Retail drug prices in India are set to fall 5%-7% as a result of the reductions in excise and customs duties included the Union (federal) Budget for 2008-9 announced by Finance Minister Palaniappan Chidambaram on February 29.

Specifically, the budget reduced customs duty from 15% to 10% for certain live-saving medicines and the bulk drugs used in their manufacture, and exempts them from excise and countervailing duties. It has also cut the excise duty on the Maximum Retail Price (MRP) of all products manufactured by the pharmaceutical industry from 16% to 8%.

These moves are expected to boost profitability for both domestic and multinational drugmakers, and were welcomed by industry experts as a better way of making medicines more affordable than through price controls. However, the prices of drugs manufactured in India’s tax-free zones will not be reduced; these account for about 30% of the country’s total production.

The budget is likely to be the last presented by the Progressive Alliance (UPA) government headed by Manmohan Singh ahead of the forthcoming elections and had been expected to include measures which would please consumers and manufacturers alike. Nevertheless industry spokesmen, who had lobbied strongly for measures to boost consumer spending and speed up economic growth, say the generosity of Mr Chidambaram’s proposals has beaten their expectations.

Ahead of the budget, Mr Chidambaram had under come strong pressure from Ram Vilas Paswan, the Minister for Chemical and Fertilisers, for measures to increase medicines’ affordability. Asked after his budget presentation if he expected retail drug prices to fall any time soon, the Finance Minister would only say that this would be decided by market forces. However, on March 1 the Indian Pharmaceutical Alliance industry group announced the 5%-7% price cuts, and yesterday (March 3) it was reported that India’s drug price regulator, the National Pharmaceutical Pricing Authority (NPPA), is now examining ways to force drugmakers to pass the savings which they will make on these products, which represent about 75% of the market, on to consumers. The NPPA is also expected to order a reduction in the prices of all scheduled drugs, accounting for the remaining 25% of sales, sometime this week.

The budget also provides a big incentive for outsourced R&D, in the form of a 125% weighted deduction for payments made to all companies conducting R&D. However, this concession will not apply to the R&D operations which a number of major domestic players, such as Ranbaxy, Dr Reddy’s, Nicholas Piramal and Wockhardt, have already spun off into separate companies. In addition, it plans to end duties on contract manufacturing firms.

These measures have generally been welcomed as a constructive effort to will help Indian firms as they seek to bring their R&D onto the world stage, but some observers are disappointed that there is no specific help for exports, which have been hit by the rupee’s appreciation in value.

– Other budget features which should help the industry include a 15% increase in spending for the health sector, the extension of a five-year tax holiday for hospitals and a rise in exemption limits for personal taxes from 110,000 rupees to 150,000 rupees, although only one-third of India’s population pays tax. There will also be more money for HIV/AIDS and polio treatment programmes, and the antiretroviral protease inhibitor atazanavir (Bristol-Myers Squibb’s Reyataz), and its bulk ingredients, have now been exempted from excise duty.