The Success of India’s Pharmaceutical Industry

India is the largest provider of generic drugs in the world.It supplies over 50% of global demand for various vaccines,40% of generic demand in the US. However, this shift was not drastic and it took India more than 3 decades to emerge as the “pharmacy of the world”. An estimated 2.7million people work in high skill areas like research and development, manufacturing in the industry.

Government policies helped establish infrastructure of production. In 1970, the Patents Acts allowed Indian pharmaceutical companies to produce pharmaceuticals which had patent protection in other countries. Prior to that,90% of drugs were produced by foreign firms. This allowed local Indian firms to “reverse engineer” Western pharmaceutical products as long as their manufacturing process differed from that used in the West, providing them as cheaper generic drugs for the Indian market. The Foreign Exchange Regulation Act of 1973 restricted foreign ownership of firms to 40%, unless they were to produce high technology intensive drug. Production of reverse engineered bulk drugs had to be done in India, using basic stages of production within a two year period, or reduce foreign ownership to 40%.

Restricting foreign investments to high technology production of bulk drugs ensured meant capital intensive, relatively expensive production processes to foreign firms resulted in relatively cheaper domestic drugs.These restrictions acted as a form of protectionism.Crowding out foreign firms while maintaining affordability of Indian pharmaceuticals. As a result,this helped the industry to grow domestically and internationally. Indian firms thrived in the low-income characterised domestic market but also foreign markets in Africa and Latin American countries, where relatively cheaper drugs are preferred.The trade deficits of the 1970s have been replaced by trade surpluses during the 1980s. As a result of these two Acts, the prices of pharmaceutical products have come down drastically and now they are very cheap as compared to many other nations.

The Drug Price Control Order of 1970 was introduced to counter the downsides of the 1970 Patent Act. Using the provisions under DPCO, price ceilings were established by the National Pharmaceutical Pricing Authority along with fixing trade margins for the drugs. This was done to ensure that no one pharmaceutical company could take over the industry as its sole monopolist. This was beneficial as increasing production of western drugs meant these foreign companies started to outsource production processes and manufacturing contracts to India due to the presence of FDA plants in the country.Local firms entered the pharmaceutical industry due to price competition and low barriers to entry which drove away their foreign counterparts, increasing the share of Indian pharmaceutical companies in the domestic market.

Additionally, we have seen an improvement in the production plants in India due to the government’s efforts investing in creation of suitable infrastructure for newly starting out firms. They also made provisions to allow for industries to be set up in close proximities which allowed for knowledge diffusion. One famous example is the India drug and pharmaceutical Limited (IDPL) which was started by the Indian government and has since then served as an “incubator” for other pharmaceutical start-ups.These newly established plants were also certified by the US FDA which helps to enhance the reputation of Indian drugs as they meet the required quality check hence raising their demand in the global market. This acts as a propeller for long term growth of the pharmaceutical industry.

Secondly,India’s ability to align itself into an environment heavy with regulations ensured the success of the pharmaceutical foreign trade.India is currently home to the largest number of FDA approved plants, and received 304 Abbreviated New Drug Application (ANDA) approvals from them in 2017, 415 product approvals in 2018.The country accounts for around 30% (by volume) and about 10% in the US$ 70–80 billion US generics market.

Present day, India’s Pharma Vision 2020 also involved microeconomic policies.A national health protection programme is estimated to benefit 40% of India’s population by providing poorer households with affordable access

For example,India is polio-free due to collaboration between vaccine manufacturers, healthcare providers, the government and development and organisations.Reduced approval time for new facilities to boost investments serves to increase efficiency while improving the ease of doing business in India for foreign firms.

Figure 1,Indian Pharmaceutical Industry. From India Brand Equity Foundation.Retrieved from https://www.ibef.org/industry/pharmaceutical-india.aspx

However,there are weaknesses which hinder the progress of the industry.In a coronavirus stricken world, supply chains are affected.The government plans to mitigate the effects by funding $1.3billion to boost domestic production of pharmaceutical ingredients.Expenditure on infrastructure for drug manufacturing centers is crucial,as India imports 70% of its active pharmaceutical ingredients (the chemicals that make a final drug work) from China. Majority of these chemicals are imported from Hubei province, the epicenter of the pandemic.

Focusing on financial accessibility is insufficient,self-sufficiency is needed,and innovation,research and development is critical to ensure the survival of the industry in this climate.Research and development would provide a long-term impact,preventing future shocks. A combination of pharmaceutical hubs by allocating funds to research and development,tapping into the skilled 2.7 million people in the sector,would trigger new discoveries. As more complex diseases arise, the industry’s demand for skilled workers will accelerate. Government intervention of establishing infrastructure similar to the 1970, can be translated to innovations within the industry through developing it’s human capital by assisting students with a university degree in science to undergo pharmaceutical research training. A cabinet decision has already been approved to set up three drug parks in the next five years. The combination of development,and publicly funded healthcare ensures the sustenance of domestic demand. Self-sufficiency will result in a lack of need to outsource research to the West with higher labour costs.

To conclude,the success of the industry is attributed to various factors.The government of India utilised policy tools to develop the pharmaceutical sector and employed protectionism as barriers of entry,strategies to prevent multinational companies from dominating the domestic market. Currently, their policy includes improving accessibility of healthcare across India for citizens aligns with rise in demand for pharmaceuticals. Furthermore, India’s present pharmaceutical export success is also attributed to aligning India to Western regulatory standards such as FDA, aiding the country in significantly increasing their exports. Lastly, development of it’s already skilled medical workforce will ensure the industry continues to thrive. Capitalizing off a highly skilled medical workforce contributes to development of the industry would have a lasting effect of innovation, while helping the industry be self-reliant.

co-authored by Avni Pal Bharti

Bibliography:

Alstedter,A.(2020,March 23).India to Spend $1.3 Billion to Boost Pharmaceutical Production.Bloomberg,Retrieved from http://www.bloomberg.com

Greene, W. (2007). The emergence of India’s pharmaceutical industry and implications for the US generic drug market.

Indian Pharmaceutical Alliance.(2019,June).The Indian pharmaceutical industry — the way forward [Industry Overview].Retrieved from Wall Street Journal

India Brand Equity Foundation.(2020,March).Indian Pharmaceutical Industry[Industry Overview].Retrieved from https://www.ibef.org/industry/pharmaceutical-india.aspx

Pradhan,J.P.(2006).Global Competitiveness of the Indian Pharmaceutical Industry:Trends and Strategies,Institute for Studies in Industrial Development .Working Paper No: 2006/05.Retrieved from https://poseidon01.ssrn.com/delivery.php?ID=642008100024000118009097030080094118038013018017030052027122020127030095091088022112001099006025024003050071008097076071088124029042087044001069076014093066005101125018026017078124102026107070004030004111083121025024090010070113106006096127028109021102&EXT=pdf

Sharma,P.(2020,March 21).Govt to set up dedicated parks for electronics and Pharma companies.The Week,retrieved from http://www.theweek.in

YUE, F., & YUE, Y. (2011). Study of comparative advantages of Chinese and Indian pharmaceutical industries under globalization. Management Science and Engineering, 4(4), 82–86.