Arti Bali
New Delhi, Jan 29 (UNI) India’s pharmaceutical industry has urged the government to implement sweeping direct tax reforms in the union Budget 2026-27, emphasising the need for stronger incentives for research and development (R&D), domestic API manufacturing, and simplified compliance to improve the ease of doing business.
With Finance Minister Nirmala Sitharaman set to present the Budget on February 1, industry stakeholders are closely watching policy measures that could shape the future of India’s manufacturing and infrastructure sectors.
In pre-Budget recommendations submitted to the Finance Ministry, the Indian Drug Manufacturers’ Association (IDMA) called for restoring tax incentives for in-house research, easing compliance burdens, and resolving long-standing disputes to reinforce India’s position as the “pharmacy of the world.”
The association requested reinstatement of a 200% weighted tax deduction for in-house R&D expenditure under the proposed Income Tax Bill, 2025, highlighting its importance for innovation, drug discovery, and self-reliance. It suggested that the benefit be available to companies opting for the concessional corporate tax regime.
IDMA further recommended that regulatory approval costs and pre-clinical and clinical trial expenses be explicitly treated as eligible R&D expenditure and called for accelerated depreciation or capitalization benefits for land and buildings used exclusively for approved research facilities.
To reduce dependence on imported active pharmaceutical ingredients (APIs), IDMA proposed, “Dedicated capital expenditure incentives for bulk-drug manufacturing, including a possible 150% deduction for investments in greenfield API plants.”
The association also urged the government to “remove provisions disallowing tax deductions for delayed payments to micro and small enterprises, rationalize Tax Deducted at Source (TDS) provisions and mandate time-bound disposal of income tax appeals along with automated monitoring of departmental delays.
It further recommended that refunds not be adjusted against tax demands already stayed by authorities and that statutory timelines be prescribed for the issuance of refunds.
Other proposals included aligning depreciation rates under tax law with the Companies Act, withdrawing income computation and disclosure standards (ICDS) to reduce litigation, and eliminating redundant inventory valuation rules after the introduction of GST.
IDMA also suggested a 20 pc deduction on export revenue to regulated markets such as the US and EU, deductions for employee contributions to the National Pension System and medical insurance under the new tax regime, carry-forward of long-term capital losses, and extending deadlines for belated and revised tax returns.
The association emphasised that these measures would improve liquidity, reduce litigation, and enhance India’s global competitiveness at a time when the pharmaceutical sector faces rising costs and uncertainty.
Beyond pharmaceuticals, experts highlighted the importance of energy transition and infrastructure investment.
Alok Kumar, DG, All India Discoms Association and former power secretary proposed specific deduction or additional incentive for companies investing in API/bulk-drug manufacturing (extra weighted deduction for such investment or setting up green-field API plant).
The new Bill could include a provision that, for a defined period, companies investing in API/bulk drug manufacturing enjoy e.g., 150% deduction of such capital expenditure.
Bhavna Tyagi, Programme Lead at CEEW, said that while the PM Surya Ghar Muft Bijli Yojana has achieved nearly 27% of its 10-million-household target, Budget 2026-27 must focus on additional fund allocations, grid modernization, digital integration between state Discoms and the National Portal, and addressing domestic content requirement (DCR) supply chain bottlenecks.
Disha Agarwal, Senior Programme Lead at CEEW, added that India must aim for 600 GW of renewables in the next five years, requiring a sixfold increase in grid flexibility, with funding for workforce upskilling, R&D in energy storage, solarizing agricultural demand, and incentives to make decentralized energy solutions affordable.
For infrastructure and manufacturing, sustained public investment remains essential. Nikhil Mansukhani, Managing Director of MAN Industries (India) Ltd., stressed the importance of front-loaded and predictable capital expenditure in water supply, irrigation, energy infrastructure, and city gas distribution to stabilize order pipelines and reduce working capital stress.
He highlighted challenges from steel price volatility and raw material availability and called for policy interventions to secure resources, promote decarbonized steel production, and incentivize value-added manufacturing under the Make in India framework.
Faster GST refunds, better access to working capital, and simplified compliance were also cited as critical for operational efficiency. The capital goods sector is expected to benefit mainly from high public capital expenditure, with government spending rising 28% YoY to Rs 6.6 trillion between April and November 2025.
Strong order inflows continue in highways, railways, transmission, and defense projects, while private industrial capex is gradually improving.
Key challenges include execution delays, high working capital requirements, margin pressures, and dependence on public sector orders.
