Tax holiday for hospitals, cut in excise duty
March 7, 2008
Mumbai (Reuters) - India on Friday cut excise duty on goods produced in the drug sector and extended a five-year tax holiday to hospitals set up any where in India, except in certain urban areas, boosting shares of healthcare and drug firms.
Finance Minister Palaniappan Chidambaram, in his budget for 2008/09, proposed halving the excise duty to 8 percent.
The customs duty on certain specified life saving drugs, and its bulk drug ingredients, will be halved to 5 percent, besides exempting them from excise or countervailing duties, he added.
The industry welcomed the duty cuts and the tax breaks for hospitals.
“The reduction of the excise duty by half is a big big plus for the pharmaceutical companies. This will make medicines cheaper. It will boost demand,” said Hitesh Gajaria, partner (pharma) with consulting firm KPMG India.
“Certain states provide a differential duty structure. This will reduce the duty differential.”
The tax holiday that was so far given only to hospitals in the rural sector will be extended to those set up in tier I and tier II cities, Chidambaram said.
“Healthcare is finally happy. We’ve waited 20 years for something like this,” said Sangita Reddy, executive director of operations at Apollo Hospitals.
“This will encourage big players to move into smaller cities while encouraging smaller players to start new facilities.”
Apollo Hospitals ended 1.3 percent higher while Fortis Healthcare closed 7.4 percent higher and Max India closed 1.2 percent up.
R&D SOPS: NOT ENOUGH
The industry, however, was disappointed that the minister did not extend the duration of the tax breaks given for research and development or provide tax break for pure R&D companies.
To encourage outsourcing of R&D, Chidambaram proposed allowing a weighted deduction of 125 percent on any payment made to companies engaged in R&D, but left intact the tax cut of up to 150 percent of a company’s research expense.
“I am highly surprised and disappointed there was nothing done there,” said Ranjit Shahani, managing director of Novartis India.
Shares of Ranbaxy, Dr. Reddy’s and Wockhardt closed higher, but Glenmark, which is primarily an R&D company, fell nearly 5 percent. Sun Pharmaceutical and Nicholas Piramal also ended lower.
These companies have either spun off or are planning to spin off their R&D wings into separate entities.
The industry was also unhappy that the budget did not extend the tax holiday on export-oriented units beyond 2009, when it is set to expire.
The industry, a net exporter, has been hit by a strong rupee, which gained more than 12 percent against the dollar in 2007.
Govt to transform funding pattern of schemes
February 18, 2008
The United Progressive Alliance government is all set to go down in history for bringing about a total transformation in the funding pattern of the Central government towards various schemes. The Budget would be the platform for this.
The coalition government would be doubling allocations to 21 major schemes in the Budget, sources say.
From just over Rs 54,000 crore (Rs 540 billion) for these 21 schemes in 2005-06, the government is all set to take it to over Rs 1,09,000 crore (Rs 1,090 billion) in three years, indicating its resolve to pursue the national common minimum programme in toto without compromising on on growth.
Driving their model on the statistical findings that the consumption pattern in rural India was not matching the national pattern, mandarins rightly picked up the strings from the NCMP to give a thrust to social sectors.
From just over Rs 2,775 crore (Rs 27.75 billion) in 2005-06 to rural housing, Budget 2008-09 is likely to allocate more than Rs 5,400 crore (Rs 54 billion).
Likewise, programmes like Pardhan Mantri Gram Sadak Yojna are likely to get a massive increase in allocation, a possible jump from Rs 4,235 crore (Rs 42.35 billion) in 2005-06 to Rs 7,530 crore (Rs 75.3 billion).
Proposals also include a quantum jump in programmes like Rajiv Gandhi Grameen Vidyuti Karan Yojna (for rural electrification) and Integrated Child Development Scheme where allocations will witness an increase of nearly 200 per cent.
To supplement the efforts aimed at securing rural votes, Prime Minister Manmohan Singh’s team of advisers is set to increase allocations to schemes which build the tempo for development. These are schemes like Backward Region Grant Fund and Jawahar Lal Nehru Urban Renewal Mission.
In yet another boost to the rural economy, the Budget is likely to formally announce the launching of Skill Development Mission and Rashtria Krishi Vikas Yojna with allocations being made to the tune of more than Rs 3,000 crore (Rs 30 billion) and Rs 300 crore (Rs 3 billion) respectively.
Clubbed with already announced Food Security Mission and National Horticulture Mission the government will avail this last opportunity before the General Elections to woo the deprived sections of the society with an announcement of a health insurance scheme for labour.
All indications are that Finance Minister P Chidambaram will not risk falling back on the stiff targets set under the Fiscal Responsibility and Budget Management Act, while meeting the aspirations of the coalition government of which he is a part.
To match the figures and to meet the fund requirements of various non-social sector schemes, the Budget would look towards increased partnership with the private sector and also aim at enhancing the ability of Public Sector Units to raise funds form the market.
The intention of the government to allow PSUs to raise funds from the market without diluting the government’s role was made clear when the it sought National Development Council’s approval in this regard.
In addition, States would also be contributing their share to these priority programmes and it is felt that judicious implementation should make sufficient visible impact to secure votes for the UPA coalition.
But historically the States have been using these programmes to their advantage by giving a local touch. For instance, Bihar Chief Minister Nitish Kumar has efficiently followed Gujarat Chief Minister Narendra Modi’s game plan for taking credit from the UPA’s programmes.
Indications are that the UPA will not take this as a fait accompli this time and multi-crore programmes are already in the pipeline to educate the masses about the initiatives launched by the UPA government.
UNI