Pharma Industry and rolling back of Fiscal stimulus – How to bridge the ‘Gap'

By A Netizen

NEW DELHI, FEB 28, 2010: EVERY other Pre-Budget Memorandum that I could recollect having scanned through in recent years, invariably carried a reference to the persistent need of the Pharma Industry to rectify the inverted duty rate structure – 4% for finished formulations and 8% to the Active Pharmaceutical Ingredients (API). This has resulted in most Pharma manufacturers ( catering primarily to the domestic market ) having to reconcile to accumulated unutilized Cenvat credit, more so, in the nature of cost to the transaction given that said Pharma manufacturers do not have a way out of this situation. And with the roll back of stimulus almost a predicted certainty, I was looking forward to whether this would addressed and how?

Well, our Finance Minister stood his ground amidst the walk out of the Opposition and delivered his Budget Speech. And, the above issue also appears to have stood its ground. To the contrary, it appears to have got that much tougher for the said Industry. Increased cost of the API could make the finished goods that much more costly and could hit the profits of the said Industry. With the 8% duty slab of API having been increased to 10% and finished Pharma formulations remaining untouched with 4%, the ‘gap' just got that much wider.

Crystal Ball gazing for a moment - what could happen to this issue under the proposed Goods and Services Tax (GST) regime? It is a fact that the duty rates of finished pharma goods were not tinkered in this Budget and so, could this be seen as an indication of the Central GST (CGS) rate structure under the proposed GST? The Finance Commission Report (Chapter V) in its ‘Grand Bargain' concept has dropped enough hints to suggest that a double rate GST could well be considered at the kick off stage. So, was our astute FM working overtime? Time, GST and probably the next Budget would hopefully say more…Until then, I am assured of stumbling on to this representation next time around also …