Foreign Investment Opportunities in India’s Growing Biotechnology Industry

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By Dezan Shira & Associates
Editor: Nishant Maddineni

India’s biotechnology industry is growing at an exponential rate, with the country’s bio-economy valued at US$4.3 billion at the end of 2013 – up from US$530 million in 2003. As a result, India now has the third largest biotech industry in the Asia-Pacific region and the most US FDA-approved plants after the U.S. With strong support from the Indian government, the industry is expected to grow at an average growth rate of around 30 percent a year to reach US$100 billion by 2025.

Strengths of India’s Biotechnology Industry

One of the key strengths of India’s biotech industry is its strong pool of scientists and engineers, which provide it with a strong technical base. This is due to India’s emphasis on math and science education and strong state and federal government support.

To bolster its human capital, India’s government has supported training in fields related to biotechnology. For example, the UNESCO Regional Centre for Biotechnology was opened in 2009 after India and UNESCO signed a Memorandum of Understanding to provide a platform for biotechnology education, training and research at the interface of multiple disciplines. The center is now regarded as a “Category II Center” that holds to “the principles and guidelines for the establishment and functioning of UNESCO Institutes and Centers”.

Foreign investment has contributed greatly to the Indian biotechnology industry, with one of the most important purposes being for clinical trial outsourcing. India has recently joined the U.S., U.K., China, Canada and South Korea as one of the only countries to have successfully decoded the human genome indigenously. Within this field, India is particularly strong in clinical data management, drug discovery and low-cost manufacturing.

India’s low-cost manufacturing has led to large production of cheap vaccines – it is now the world’s largest producer of Hepatitis B vaccine recombinant. More recently, a Rotavirus vaccine was produced that will be priced at approximately US$1 a dose, making it the cheapest available in the world. Both low-cost manufacturing and innovation contributed to the low price.

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Impact of the 2014-15 Union Budget

Some of the most encouraging government initiatives to attract foreign biotechnology investment have come from the new 2014-15 Union Budget. Included in the budget is a service tax exemption for services provided by operators of common bio-medical waste treatment facilities to clinical establishments. In addition, publicly funded research institutions may now be able to refund their customs duty paid to import scientific and technical instruments and apparatuses.

Other incentives in the budget meant to attract biotechnology investment include:

  • Increase in depreciation allowance on plant and machinery from 25 percent to 40 percent;
  • Exemption of customs and excise duty on goods exported to recognized Scientific & Industrial Research Organizations (SIRO);
  • A three year excise duty waiver on patented products;
  • Special fiscal benefits to joint R&D projects;
  • Creation of a venture capital fund to support small and medium sized enterprises.
Challenges of India’s Biotechnology Industry

Despite its strong technical scientific talent, Indian research institutes have traditionally focused on more theoretical research instead of industry focused research. There is therefore a missing link between research and commercialization, which leads to fewer products being sold in national and international markets. Foreign countries can help with this by supporting scientific expertise and creating incubation centers, with seed funding used to develop ideas on innovation.

Another problem is India’s overly strict intellectual property regime, which sets strong limits on what can be patented. The Indian government is often relucant to give patents to large Western pharmaceutical companies; officials recently withdrew patent protection for an emphysema drug marketed by Germany’s Boehringer Ingelheim GmbH. Poor patent protection also affects smaller biotechnology companies because it makes it difficult for them to sell their products in India.

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Conclusion

Despite the challenges that exist in India’s biotechnology industry, the government has shown initiative in making the industry more innovative, efficient, and easy for foreign companies to work with. Earlier this month, a policy called the National Biotechnology Development Strategy 2 began to be drafted by the Department of Biotechnology, Ministry of Science and Technology. If successful, the strategy will improve India’s intellectual property regime, as well as restructure research priorities, resources and facilities to make them better suited for the market.  


About Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email india@dezshira.com or visit www.dezshira.com.

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