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Chapter 3
83
CHAPTRE – 3
GROWTH AND CHANGING PROFILE OF THE INDIAN
PHARMACEUTICAL INDUSTRY SINCE 1991
3.1: INTRODUCTION:-
The Indian pharmaceutical industry is one of the developing world’s
largest and most developed industries in the global sense. India ranks 4th
worldwide accounting for 8 percent of the world's production (in terms of
volume) and 13th in terms of value. It is estimated that by the year 2010, the
Indian pharmaceutical industry will have the potential to achieve over Rs1,
00,000 crores in formulations and bulk drug production1. In addition, in the
year 2005 Indian pharmaceutical companies captured around 70 percent of the
domestic market. In the year 2006-2007 India's gross domestic product (GDP)
grew at an impressive 9.2 percent. The growth rate of industrial sector was 10.6
percent in the first nine months of the year 2006-07. The share of industrial
sectors of the economy in India's gross domestic product is 26.4 per cent, of
which pharmaceutical industry contributed 1.3 percent to gross domestic
product in 2006-2007.2 The pharmaceutical sector value of output grew more
than tenfold from Rs. 5700 crores in 1991 it has grown to Rs.51471crores in
2006-07.3 Indian pharmaceutical industry has growing number of
pharmaceutical units, increased knowledge skills, improved quality and
increasing national as well as international demand; India is now recognized as
a leading global pharmaceutical player.
According to the Economic Survey (2006-07), the Indian
pharmaceuticals industry had achieved a turnover of about US$12 billion in
2005-06 and is expected to grow by 13 percent in 2007. Its pharmaceutical
export value reached about US$ 4.7 billion during 2005-06. Pharmaceutical
industry accounts for about 2.91percent of total foreign direct investment into
the country. The foreign direct investment in pharmaceutical sector is estimated
to have touched US$ 172 million, thereby showing a compound annual growth
Chapter 3
84
rate of about 62.6 percent. Drugs and pharmaceuticals sector is at 8th rank in
India's top 10 foreign direct investent attracting sectors. According to the
Economic Survey for the year 2006-07, the value of pharmaceutical output has
increased ten times over the last 15 years.
At present India is one of the leading global players in pharmaceutical
sector. India holds fourth position in terms of volume and thirteenth position in
terms of value of production in pharmaceuticals. Thus, the pharmaceutical
industry is a sun-rise industry with vast opportunities for both the domestic and
foreign players. With the changes in the regulatory environment regarding
patent laws, the spotlight is now on India for contract research, joint ventures
and alliances.4
Indian multinational companies like Dr.Reddy's Lab, Cipla, Ranbaxy, etc
have created awareness about the Indian market prospects in the international
pharmaceutical market. Approvals given by Foods and Drugs Administration
(FDA) and Abbreviated New Drug Application(ANDA),Drug Master File
(DMF) have played an important role in making India a cost effective and high
quality product manufacturer5. Furthermore, the changes that took place in the
patent law, change of process patent to product patent, have helped in reducing
the risk of loss of intellectual property.
Now a day’s tremendous progress has been seen in the pharmaceutical
industry related to infrastructure development, technology base creation and the
wide range of products manufactured. Demand from the exports market has
been growing rapidly due to the capability of Indian players to produce cost-
effective drugs with world class manufacturing facilities. Bulk drugs of all
major therapeutic groups, requiring complicated manufacturing processes are
now being produced in India.
3.2: AN OVERVIEW OF INDIAN PHARMACEUTICAL INDUSTRY:-
Indian Pharmaceutical sector is a highly fragmented industry. The
Indian pharmaceutical industry is estimated to have over 10000 manufacturing
units, as given by Organisation of Pharmaceutical Producer of India. The
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85
organized sector accounts for just 5 percent of the industry with around 300
players, while a huge 95 percent is in the unorganized sector. A large number
of players in unorganized segment are small and medium enterprises and this
segment contributes 35 percent of the industry turnover. There are also 5
Central Public Sector Units that manufacture drugs. These units produce
complete range of pharmaceuticals, which include medicines ready for
consumption by patients and about 350 bulk drugs, i.e., chemicals having
therapeutic value and used for production of pharmaceutical formulations.
