India is a global supplier of generic drugs. Its export-oriented pharmaceutical industry is extremely profitable but encounters a number of challenges, from domestic demand to human resources. The Covid-19 pandemic has brought to light its dependence on imports from China of active pharmaceutical ingredients and chemical intermediates. As the whole world discusses how to increase the resilience of supply chains, could this be an opportunity for a Europe-India cooperation? This is the theme of the last article of our new series on India’s health sector, by Christophe Jaffrelot, Senior Research Fellow at CERI-SciencesPo/CNRS, Vihang Jumle, Data Analyst and IT Engineer and Maitreyee Kishor, a Sciences Po graduate who works at Ashoka University's Centre for Writing and Communication.
While India does not fare well in terms of its health infrastructure, what it certainly excels at is in supplying the world with pharmaceutical products. Indian pharma fulfills over 50% of the global vaccine demand, 40% of the US’s generic medicine demand and 25% of all of the UK’s medicine demand. India’s domestic pharma market turnover touched INR 1,400 billion (USD 20.03 billion) in 2019. In May 2020, pharma sales grew by 9% year-on-year, by INR 103 billion (USD 1.47 billion). Including export, the Indian pharma market was estimated at over USD 38 billion a year (in December 2019). It employs 2.7 million people, directly and indirectly, across 12,000 firms, and is a champion at formulation development.
Experts in the area explain this growth basis by the following factors: an increase in disposable income and hence on healthcare expenditure (Indians spend 1% of their income on pharmaceuticals); growing capabilities in contract manufacturing, R&D, and clinical trials; opportunities arising out of national healthcare schemes; and, of course, a growing population and demand, especially internationally – as pharma exports have amounted to nearly the same as the domestic pharma turnover.
Table 1: Domestic turnover and exports of the Indian pharma sector
|Domestic Annual Turnover (USD Billion)||Annual Exports (USD Billion)|
While prior to 1970, multinational companies dominated India’s pharma market with an 85% share, the Patent Act 1970 changed this by allowing local manufacturers to create domestic replicas of foreign medicines. Section 83 of the Act stated "that patents are granted to encourage inventions and to secure that the inventions are worked in India on a commercial scale and to the fullest extent and not to enable patentees to enjoy a monopoly for the importation". Local manufacturers started reverse engineering multinational companies’ patented medicines and started producing them cheaply and in different ways (since production processes could be patented for 7 years). Subsequently, by the 2000s, foreign share dropped to 40%, and in 2010 down to 23%. This was not only an India-centric issue: the ones who export technology prefer patents, since it safeguards them from cheaper local domestic competition, whereas the ones who import technology (largely developing countries) prefer having it cheaply. Japan, Korea, and Taiwan too progressed in the same fashion.
Eventually, patent protection won at WTO. A set of agreements were made: Trade Related Intellectual Property Rights ("TRIPS") mandates a minimum level of patent protection worldwide. Given the importance of a platform like the WTO, developing companies have had to comply with it irrespective of how much they disliked it. Most essential drugs are not patented. TRIPS, however, has a role in protecting new and essential drugs of the future. There have been some efforts in making TRIPS a bit lenient to better integrate it with international actions to address public health. For instance, the Doha Ministerial Conference in November 2001 adopted a declaration, on the one hand acknowledging the existence of intellectual property rights, but on the other, stating that in case of a conflict, public health could override commercial interests, in addition to other points. In 2005, to comply with TRIPS, the Indian government also introduced product patents on pharmaceuticals, limiting the liberty that domestic pharma companies enjoyed for three decades. India had joined the WTO in 1995 and had been since then (and even before) at crossroads with the US over India’s extremely lenient patent law. This had led the US to name India as a "centre of commercial piracy".
Initially, multinational companies had protested the 1970 Indian patent laws, but the ones who readily adapted and played on Indian strengths eventually made themselves indispensable. Cipla, for instance, joined hands with the Indian Council for Medical Research in 1990 and agreed to produce AIDS medication locally. In the early 2000s, they nearly controlled 80% of AIDS supplies in India. Many foreign and domestic names have since come up to be the leaders in their domain. Top Indian firms include Sun Pharmaceuticals (market capitalization as of October 25, 2020: INR 1,1 trillion or USD 15.7 billion), Dr Reddy’s Laboratories (INR 839.9 billion or USD 11.35 billion), Divi’s Laboratories (INR 821.05 billion or USD 11.1 billion), Cipla (INR 615.94 billion or USD 8.33 billion), Aurobindo Pharma (INR 468.31 billion or USD 6.33 billion), all listed on Indian stock markets. Top (foreign) firms based on their sales, marketing and business in India include Pfizer, GlaxoSmithKline, Sanofi Aventis, Merck, Johnson and Johnson, etc.