The Union Budget 2023-24 will be presented on February 1 against the backdrop of a global recessionary fear. However, the outlook for the Indian pharma sector looks bright backed by the significant progress made during the last two decades with supportive measures from the government.
The COVID-19 pandemic has made us realise the importance of health and healthcare infrastructure. So, it is high time that the nation gives health its due share, which is long overdue. The allocation to healthcare as a percentage of GDP still continues to be lower for India as against most developing nations. The government needs higher allocation to reach its target of spending 2.5 per cent of GDP on healthcare by CY25, compared with the sub-1.5 per cent it spends now. So, it must include allocations for public hospitals, diagnostics, pharmaceuticals, and digital health, including R&D and capacity building for healthcare at all levels.
Several public sector schemes launched in the past few years, including the Pradhan Mantri Ayushman Bharat Health Infrastructure Mission, have focused on building last-mile infrastructure. However, the current Budget needs to significantly increase allocations towards these and other schemes.
Outlining the wishlist for the sector in the upcoming Union Budget, Indian Pharmaceutical Alliance (IPA) Secretary General Sudarshan Jain recently said the domestic pharma industry is currently around $50 billion in size and aspires to grow to around $130 bn by 2030 and $450 billion by 2047. “The government needs to set in place R&D-focused incentives for the promotion of investment, which remains a constant and necessary ask of the sector,” he said.
The government realises the potential of India’s active pharma ingredient (API) industry, and has recently given a thrust through the PLI scheme. The PLI scheme will add to India’s competitive advantage and reduce import dependence on key starting materials (KSMs) and APIs of Indian firms from Chinese manufacturers. The scope and quantum of PLI should be reviewed every year so that manufacturing remains competitive.
Measures to facilitate the ease of doing business will increase investment and contribute to the industry’s long-term growth. The additional budget should be allocated by the government to the production-linked incentive (PLI) scheme, which will encourage investments, attract core knowledge competency, promote employment and make the country a competitive player in global markets.
The Budget 2023-24 needs to continue focussing on strengthening the infrastructure of the healthcare sector and shift direction towards promoting Make in India pharmaceuticals. Similarly, at the industry level, pharma companies need to set up their facilities that comply with international regulatory requirements like the WHO GMP and USFDA.
Another area where government needs to focus is to increase policy support to encourage, facilitate medical value travel to India. Viability gap funding by the government or PPP model is essential to set up hospitals in tier-1 and tier-2 cities, encouraging increased investment in the healthcare infrastructure. Lastly, the Budget 2023 should focus on simplified regulations and goods and services tax (GST) norms for allowing the development of the pharmaceutical industry.
(The author is deputy vice-president (fundamental research) at Kotak Securities Ltd)
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