India is largely self sufficient in case of formulations. More than 85 percent of
the formulations produced in the country are sold in the domestic market. Some
life saving, new generation under-patent formulations are imported, by
multinational companies which they market in India. Over 60 percent of India's
bulk drug production is exported. The balance is sold locally to other
formulators.
The Indian pharmaceutical industry is valued at US$5.3 billion in 2005,
which is less than one percent of the global pharmaceutical industry (US$550
billion) 6. In early days Pharmaceutical industry had faced tight price controls as
well as weak patent laws. While price regulation has restricted profitability,
weak patent laws facilitate growth in the industry. In fact, the industry has been
competing on its capability of reverse engineering patented product that are
produced by foreign companies and then selling them at lower price.
India’s pharmaceutical industry is one of the fastest growing segments
of the Indian economy with an average annual growth rate of 14 percent during
2002-2005. Over all, the Indian market for pharmaceuticals is projected to
grow at an average annual growth rate of between 15 and 20 percent during
2005 - 2010. The surge in production has been driven by legislative reforms,
the growth in contract manufacturing and outsourcing, value added foreign
acquisitions and joint ventures, India’s mastery of reverse engineering of
patented drug molecules, and India’s efforts to comply with its World Trade
Organization (WTO) Trade Related Intellectual Property Agreements (TRIPS)
obligations.7
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When India joined the World Trade Organization in 1995, its
pharmaceutical exports were valued at less than US$600 million. By 2005, its
exports had grown to US$ 3.7 billion and accounted for more than 61 percent
of industry turnover. Currently, Indian pharmaceutical companies produce
between 20 and 22 percent of the world’s generic drugs (in value terms) and
offer 60,000 finished medicines and nearly 400 bulk drugs used in
formulations.8 With changes in Indian patent laws in the early 1970s, Indian
drugs Producers have become experts in ‘reverse engineering’ and have
increased the supply of less expensive copies of the world’s best-selling patent
protected drugs. Reverse engineering means process of recreating a design by
analyzing a final product; and is common in pharmaceutical. Whether reverse
engineering is legal or not depends on whom you ask. The courts have not yet
made a definite ruling. India’s pharmaceutical industry grew and prospered in a
highly regulated environment with government price controls on a significant
number of formulations and bulk drugs. In January 2005, India amended its
patent laws governing pharmaceuticals, bringing them into conformance with
the World Trade Organization and Trade Related Intellectual Property
Agreements. Under the new patent law, Indian drug makers can no longer
manufacture and market reverse engineered versions of drugs patented by
foreign drug producers. To replace sales lost to Trade Related Intellectual
Property Agreements compliance, many of India’s leading pharmaceutical
producers have increased their exports of generic drugs to the United States and
Western Europe and entered into research and development agreements,
undertaken mergers and acquisitions and entered into other alliance with
foreign pharmaceutical firms.
3.3: BRIFE HISTORY OF INDIAN PHARMACEUTICAL INDUSTRY
AND GROWTH UNDER PATENT REGIME:-
The Indian Pharmaceutical Industry is now nearly a century old.
