COVID-19 highlighted the importance of the domestic pharmaceutical industry. While the Indian pharma industry is among the top-10 in terms of exports, there is heavy reliance on the import of certain essential raw materials. To address this gap, the government has approved multiple incentive schemes and significantly increased the allocation to the Department of Pharmaceuticals in the 2022-23 budget.
The COVID-19 pandemic has necessitated that the government divert the funds towards pandemic-critical sectors. The health sector was one such that needed immediate intervention to manage various issues related to the pandemic including but not limited to spending towards infrastructure, resources, personnel, etc.
The experience during the pandemic also highlighted the need for the governments to re-strategize their spending on such critical sectors to be able better handle any such future situation. Among the varied requirements that became critical during the pandemic was access to common drugs & medicines used for the treatment of COVID-19. There was a significant increase in demand for different kinds of drugs commonly used in COVID-19 treatment protocol in addition to the need to come up with & manufacture new drugs.
In this context, we look at the trends in budget allocation for the Department of Pharmaceuticals (DoP). This department is part of the Ministry of Chemicals & Fertilizers.
Fivefold increase in the Budget allocation in 2022-23 compared to 2021-22
The Department of Pharmaceuticals was created on 01 July 2008 as part of the Ministry of Chemicals & Fertilizers. The objective of the department is to focus on the development of the pharmaceutical sector and regulate various issues such as pricing & availability of medicines at affordable prices, research & development, protection of intellectual property rights, international commitments, etc.
Trends in recent years indicate an increase in the allocation to the department, which is understandable in wake of the COVID-19 pandemic in the country. However, the trends vary in terms of the initial budget estimates and the actual expenditure over the years.
During 2018-19, the actual expenditure was twice the budget estimates. The budget estimates for the year were Rs. 261 crores, while the actual expenditure for the year was Rs. 523 crores. While the budget estimates for 2019-20 were on par with those of the previous year, they were revised to Rs. 562 crores, closer to the actual expenditure incurred in 2018-19.
In the pandemic hit 2020-21, the initial budget estimates for the DoP were Rs. 333 crores, which the government revised to Rs. 470.4 crores. However, as per the details provided in the latest budget documents, the actual expenditure for 2020-21was Rs. 456 crores. This is not only slightly lower than the revised estimates but also lower than the actual expenditure for the previous two years.
The latest budget also highlights the substantial increase in focus & allocation to the DoP in 2022-23. The revised estimates for 2021-22 were increased to Rs. 823 crores from the earlier budget estimates of Rs. 470 crores. However, a substantial increase was observed in the budget estimates for 2022-23. The budget estimates for 2022-23 for the DoP stand at Rs. 2.24 thousand crores, which is nearly 5 times the budget estimates of 2021-22.
Prior to the pandemic, the majority of the Department’s expenditure was towards NIPERs
As the overall numbers indicate, there is a major increase in the estimates for 2021-22 & 2022-23. Before we look at the details of the increased allocation, here is a look at the trends in expenditure incurred by the DoP prior to the onset of the pandemic.
The budget data indicates that a major portion of the expenditure incurred by the department prior to the pandemic was towards NIPERs (National Institute of Pharmaceutical Education & Research). The first NIPER was setup in Mohali and was given statutory recognition under NIPER Act,1998. A total of 6 more NIPERs were established in 2007-08. The main purpose is to promote quality & excellence in pharmaceutical education & research.
Barring 2018-19, there has been a year-on-year increase in the actual expenditure incurred on NIPERs in recent years. During 2020-21, there is a major increase in the actual expenditure compared to 2019-20. The actual expenditure in 2020-21 was Rs. 306.3 crores, while it was only Rs. 160 crores in 2019-20. The budget estimates for 2020-21 were Rs. 184.45 crores, which was revised to Rs. 306.3 crores because of the pandemic.
There was also increased allocation towards another Central Sector scheme i.e., Jan Aushadhi Scheme. The objective of this Scheme is to make quality generic medicines more accessible to the public at a significantly lower price than branded medicines. Prior to the pandemic, there was a declining trend in the actual allocation made towards this scheme. However, in 2020-21, the Actual allocation increased, and the recent estimates are also higher than earlier.
