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No incentive for R&D

The Budget has not provided any incentives to R&D, technology licensing and indigenous drugs, says biotech entreprenuer Kiran Mazumdar-Shaw.

india Updated: Feb 28, 2006 17:58 IST

If India wishes to walk its Davos talk of being " the world's fastest growing free economy", then we need to have a fiscal environment that can deliver reforms that rapidly respond to emerging global opportunities and competitive threats. At the core of this reforms process is de-regulation and privatization. Against this backdrop, the time has come for us to look upon the Annual Budget as a yearly review wherein taxation and fiscal policies need to be evaluated on a quarterly basis with implementation mechanisms that are not confined to a year end activity. Political instability coupled with the changing socio-economic demographics across the globe has introduced an enormous challenge to the world economy.

Countries that have inherently flexible and pro-active economic policies are more likely to succeed than those that are rigid and reactive. We must also recognize that such flexible systems will also need trial and error experimentation which will intrinsically involve rolling back taxes and amending policies. The reduction of the FBT is one such example. We need to evaluate annual budgets in terms of their overall effectiveness in succeeding with our global strategies.

This year's budget is keenly focused on achieving double digit GDP growth in the foreseeable future. The increased allocation for planned expenditure especially in education, health, agro-manufacturing, power and rural infrastructure development will certainly generate employment and sustained growth. Furthermore, the plan to reduce fiscal deficit to 3.8% of GDP is imperative for economic stability.

However,I am most disappointed to see that the budget has not provided for incremental investment in Science & Technology. Research & Development is seen as the next big opportunity for India Inc. To establish India as a laboratory of the world, fiscal policies need to support the high investment needs and the long gestational timelines of this segment. Industry has been seeking fiscal support through a 5 year weighted tax deduction, lower duties on R&D consumables and Equipment - to be on par with other competing nations ; and duty free import of enabling technologies to promote collaborative R&D.

Unfortunately this year's budget has completely ignored Industry's recommendations with respect to all the above. The main recommendation of the Pharma-Biotech sector was the extension of the weighted average deduction @ 150% u/s 35 (2AB) for R & D expenditure till March 2015. This has not been addressed by the Finance Minister. With the advent of the WTO-TRIPS regime, R & D is the key for the future and survival of the Bio-Pharma Industry. If this incentive if not made available beyond 2007, the allocation of financial resources into R&D is likely to diminish resulting in India's dependency on external innovation and the country's inability to address unmet medical needs through affordable drugs. The recent avian flu crisis should be a wake-up call for such an urgent investment in indigenous R&D.

Additionally, there is a serious anomaly in taxation pertaining to patent filing wherein weighted average tax deduction is only applicable to Indian patent filings but excludes International filings. This is an enormous disincentive to Indian R&D which is positioning itself to address global opportunities.

The lack of incentives for R&D is seeing the flight of Intellectual Property from India to more tax friendly regions of the world.

It is imperative that the Finance Ministry address this serious dilution of our Intellectual capital through favourable taxation and fiscal mechanisms. Industry hopes that such oversights can be rectified during the course of this fiscal through fiscal and taxation policies that encourage Indian industry to invest exponentially in R&D.

In summary, I would rate the 2006-07 Budget as follows:

Overall Rating: 7/10 (Fiscal deficit being brought down to 3.8%)

Sector specific Rating for Biotech: 5/10 (No benefit for R&D, technology licensing & indigenous drugs)

Positives:

Agriculture
Education
Infrastructure
Power
Tourism
Irrigation

Biotech-Pharma : Neutral impact despite customs duty reduction on Anti-AIDS, anti-cancer & Life Saving Drugs.

Indigenous manufacturers: No perceived benefits. However, no benefit for R&D led Pharma-Biotech companies.

First Published: Feb 28, 2006 16:50 IST