Allopathic medicines were introduced several decades earlier mainly to provide
medical relief to the Britishers. Indigenous production of these medicines was
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87
however started in 1901 with the establishement of Bengal Chemical and
Pharmaceutical Works due to the pioneering efforts of Acharya P.C.Ray. The
unit began with the production of simple galenicals. At the turn of the century,
the British set up several pharmaceutical research institute like the institute of
tropical disease: the King Institute of Preventive Medicine, Madras, in 1904;
the Central Drug Research Institute, Kasauli, in 1905; and the Pasteur Institute,
Conoor, in1907.In 1907 Alembic Chemical Works was established at Baroda
jointly by T.K.Gajjar and Rajmitra B.D.Amin. However, these units faced
several problems like competition from overseas, lack of support from the
Government and prejudice against allopathic medicines at that time. During the
first half of the twentieth century despite modest efforts on the part of the
colonial government. India remained largely dependent on the UK, France and
Germany for medicine supply and had limited technological capabilities. The
Indian Pharmaceutical Industry in pre 1947 started as importer of medicines, in
those days Industrialization aimed at to achieve self reliance and this led to
heavy investment in pharmaceutical and curbon importers, for which the
Government did not discourage foreign firms from competing in India. In
other sectors, self - reliance was pursued at high cost, but pharmaceutical
policies emphasized national health. As there was no substitute for
multinational companies technology, therefore the government did not
discourage them. Between 1947-57, 99 percent of the1704 drugs and
pharmaceutical patents in India were held by foreign multinational companies,
which controlled 80 percent of the market.9 Patent law protection hold on
technology, financial resources and foreign brand names gave them distinct
monopolistic advantages in India. They made high profits while drug prices in
India were amongst the highest in the world. Its inroads into the Indian market.
Up to1970 therefore the Indian pharmaceutical industry consisted almost
entirely of multinational companies, most of which maintained minimal
physical operation in India. Steps to achieve self reliance in pharmaceutical
production started with the establishment of Hindustan Antibiotics Ltd.(HAL)
at Rishikesh and Hyderabad in 1954 and Indian Drugs and Pharmaceutical
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Ltd. (IDPL) at Pimpri, Pune, in 1961. In the establishment of the public
sector pharmaceutical enterprise, Russia supplied machinery, personal and
technical know how to produce antibiotics. The Indian Drugs and
Pharmaceutical Ltd development programme helped self reliance in several
ways. It was possible to produce in India at competitive costs, but the Indian
Drugs and Pharmaceutical Ltd programme was insufficient to give boost to
domestic pharmaceutical sector growth. The Indian Patent Act 1970.This act
recognized patent on process and not on products gave boost to growth
domestic pharmaceutical industry. As a result and this, local firms started
legally producing compounds that were patented elsewhere. Consequently,
number of Indian pharmaceutical companies shifted focus to reverse
engineering and cheap sale of copies of all major drugs. Developed country
writers criticized the 1970 Patent Act on ethical grounds.Legislation also
helped to develop the Indian pharmaceutical industry, as it helped the
growth of Indian pharmaceutical industry in the sense that local drugs
manufacturers through adoption of reverse engineering process produced
bulk drug which were processed for the simple formulations or sold at
wholesale level. Meanwhile, multinational companies reluctant to expose their
Intellectual Property in such a lawless market limited their exposure to
India. By 1970 multinational companies had come to account for 30
percent of bulk drugs and 20 percent of locally produced formulations.
Most multinational companies did the bare minimum needed to stay in the
Indian market while awaiting the arrival of stronger patent protection regime.
Even without strong patent protection, The Indian pharmaceutical
industry matured during the 1980. In particular, local companies grew less
reliant upon reveres engineering for revenues. Post 1991 scenario changed with
the establishment of World Trade Organisation and World Intellectual
Property Organisation and nearly all developing countries including India
agreeing to sign on the Trade Related Aspects of Intellectual Property Rights
agreement. Indian Patent Act 1970 was also modified and made more
harmonious with Trade Related Aspects of Intellectual Property Rights and
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World Intellectual Property Organisation. After the proposed changes to
which India agreed by singing the Agreement on Trade Related Aspects of
Intellectual Property Rights, after which India carried out three amendments
in March 1999, June 2000 and April 2005 to the Patent Act 1970. The third
and final amendment Act ( 2005 ) came into force on 4th April 2005 and
introduced product patent in drugs , food and chemical sector . The
terms of patenting also increased to 20 years. Change in the Patent Laws
also were accompanied by step by step decontrol in the Drug Policy
of the country and drugs were decontrolled leading to market price
determination of price of drugs in the market. These changes in the
policy regime in the 1990s thus started a new chapter in the Indian
Pharmaceutical sector where free imports, foreign investment and
technological superiority determined the structure of the Indian pharmaceutical
industry which viewed globalization as both a challenge and opportunity for
growth.
