July 10, 2004
Source: Business Line
Budget a damp squib, says biotech sector

Our Bureau
Bangalore, July 9, 2004

THE budding biotechnology industry says it really does not have much to smile about. There are no policy measures to create investments. Another year's extension till March 2005 to claim tax holiday and a small duty sop for all hepatitis diagnostic kits do not address the kind of policy support a capital-intensive, research-driven biotech sector needs, according to some of the players in the sector here.

Mr Nitin Deshmukh, Director-General of the Association of Biotechnology-Led Enterprises (ABLE) and Head - Private Equity, Kotak Mahindra Bank, said, ``It has been a damp squib for our sector. There has been no appreciation of the fact that biotechnology is capital intensive. We were expecting some clear policy directions and fiscal support to steer investments into the sector. Certainly that has not come.''

``However, we are pleased that at least a couple of our recommendations have been reflected, like (extending) the 10-year tax holiday for R&D companies. There is no exemption on rapid tests for HIV or cancer. The excise duty exemption could have been applied to all diagnostic kits rather than only the hepatitis kits. But this is a good beginning. The complexities of the biotech industry are so huge that they need some time to be understood. We hope there will be more announcements in the coming months.''

Funding of this sector is tough and the Government should have set up VC seed stage funds, as is being done worldwide. However, there have been some positive statements on agri biotech, as some indirect benefits would flow into agri- and seed biotech companies because of the measures to increase farm credit and allowing venture capital through the SFAC, Mr Deshmukh said.

The industry, he said, was hoping that expenses related to filing of patents abroad - an exercise that runs into several lakhs of rupees - would get some exemption. Domestic IPR-related expenses enjoy the benefit.

Another measure could have been concessions for companies operating in biotech parks.

Dr Villoo M. Patell, a leading agri biotechnologist, Founder & CEO of Avestha Gengraine Technologies Pvt Ltd, said there was no clarity on how biotech would be used in agriculture.

``It is essential that priority is placed on getting the regulations and financial processes in place first. ... The sops are too few and not directed to developing the industry, which should be the first priority; and the level of classification of the industry is not brought out well. No distinction has been made between the farm level operations in biotech and cutting edge tech companies. The needs are different for both sectors.''

While the 10-year tax exemption is great, she said, ``Why does it have to stop'' at 2005. According to Dr Patell, banking support is easy at the farm level and low-tech but high-tech companies get no support on working capital. ``This has to be addressed if the real economic revolution using biotech has to happen,'' she said.

Dr B.V. Ravi Kumar, MD, Xcyton Diagnostics, Bangalore, said the extension of duty relief to all hepatitis kits is neither a significant nor fair move; non-ELISA HIV kits could have been included, he said. With some 6 million hep B tests and almost 3 million hep C and other hepatitis tests done across the country, the latest exemption may amount to excise duty reliefs of around Rs 30-40 lakh a year.

However, the extension of tax holiday deadline could see many more R&D registrations happening this year, he said.

For indigenous biotech and diagnostic kit manufacturers, the withdrawal of the 16 per cent excise duty cut means little as the small-scale sector already claims the benefit, according to Dr Shama Bhat, CMD of Bhat Bio-Tech India (P) Ltd, which makes some 38 kits. Most of the kits in India are imported and only non-SSI players among the 4-5 indigenous players may benefit. Nor would this be passed on to patients.

Dr Bhat and Dr Ravi Kumar said raw materials are a major problem where diagnostic companies pay 43 per cent import duty and this should have been addressed.

The CMD of Biocon Ltd, Ms Kiran Mazumdar Shaw, said, ``It is too early to comment on the impact on the biotech sector, as it briefly mentions increased fund allocation (for agri-biotech) and an extension of tax deduction for R&D. It also mentions the special focus on vaccines and diagnostics, which could benefit the sector. All these are positive and promising.''