Earlier, we have highlighted that the actual expenditure for 2018-19 & 2019-20 is much higher than the initial budget estimates for the year. While there is no major increase in allocation for the aforementioned Central Sector Schemes, the expenditure was incurred for other reasons.
- In 2018-19, Rs. 307 crores were spent towards “Write Off/Waiver of losses in respect of Pharmaceuticals PSUs”. This was as per the request by the Department seeking budgetary support to meet the outstanding liabilities of the CPSEs (Central Public Sector Enterprises) under the Department of Pharmaceuticals for closure and also as waiver towards the outstanding loans.
- The increase in the actual expenditure in 2019-20 compared to the budget estimates is again due to the sick public sector units under the department. Rs. 333 crores were allocated as ‘Assistance to PSUs’. This is in the form of ‘Loans for Chemicals & Pharmaceutical Industries’.
Promotion of Bulk Drug Parks, Medical parks & Production linked Incentives part of the latest Budget
In the Budget speech during the presentation of Budget for 2022-23, the Pharmaceutical industry is earmarked as one of the Sunrise opportunity sectors, with an immense potential to assist sustainable development. The government’s assistance towards such sectors includes – supportive policies, light-touch regulations, promotion of Research & Development, building domestic capabilities, etc.
The increase in revised estimates for 2021-22 compared to the budget estimates, and the multi-fold increase in budget estimates for the Department of Pharmaceuticals in 2022-23 reflects the emphasis on this sector. The COVID-19 pandemic which highlighted the need to ramp up the infrastructure as well as the R&D capabilities can also be cited as a contributory factor.
Here is a look at a few of the key heads under which the allocation is made as per the 2022-23 budget.
- Rs. 900 crores are allocated towards the promotion of ‘Bulk Drug parks’ as per the budget estimates for 2022-23. As per revised estimates for 2021-22, Rs. 36.2 crores were allocated. This is under the new scheme ‘Promotion of Bulk Drug parks’. While India is among the global leaders in Pharmaceuticals, it is highly reliant on imports for the basic raw materials i.e., bulk drugs. They accounted for 63% of the total pharmaceutical imports in the country. The scheme was approved by the government on 20 March 2020 to bring down the manufacturing costs of bulk drugs and increase the competitiveness of the domestic bulk drug industry, thereby reducing the imports.
- Rs. 390 crores are allocated towards the ‘Production Linked Incentive (PLI)’ scheme for the promotion of domestic manufacturing of KSMs, DI & APIs in India. As indicated in the earlier scheme, India is highly reliant on the import of raw materials for pharmaceuticals. The raw materials include – Key Starting Materials (KSMs), Drug Intermediates (DI) and Active Pharmaceutical Ingredients (APIs). The objective of the scheme is to boost domestic manufacturing of identified KSMs, DI & APIs through incentives.
An allocation of Rs. 137 crores are made as per the revised estimates for 2021-22 and Rs. 120 crores as per budget estimates for 2022-23 towards Scheme for ‘Promotion of Medical Device Parks’. This is part of Rs. 400 crores of financial outlay towards the scheme for the period 2020-21 to 2024-25. The purpose of the scheme is to provide infrastructural facilities at one place (parks) to increase the medical equipment manufacturing capabilities.
- Another major allocation made in the budget of 2022-23 is towards the ‘Production Linked Incentive Scheme’ for ‘Domestic Manufacture of Medical Devices’. The budget estimated for 2022-23 towards this scheme is Rs. 216 crores. This scheme supports the Scheme for Promotion of Medical Device Parks. Incentives are provided for select companies based on the sales of goods manufactured.
Furthermore Rs. 3 crores are allocated both in the revised estimates for 2021-22 & budget estimates for 2022-23 towards the PLI scheme for Pharmaceuticals in the budget presented for 2022-23.
The increased allocation towards encouraging the R&D, manufacturing in Pharmaceuticals through various incentive schemes is a step in the right direction. COVID-19 pandemic has highlighted the importance of the Pharma industry as well as the prowess of India’s pharma industry. As rightly identified by the government, India’s Pharmaceutical industry is highly reliant on imports for certain essential ingredients and the increased budget allocation is expected to encourage domestic production. However, it remains to be seen if these schemes take off on the ground and produce the expected outcomes.
Featured Image: Allocation for Department of Pharmaceuticals