Under the new patent regime many multinationals are making a come
back on the Indian centre stage; the attractions being India’s traditional
strengths in contract manufacturing and as an outsourcing location for research
and development, particularly for clinical trials and other service.
3.4: STRUCTURE OF INDIAN PHARMACEUTICAL INDUSTRY: -
The Indian Pharmaceutical Industry is currently one of the largest and
most fragmented in the world. The industry certain to grow increasingly
efficient and productive in the coming years. It has shown tremendous progress
in terms of infrastructure development, technology base creation and a wide
range of production. According to the Economic Survey (2006-07), the
pharmaceuticals industry had achieved a turnover of about US$ 12 billion in
2005-06, and is expected to grow by 13 percent in 2007. Its pharmaceutical
export value reached about US$ 4.7 billion during 2005-06. Pharmaceutical
industry accounts for about 2.91 percent of total foreign direct investment into
the country. The foreign direct investment in pharmaceutical sector is estimated
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90
to have touched US$ 172 million, thereby showing a compounded annual
growth rate of about 62.6 percent. Drugs and pharmaceuticals sector is at 8th
rank in India's top 10 foreign direct investment attracting sectors. According to
the Economic Survey for the year 2006-2007, the value of pharmaceutical
output has increased ten times over the last 15 years.
The Pharmaceutical Industry can be broadly divided into Organised
and Unorganised sectors. There are around 300 manufacturing and
formulation units in the organised sector and it accounts for 70 percent of the
total sales of the industry. Around 100 players in the organised sector account
for about 90 percent of the total industry turnover. The market is concentrated
at the top with the top 30 players controlling about 70 percent of the market
share. Moreover, the growth rate of the top 30 players is around 18 percent per
annum as compared with the industry growth rate of about 15 percent. The
organised sector can be classified into Multinational companies and Indian
companies based on management control. The multinational companies, which
had dominated the industry until 1970, began to lose market share following
the failure of the IPA to recognize product patents. The share of multinational
companies declined from about 90 percent in 1970 to about 20 percent in 2000.
Consequently, the market share of the Indian companies increased steadily
from low levels of about 10 percent in 1970 to over 80 percent in 2000.10
The organized sector of the pharmaceutical industry has played a key
role in promoting and sustaining development in this vital field. International
companies associated with this sector have stimulated assisted and spearheaded
this dynamic development and helped to put on the pharmaceutical map of the
world. The pharmaceutical industry in India consists of Government owned
public sectors companies, private sector companies and foreign companies.
These include foreign companies and 5 units in the public sector. Public sector
units are;
1 – Indian Drugs and Pharmaceutical Limited (IDPL)
2 – Hindustan Antibiotics Limited (HAL)
3 – Bengal Chemical and Pharmaceutical Limited (BCPL)
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4 – Bengal Immunity Limited (BIL)
5 – Smith Stainstreet Pharmaceuticals Limited (SSPL)
The major multinational players in the organised sector of the industry
are E Merck (India), Parke-Davis (India), Pfizer, Rhone-Poulenc (India),
Glaxo-Wellcome, Novartis, and SmithKline Beecham Pharmaceuticals. The
main Indian bulk drugs and formulations manufacturers in the organised sector
are Dr.Reddy's Laboratories, Ipca laboratories, J B Chemicals &
Pharmaceuticals, Nicholas Piramal India, Ranbaxy, Cipla, Sun
Pharmaceuticals, and Wockhardt.
With the reduced role of the state under globalisation, the public sector
drug companies are faced with serious problems including imminent closures.
Public sector drug companies like Indian Drugs and Pharmaceuticals Ltd.
(IDPL), Hindustan Antibiotics Ltd. (HAL), Bengal Chemicals and
Pharmaceuticals Ltd. (BCPL), Bengal Immunity (BI) and Smith Stanistreet
Pharmaceuticals Ltd. (SSPL) played an important role in the production of
essential drugs at affordable prices. Under the globalisation process, the role of
the public sector has been marginalised and they have been made sick.
