All eyes are now on Finance Minister Arun Jaitley as he readies to present the Union Budget 2018-19, most probably on February 1. This is the first post Goods and Services Tax (GST) budget as well as the last full budget of Prime Minister Modi’s NDA government before the all important general elections. Thus political pundits are predicting a populist budget with an eye on the elections. Measures like a cut in corporate tax rates, for instance, are clearly being considered.
Pharmaceutical associations like Indian Drug Manufacturers’ Association (IDMA) have sent in their proposals. IDMA’s pre budget wish list contains a long list of suggestions, 24 in all, on the modifications/clarifications needed on GST. In terms of direct taxes, their recommendations include investment based tax incentives to boost API manufacturing in the country, as well as notification of special zones for manufacture and export of APIs. As different sectors have differing gestation periods, IDMA recommends that the phase out of deductions and exemptions should be applicable in a selective manner.
But India Inc did not need to wait for the Budget for good news. On January 10, setting the stage for PM Modi’s presence at the World Economic Forum in Davos, the Union Cabinet approved amendments in India’s Foreign Direct Investment (FDI) policy “to liberalise and simplify the FDI policy so as to provide ease of doing business in the country. In turn, it will lead to larger FDI inflows contributing to growth of investment, income and employment.” Besides allowing 100 per cent FDI under automatic route for single brand retail trading, 100 per cent FDI under automatic route in construction development, allowing foreign airlines to invest up to 49 per cent under approval route in Air India, allowing FIIs/ FPIs to invest in power exchanges through the primary market, the definition of ‘medical devices’ was also amended.
This amendment in the definition of ‘medical devices’ in the FDI policy and dropping of the reference to the Drugs & Cosmetics Act from the FDI policy is very significant because it effectively delinks medical devices from the pharma sector.
But Rajiv Nath, Forum Coordinator, Association of Indian Medical Device Industry (AiMeD) hints that the FDI could result in building warehouses and financing inventory of imports, resulting in stunting rather than increasing manufacturing of indigenous brands. Commenting on the move to amend the definition of ‘medical devices’, he welcomed 100 per cent greenfield investment in India for medical devices but expressed his reservations on the 100 per cent auto route without oversight of Department of Pharmaceuticals (DoP) for brownfield projects. Using a parallel from the auto sector, his point is that consumers in Tier 2 and 3 towns need access to ”Indigo and Swift as they cannot afford a Merc or a BMW”. He cautions that the brownfield policy could result in restricted access in certain categories of devices to Mercs and BMWs in the absence of oversight by DoP or RBI.
Thus as PM Modi and his government woo corporate investments, they will have to ensure that they fulfill their campaign promise: ‘Sabka Saath, Sabka Vikas’ (Collective Efforts, Inclusive Growth)