Budget 2011 : Disappointing for healthcare

Finance Minister Pranab Mukherjee presented his budget for 2011-12 today. The first reactions are that this is a neutral budget with Government's statement on reining in the fiscal deficit in a structured way to 3.5% of GDP by 2013-2014 , reforms in the financial sector and incentives for agro-processing and storages being the highlights

Budget 2011 has been largely disappointing for the healthcare sector. Their main expectation of infrastructure status for healthcare has not been granted by the Government though other sectors like cold chains and capital investments in fertilizer have. Here are the highs and lows of Budget 2011 for the healthcare sector

The Highs

Outlay for healthcare sector has been increased by 20% from Rs. 22,300 Crore in 2010-11 to Rs. 26,760 Crores

Coverage under Rashtriya Swasthya Bima Yojana (Government's health insurance scheme for below poverty line families) has been enhanced to include unorganized sector in hazardous mining and associated industries like hazardous mining and associated industries like slate and slate pencil, dolomite, mica and asbestos etc

Weighted deduction on payments made to National Laboratories, Universities and Institutes of Technology have been increased from 175% to 200% - weighted deduction for in-house R&D however continues to remain at 125%. This is a marginal plus for the pharma and medical devices sector

Reduction in customs duty and counter-vailing duty on raw materials for syringes and needles to 5% and 4% respectively : this is an incentive for domestic manufacturers

Reduction in import duty on lacto used in homeopathic medicines from 25% to 10% - this will bring down the cost of homeopathic medicines but given the small share of alternate systems of medicine it is expected to have a marginal impact in total

Simplification of procedures through outright concession to factory-built ambulances in place of the existing refund-based concession from excise duty

Reducing the corporate tax from 7.5% to 5% : positive impact on all corporates including those in healthcare

The Lows

Enhancing the scope of service tax to payments made by individuals also - this will increase the cost of healthcare for all notwithstanding the 50% abatement

Including diagnostic services within the ambit of service tax - modern healthcare is heavily dependent on diagnostics and cost of healthcare is expected to rise as a result of this move. This is also a disincentive for preventive healthcare services which leverage diagnostics in a big way

Increase of minimum excise duty from 4% to 5% : pharma companies who had their products in the 4% rate will be affected and may raise the cost of medicines

Increase of MAT from 18% to 18.5% of book profits which affects all organizations especially those in the healthcare sector which do not have profit after tax

Inclusion of units operating in SEZs under the scope of MAT may affect pharma and medical devices units set up in SEZs

Other initiatives

Proposal on Comprehensive Policy on PPPs for use by Central and State Governments - many state governments have initiated PPP projects in healthcare but have met with limited success. A comprehensive PPP policy is the need of the hour and was one of the major points highlighted by PwC in its Expectations from the Budget. Successful examples from countries like South Africa which have successfully implemented PPPs especially in the healthcare sector can be leveraged in developing this policy
National Innovation Council has been set up under Sam Pitroda. The process of setting up State Innovation Councils in each State and Sectoral Innovation Councils aligned to Central Ministries is
underway - this can spur innovation in healthcare, pharma, biotech and medical devices industries