Attempts either have been made to privaties or close them. The Penicillin Plant
in HAL, the biggest in the country, has been handed over to private hands. Its
Streptomycin plant also has been leased to a private company for manufacture
of other drugs. Indian Drugs and Pharmaceutical Ltd which is having the
biggest pharmaceutical plant in Asia, is closed from 1996 for want of proper
financial assistance from the government. The public sector drug companies
used to supply raw materials to the small-scale sector companies. Now, these
companies are facing difficulties in procuring raw materials. Similar is the fate
of Bengal Chemical and Pharmaceutical Limited , Bengal Immunity Limited
and Smith Stainstreet Pharmaceuticals Limited . These three units were taken
over by the government after the private owners made them sick. Proper
utilization of their capacity could not be made due to lack of will on the part of
the government, mismanagement at the administrative level and high level
corruption.11
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92
It is not because of any inherent weakness but due to the lack of
political will, deliberate efforts to destroy them, corruption and
mismanagement that these public sector units have been rendered
commercially unviable. Moreover, the numbers of workers engaged in these
units have been reduced drastically. When Indian Drugs and Pharmaceutical
Limited was established it had strength of more than 15000 workers, today it
has been reduce to less than 7000.
With the pharmaceutical industry taking, a leap towards a
biotechnology development worldwide, only the public sector drug companies,
with the backing of the Central Government, could have faced the challenge
effectively from the multinational companies in the new situation. Even while
undergoing restructuring, it has established its presence and determination to
flourish in the changing environment. The industries now produce bulk drugs
belonging to all major therapeutic gropes. Strong scientific and technical work
force and pioneering work done in process development have contributed to
this.
In 2006-07 the pharmaceutical industry had a capital investment of Rs.
7100 crore. It produced bulk drugs worth Rs.13600 crore in 2006-07, and
formulation worth Rs.21107 crore in 2001-02. The annual turnover Rs.35800
crore in 2005-06.the research and development expenditure Rs. 2350 in 2006-
07.12
The sector is strong technologically and the following form the basis of
the technological strengths of the Indian pharmaceutical industry;
1- Self reliance displayed by the production of 70 percent of bulk drugs and
almost the entire requirement of formulation within the country.
2 – Cost advantage in terms of drug production, maintenance of high standards
in terms of purity, stability and international safety, health and environment
protection
3 – Low research and development costs
4 – An excellent centre for clinical trials
5 – World class national laboratories in process development
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6 – Increasing balance of trade in pharmaceutical sector
7 - Knowledge based industry
8 – Increasing balance of trade in the sector
9 – Strong scientific and technical manpower
10 – Major driver of growth in the future
11 – Tremendous export potential
12 - Developing cost effective technologies for drug intermediaries and bulk
actives without a compromise on quality.
India has a significant share in the global generics market and is ranked
third. In recent years, this segment has been facing stiff competition, which
makes the scale of production important to improve profitability. India has pre-
dominantly been a generic player and has the potential to gain a global
presence for the following key developments:
•
Multiple branded drug patent expirations in the short term. According to
IMS Health, in 2006 and 2007 a total of US$ 28 billion and US$ 20
billion, respectively of branded sales were likely to become susceptible
to the entry of generic equivalents.
•
Increasing confidence of consumers in generics in the developed
markets.
•
A pro-generic sentiment from healthcare authorities driven by the
pressure of containing rising healthcare costs.
•
An aging population across the world, leading to increasing demand for
low cost therapies.
• Global healthcare crisis like AIDS in the developing world,
necessitating affordable medication for the masses.
Generic companies in India are recognizing the importance of
patent expiriy and are making significant incremental investments in research
and drug development.
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94
3.4.1: PRODUCTION:-
The Indian pharmaceutical industry today is in the front rank of
India’s science based industries with wide ranging capabilities in the complex
field of drug manufacture and technology. The industries produce two kinds of
products bulk drugs and formulations. Bulk drugs are active chemical
substances in powder form, the main ingredient in pharmaceuticals.
