Friday, May 03, 2013


By M H Ahssan / Hyderabad

What happens next? What should our drug industrialists be doing? What should the government do to prepare the industry for the future? No one knows; no one gives it a thought.

Independent India was born with a fetish of self-reli­ance. Our nationalist leaders firmly believed that the British had deindustrialised and impoverished India, that industry meant prosperity and that to return to the community of rich nations, India had to “develop” industry — to replace imported industrial goods by home-produced ones. The government assured industrialists of the home market; it licensed imports so as to keep out those that might compete with home production.
Demand was not all that industrialists needed; they also needed technology to know how to produce things. So they were allowed to import technology — but only if they were Indian, or almost 100 per cent Indian. They must not become addicted to technology imports; so they were allowed to pay technology suppliers for only five or ten years. And they must not send money abroad disguised as royalties; so royalties were limited to 2 or 3 or 5 per cent. 

What the government did not know was that there was better and worse technology. Better technology cost more; so the government’s controls on price paid were discriminating against better technology. And the very best technology was not available for a price; its owners would pass it on only to their own subsidiaries, in which Indians might have only a minor share. So technology import controls kept India permanently backward. This became increasingly clear in the 1960s and 1970s when tiny East Asian countries like Taiwan and Thailand became bigger industrial exporters than India. 

I discovered this when, as a young economist, I went and talked to industrialists in the late 1960s. I wrote copiously against government policy in the succeeding two decades. I do not know if my writings made any difference. But the chronic payments crisis of 1989-91 did. Slowly, painfully, the government realised that it had gone wrong; in 1991, it reversed its policies — one of which had been avoiding me like plague. It took me into the finance ministry, and took my help in reversing policies. But once the crisis was resolved, it quietly disempowered me. I watched from the shelf for a while, and then left the government to do what I was doing before — writing in favour of right and against wrong policies.

In the meanwhile, the technology import policy has remained extremely liberal; there are virtually no restrictions on it. Capital import policy remained under vexatious restrictions to protect “Indian” industrialists; but trade was largely freed by the BJP government in 2001, and has remained so.

With the liberalisation, technology went out of the news.

Until recently, when the Supreme Court confirmed the government’s decision not to give a patent for Glivec to Novartis. Its justification was that the technological advance involved was too trivial to justify a 20-year monopoly. On its own, it was a reasonable verdict. But no one looks at the systemic impact of India’s refusal to give product patents in chemicals and pharmaceuticals, which goes back to the 1970 Patents Act. The immediate effect was that thousands of small firms came up which read up foreign patent descriptions and reproduced the drugs. They made Indian drugs the cheapest in the world, and turned the pharmaceuticals industry into one of the country’s leading exporters.

That was 30 years ago. We do not know what has happened since; I have only impressions. One is that foreign drug companies have bought up some of our best companies. The other is that most of those small companies were started by single entrepreneurs; many of them have died, or got rich, built palaces, bought summerhouses abroad, and generally settled for a good time, leaving managers to manage the business. In general, there is nothing much happening in those companies — no innovation, no scanning of international developments, no advance. So what will happen next? What should our drug industrialists be doing? What should the government do to prepare the industry for the future? No one knows; no one gives it a thought.  

No comments: