The incentives offered in the Union Budget 2007-08 for research and development and to encourage clinical trials in the country are right policy initiatives to help the growth of drug discovery in the country, feel industry circles.

Though they feel the R&D incentives announced were not upto the expectations, a combination of the different incentives would help the Indian companies devote more funds on research and development.

With the product patent regime in place, the Indian pharmaceutical industry have to stress more on R&D to compete in the global pharmaceutical scenario.

Until a few years ago, most of the Indian pharmaceutical companies were spending less than four per cent of their turnover for developing new processes for existing molecules.

Now most of the major Indian companies earmark seven to 10 per cent of their sales turnover for developing new chemical entities and novel drug delivery systems  and this is poised to increase in future.

In this context, incentives like concessional rate of five per cent customs duty to import products for research purposes and 2.5 per cent reduction in customs duty on 15 specified machinery for research and development related purposes are desired booster for the sector, felt industry circles.

"The pass-through status granted for venture capital funds in respect of investments in undertakings in biotech and R&D of New Chemical Entities indicates that the government sees these as sunrise sectors" noted K Raghavendra Rao, managing director, Orchid Chemicals & Pharmaceuticals Ltd.

"The decisions to boost R&D sector is a very positive development for increasing investment in India's knowledge economy" reacted Dr Swati Piramal, director, Nicholas Piramal India.

According to Kamal K Sharma, managing director, Lupin, the sops should have been extended to other allied and incidental activities pertaining to R&D, which strengthen Intellectual Property.

Analysts said removal of service tax on clinical trials would help India compete with emerging clinical trial destinations like China, Malaysia and Singapore.

The Indian clinical trial sector is poised to grow as Rs 5,000 crore (Rs 50 billion) industry by 2010 as per a McKinsey estimate, and the decision to take away 12.24 per cent service tax would help the 100-odd clinical trial organisations in the country conduct multi-centric global trials in India at much cheaper rates.

The provision of 10 per cent service tax was introduced in the 2005-06 Budget and in the 2006-07 Budget, this was increased to 12.24 per cent.

On average, a global clinical trial conducted in India costs anywhere between Rs 2500,000 to Rs 5000,000 (Rs 2.5 to Rs 5 million) and the CROs used to pass on the additional burden to the sponsor of the trials.