Indian Pharmaceutical Industry

The achievements of the Indian pharmaceutical industry during the last three decades are spectacular by any standards. From a mere processing industry, India's pharmaceutical industry is today highly sophisticated possessing advanced manufacturing technology, modern equipment and stringent quality control. The turnover of the pharmaceutical industry at the end of the 9th five year plan is expected to touch the level of Rs. 25,000 crores. The investment needed to achieve this level of turnover is expected to be around RS 10,000 crores. From being a major importer of bulk drugs and formulations, the Indian pharmaceutical industry has today become a net exporter of pharmaceutical products. Now, Indian pharmaceutical products are being exported to a large number of countries including USA, Canada, Germany, France and Latin American Countries.

Sulpher-methoxazole, amoxycillin and its salt, ampicillin and its salts, menthol and ibuprofen occupy a slot in the top ten products in terms of export turnover. The trade balance of pharmaceutical import and export, which was negative for a long time, has shifted to the positive side with a net inflow of foreign exchange from 1998-99 to 2001-2002. Nearly 95% of the domestic demand for pharmaceuticals are met through indigenous production. Presently, import of pharmaceuticals are limited to a few life-saving drugs like anti-cancer, cardio-vascular, anti-hypertension and newer drugs, which remain not cleared for indigenous production and marketing in the industry. At present, there are 15,000-20,000 Pharma manufacturing units in the country, of which large scale units are 5,000. Out of these 45 manufacturing units have an international presence. The Indian pharmaceutical industry, today, ranks among the top-15-drug manufacturing countries in the World.

Further, the structure and dynamics of the Indian pharmaceutical industry are unique primarily on account of the following facts:

• The process patent regime;
• Price controls; and
• Exemptions to Small Scale Industries (SSIs).

In the Developed Countries (DCs) that recognise (i) product patents, (ii) R&D capabilities, (iii) ability to develop; and (iv) launch products and product pipeline, have been the bases for competition, especially in the branded drug segment. As the industry needs huge R&D costs of US $ 350-400 millions for developing and launching a new product, the industry has been dominated by a few large manufacturers. While in contrast to this, the Indian pharmaceutical industry is highly fragmented both in terms of the number of manufacturers and in number and variety of products. Yet, the Indian industry accounts for only 1.8% of the global pharmaceutical market despite having almost 10% of the World's population. The annual per capita expenditure on drugs in India is US$3 and it is almost the lowest in the World with only 30% of the population having access to modern drugs. Here, it may be noted that India's Health Care Expenditure as a percentage of its Gross Domestic Products (GDP) is only one-fifth of the Developed Countries.

The Indian Patents Act (IPA), 1970 was largely responsible for the change in structure in the Indian context. The IPA recognised "process patents" as against "product patents" which at present is prevalent in the Developed World. As a result, for the first time, Indian manufacturers could produce internationally patented drugs within the country. This could have been made possible by developing an alternative process for the drug, after reverse engineering, using the relatively cheap and large manpower base of qualified pharmacists and scientists available in the country.

It being a sensitive industry, almost all aspects of the Indian Pharmaceutical Industry from Licensing to pricing were tightly controlled by the government till recently. With the announcement of the drug policy in 1994, the industry is witnessing gradual relaxation of controls. With the announcement in 1995, the New Drug Price Control Order (DPCO'95) more relaxation were extended to the industry. In the new drug policy government abolished industrial licensing except in five drugs, allowed foreign companies to own 51% equity and proposed a one percent less on turnover of all companies to promote research and quality controls for drugs. While, the number of drugs under control was reduced from 142 to 76, and government still retains price control over 50% of the industry's turnover.

However, the pharma industry as of today is entitled to upto 100% foreign equity ownership. The New Drug Policy of 2002 has also further reduced the number of drugs under Price Control to 38, enabling firms to reinvest a greater share of their profits in R & D, a step towards adjusting to the new patent regime of 2005.