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. Over 65% of demand for DPT (Diphtheria, Pertussis, Tetanus) & BCG (Bacillus Calmette- Guerin and 90% Measles vaccines are supplied by India.

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$ 17.3 billion during the year 2017-18, registering a year-on-year growth rate of 11.8%. The exports have displayed a compound annual growth rate of 3.5% during the period 2013-14 to 2017-18, 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 vis-à-vis 2015-16, at US$ 12.9 million, whereas in 2017- 2018, the exports have increased 2.5 folds to US$ 13.2 million.

Exports of Pharmaceutical Products from India
Year Export value (million US$) Growth Rate (%)
2013-14 11.1 10.7
2014-15 11.6 4
2015-16 12.9 11.4
2016-17 12.9 0.2
2017-18 13.2 2.5
2018-19 (till October 2018) 8.3 12.7 (yoy)
Source: DGCIS
Major Export Destinations of Indian Pharmaceutical Products
Country Export value (million US$) Share (%)
USA 4584.169 35.5
South Africa 494.733 3.8
United Kingdom 419.873 3.3
Russian Federation 405.793 3.1
Nigeria 377.190 2.9
Tanzania 231.407 1.8
Australia 216.569 1.7
Sri Lanka 200.7 1.6
Brazil 212.300 1.6
Kenya 206.927 1.6
Sri Lanka 195.444 1.5
Total 12895.464 100
Source: DGCIS

Foreign Direct Investments

FDI Policy

  • During April 2000 to June 2018, the sector has absorbed US$ 15828.75 million, which accounts for 4.06% of the total FDI inflows.
  • 100% Foreign Direct Investment (FDI) is allowed under the automatic route for greenfield pharma.
  • 74% Foreign Direct Investment (FDI) is permitted under the automatic route in brownfield pharmaceuticals. Any FDI beyond 74% follows 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-10 of Department of Industrial Policy and Promotion (DIPP), Consolidated FDI Policy (Effective from June 07, 2016).
  • 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 (India’s 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 grow extensively in near future.

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 start-up business. US$ 15.38 million to be set aside as initial amount in National Institution for Transforming India (NITI) Aayog.
  • Scheme for Development of Pharmaceuticals Industry- The Department of Pharmaceuticals has prepared a Scheme for Development of Pharmaceuticals Industry with the objective to ensure drug security in the country by increasing the efficiency and competitiveness of domestic pharmaceutical industry with the following sub-schemes:
  1. Promotion of cluster based development of agri commodities and regions in partnership with Ministry of Agriculture, Commerce and allied ministries;
  2. 100% income tax deduction from profit derived from activities such as post- harvest value addition to agriculture to Farmer Produce Organisations (FPOs) having annual turnover of Rs. 100 crores;
  3. Setting up of state of art testing facilities in all the 42 Mega Food Parks to encourage export of agri-commodities realizing their full potential.

The said scheme is a Central Sector Scheme with a total financial outlay of Rs. 480 Crore.

  • Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP)- was introduced in November, 2008 across the country with an objective of making available quality generic medicines at affordable prices to all. The ‘Jan Aushadhi Scheme’ has been revisited and renamed as ‘Pradhan Mantri Bhartiya Janaushadhi Pariyojana’ (PMBJP).
  • Department of Pharmaceuticals is running following two interdepartmental collaborative projects with NIPER, Mohali for development of new drugs for Tuberculosis and Kala Azar.
  • Implementation of Scheme for Schedule M compliance for SSI Pharma Units. For more info:
    http://pharmaceuticals.gov.in/schemes/implementation-scheme-schedule-m-compliance-ssi-pharma-units
  • 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.

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.