The Indian pharmaceutical market stood at $55 billion in 2025 and is expected to grow to $120-130 billion by 2030.

The life sciences sector in India, has shown remarkable resilience and growth over the past years and the sector anticipates further growth and reform. For continuing the pace, minimise the cost of producing medicines without affecting their quality and increase the pace and productivity of innovation would be essential.

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Overall, the discussion paper from NITI Aayog underscores the need to reimagine the country’s R&D ambition and impact.

It further mentions prioritising effective implementation and sustained policy continuity to ensure such real impact. For India, it is important that industry focuses on areas off diseases which impact a large population in India but would not be a priority from a global perspective.

In addition, investment in technology in areas of R&D and sales and marketing are increasing given the way the competitive global landscape is moving.

Given the ambition of India’s Atmanirbhar Bharat vision, the following are the key areas where budgetary interventions could help the sector:

Innovation benefits

For supporting the industry to focus on areas of diseases relevant to the Indian masses, it is important that there is support that is needed from the Government. The support could be in the form of a research linked incentives to cover the spend fully, in arease identified by the Government in the interest of the nation.

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In addition, the following can be considered to support innovation:

A. Relaxing patent-box tax regime: As India positions itself as a global hub for research and development, it is imperative that tax provisions under the patent box regime should evolve to reflect the realities of modern innovation and commercialization. The patent box regime should extend beyond patents registered in India to include income from foreign filings and registrations outside India.

The benefit should cover all streams of patent-related income - royalties from licensing, sale of patented rights, and sale of patented products. Concessional tax rates should apply to royalties for patents registered in India, even if also filed abroad. Further, the 75% domestic expenditure rule should be relaxed to 51% or remove it when all costs are borne by an Indian resident using global services.

B. R&D Incentives: Specific investments to ensure competitiveness for new chemical entities and/ or new biological entities (NBEs) and also explore providing a 200% weighted deduction for companies undertaking such R&D.

Foreign funding in pharma: To support India’s vision of becoming a global pharmaceutical hub, extending the sunset clause for concessional tax on foreign borrowings would help maintain an attractive funding route for the sector. Additionally, offering a weighted deduction of 150% on interest paid to foreign lenders could lower borrowing costs and encourage overseas investments.

Manufacturing: To encourage innovation and investment in manufacturing, introduce concessional tax regime (15% tax rate) and Profit Linked Incentives for manufacturing in the entire Health Science areas of Pharma, Biologics, medical devices and medical equipment.

Healthcare infrastructure: In most cases, hospitals and diagnostic centres operate with very high capital expenditure strain. High and inefficient Infrastructural costs ultimately trickle down into the individuals’ health expenditure. Accordingly, to ensure state of the art infrastructure, the government should consider introducing PLI for investment in healthcare infrastructure.

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This would encourage private and foreign investment into this sector and make it competitive ultimately leading to the cost burden getting reduced on the ultimate patient.

Interactions with healthcare professionals (‘HCPs’): There are several regulations which mention about interactions of companies with HCPs. Relevant clarifications should ideally be brought to provide standard policy which can be common practice across the industry.

Distribution of free samples to doctors: Pharmaceutical companies often provide free samples to doctors to help them understand the efficacy of medicines and create awareness. These samples are not intended as personal benefits but as part of professional practice. A clarification on their tax treatment would bring certainty for the industry.

Additionally, when doctors do not share their PAN, companies face a higher tax deduction, which can impact cash flows. Introducing a lower tax rate in such cases could help ease operational challenges while supporting the sector’s growth.

Customs duty exemptions: The sector expects a continuation or expansion of exemptions on customs duty for the import of pharmaceutical goods and life-saving drugs. The rollback of the health cess on critical medical devices is also sought to alleviate the financial burden on consumers. Lowering customs duty on imported diagnostic equipment and adjusting high GST rates on lab supplies will foster R&D investments.

India’s pharmaceutical sector is at par with some of the best in the world and also plays a monumental role in the workings of the domestic economy. Earlier fiscal policies have tried and succeeded in uplifting the healthcare scenario in India.

However, this makes Budget 2026 as the right time where new and refined policies and schemes could help capitalise on the previously laid foundation which will ultimately bring the Indian economy closer to the national goal of affordable healthcare.

Hitesh Sharma, Partner and Life Sciences Tax Leader at EY India, is the author of this article.

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(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)