Tuesday, 24 September 2013

Business Not As Usual

"Yesterday once more” the old classic song of the seventies by The Carpenters, seems to best describe the situation in India today. Believe it or not, doing business in India now seems to be more challenging than it was when I started Biocon in 1978.

We may be free from the shackles of Licence Raj of the past, but the Indian economy today is crippled due to over-regulation and lack of an enabling business environment. Businesses today are mired with numerous approval processes from multiple authorities. Inconsistency and ad-hocism in policy making due to knee-jerk reactions of the Government to activism coupled with its failure to provide an appropriate infrastructural support, have pushed the investment sentiment in India to an all-time low.

Till recently, India was being hailed as one of the hottest investment destinations in the world, along with China and Brazil and a few other countries. Today, India is ranked at No. 60 in the recent Global Competitiveness Index 2013-14 put out by the World Economic Forum. Brazil is ahead at No. 56 and China has climbed up to No. 29.

The biotech industry, like many others, is being hamstrung by the Government’s failure to provide uninterrupted power, adequate potable water, effective effluent treatment facilities and well-connected roads. Added to these are inordinate delays in obtaining environmental and other clearances. With the cost of doing business in India is rising, it’s not surprising then that both local and overseas businesses are moving to foreign shores that are more investor-friendly.

Biocon is setting up Asia’s largest integrated insulins production plant at Bio-XCell, a biotechnology park being promoted by the Malaysian government at Johor, Malaysia. Work on this facility, which started in January 2012, is progressing well and it is expected to be fully operational by 2015. Malaysia offered us tremendous advantages in terms of high-end infrastructure and amenities, apart from attractive tax concessions, which is why we opted to expand our manufacturing capacity there. If India had a matching ecosystem for the biotech industry, we may not have looked elsewhere.

A complete lack of political will in implementing bold economic reforms, creating a world-class infrastructure, ushering in overdue labour and land reforms, addressing power woes and rolling back unfriendly business regulations is responsible for a flight of capital which is pushing India deeper into an economic quagmire.

India’s GDP growth in FY13 was 5 per cent, the slowest annual rate in a decade. Things don’t seem to be getting any better. GDP growth was a mere 4.4 per cent in the first quarter of FY14. The rupee hit a record low of 68.85 per dollar in August, making it the worst performing currency in Asia. Fortunately, it has recovered somewhat now.

The need of the hour is sweeping policy changes because incremental measures will not calm the economic panic. The Government not only needs to restore investor confidence by articulating enabling policies but also has to develop the right supporting infrastructure for industries. The five critical steps the Government needs to take to revive investor sentiment in the pharma/biotech sector are:

● The long-drawn controversy over allowing FDI in existing pharma projects has deepened concerns among foreign investors over India’s unpredictable investment climate. The FIPB should clear all pending investment proposals in the sector to create an enabling environment for investments.

● If the Government is desirous of enabling the Indian pharma/biotech industry to tide over this difficult economic environment, it must roll out greater incentives to exporters to offset import costs at a time when the rupee is weak. Furthermore, imports of finished drug products must be discouraged through additional duties and indigenously produced drugs favoured in government tenders.

● To boost investment, the Government should also incentivise R&D in biotechnology by providing a 10-year tax holiday on products developed indigenously, provide tax breaks for venture funding, allow zero duty on R&D equipment, and allow a longer sunset date for biotech SEZs.

● The Government must ensure that the format, content and interpretation of all regulations is common throughout the country and introduce a ‘single window’ system for securing all clearances and approvals from the various Central and state agencies.

● The Government should soon pass the Biotechnology Regulatory Authority of India Bill which will ensure harmonization of many regulations across India and provide a single window approval system.

The creation of life sciences/ biotech clusters will attract entrepreneurs to set up their businesses as well as bring together ancillary companies. The cluster effect and the enabling policy environment will encourage biotech players to collaborate and network, thus creating a healthy symbiotic environment that benefits all. It’s high time the Government got its act together to arrest India’s economic slide, and took immediate action to jump-start the economy. 

(This article appeared in the 30th Sept 2013 issue of India Today)

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