projects etc.

R & D Benefits

Industry/private sponsored research programmes:

  • A weighted tax deduction is given under section 35 (2AA) of the Income Tax Act.
  • A weighted deduction of 200% is granted to assesses for any sum paid to a national laboratory, university or institute of technology, or specified persons with a specific direction provided that the said sum is used for scientific research within a programme approved by the prescribed authority.

 Companies engaged in manufacture having an in-house R&D centre:

  • Weighted tax deduction of 200% under section 35 (2AB) of the Income Tax Act for both capital and revenue expenditure incurred on scientific research and development. Expenditure on land and buildings are not eligible for deduction.
  • A national centre to help develop bulk drugs and facilitate their research is being set up in Hyderabad.
  • Duty free import of Pharmaceuticals reference standards.

 

US FDA

The US FDA inspects the manufacturing sites in order to check the adherence to the current good manufacturing practices. The manufacturing operations must comply with the current good manufacturing practices (CGMP) in order to have a site clearance. In case of deviations from ideal manufacturing practices, the FDA lists down deviations in Form 483, and share the observations with the manufacturers, who then are expected to reply to the FDA with their corrective and preventive actions that will provide assurance of their adherence to the CGMP requirement. In case of further non-compliance or inadequacy of corrective and preventive actions, the FDA may issue a warning letter or an import alert. India and China pharmaceutical companies feature among the maximum number of import alerts for good manufacturing practices. India ranks fourth in the list of warning letters and import alerts and contributes nearly 3 percent of the total of US FDA import alerts till date. The import alerts have been issued on account of several alleged violations by the Indian companies in the areas such as: quality control, hygiene, lack of reliability and accuracy of data and adulteration. An import alert effectively bans all exports of pharmaceutical products from such manufacturing plants into the USA, and renders all the stocks of the impacted production batches unsalable in the USA market. Further, if the US FDA continues its spree of issuing import alerts on the Indian manufacturing facilities, pharmaceutical producers will have to adhere to the US FDA’s GMP guidelines on a more stringent level. This would mean more quality controls, more checks on the formulation manufacturing processes and rigorous monitoring and documentation as well, resulting in incurring of additional investment in these areas, which would also add to the cost of manufacturing the medicines by Indian pharmaceutical companies.


For further details on Regulations applicable in various geographies, refer to this link: http://www.standardsmap.org/identify