Formulations are final preparation, such as tablets, capsules, injectables and
syrups, sold as a brand or generic product. Eighty one percent of industry sales
are formulations. The industry produces about 60000 finished medicines and
roughly 400 bulk drugs, which are used in the formulations.
• On the basis of formulations, the pharmaceutical industry can
further be classified into:
1: Prescription medicines:
Also known as ethical formulations. They can be dispensed
only on the prescription from a qualified medical practitioner.
2: Over-the-counter medicines:
Also known as Over The Counter formulations. They can be
dispensed even in the absence of prescription e.g. analgesics, cough drugs, etc.
PRODUCT STRUCTURE
Bulk Drugs Formulations
Generic Branded
Patented Off -
Patented
Pharmaceutical Products
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95
TABLE NO: 3.1
COMPOSITION AND GROWTH PRODUCTION OF BULK DRUGS
AND FORMULATIONS (Rs. in crore)
Source: Organization of Pharmaceutical Producer of India (various issue)
• Figures in brackets show the percentage to Total Production
Years
Bulk
Drugs Formulations Total
1991-1992 900 (15.78)
4800 (84.21)
5700 (100)
1992-1993 1150 (16.08)
6000 (83.91)
7150 (100)
1993-1994 1320 (16.05)
6900 (83.94)
8220 (100)
1994-1995 1518 (16.05)
7935 (83.94)
9453 (100)
1995-1996 1822 (16.64)
9125 (83.35)
10947 (100)
1996-1997 2186 (17.23)
10494 (82.76)
12680 (100)
1997-1998 2623 (17.85)
12068 (82.14)
14691 (100)
1998-1999 3148 (18.48)
13878 (81.51)
17026 (100)
1999-2000 3777 (19.13)
15960 (80.86)
19737 (100)
2000-2001 4533 (19.80)
18354 (80.19)
22887 (100)
2001-2002 5440 (20.49)
21107 (79.50)
26547 (100)
2002-2003 6500 (21.18)
24185 (78.02)
30685 (100)
2003-2004 7800 (21.97)
27692 (78.02)
35492 (100)
2004-2005 9400 (23.21)
31092 (78.02)
40492 (100)
2005-2006 11300 (24.76)
34324 (57.23)
45624 (100)
2006-2007 13600 (26.42)
37871 (73.57)
51471 (100)
C.G.R (1991-92 to
2006-07) 19.65 14.68 15.66
CORREL (1991-92 to
2006-07) 0.993681 0.999155 -
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96
FIGURE NO: 3.1
DISTRIBUTION OF PRODUCTION OF BULK DRUGS AND FORMULATIONS: 1991-91
AND 2006-07 IN %
Year 1991-92
16%
84%
Bulk Drugs
Formulation
Year 2006-07
26%
74%
FIGURE NO: 3.2
COMPOSITION AND GROWTH OF PRODUCTION OF BULK DRUGS AND
FORMULATIONS
(Values in Rs.crore)
0
10000
20000
30000
40000
50000
60000
19
91
-92
19
92
-93
19
93
-94
19
94
-95
19
95
-96
19
96
-97
19
97
-98
19
98
-99
19
99
-20
00
20
00
-01
20
01
-02
20
02
-03
20
03
-04
20
04
-05
20
05
-06
20
06
-07
Year
Va
lues
in R
s. c
ro
res
Bulk Drugs
Formulation
Total
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97
• On the basis of formulations patent, pharmaceutical industry can be
classified as:-
1: Branded formulations: -
They are ethical formulations prepared using a bulk drug under
product patent and are marketed by a single pharmaceutical company.
2: Generics:-
They are formulations that do not contain any patented bulk drug
and can be manufactured by more than one company.
The industry now produces bulk drugs belonging to all major
therapeutic groups requiring complicated manufacturing process and has
developed Good Manufacturing Practices (GMP) facilities for the production
of different dosage forms. The pharma industry exports drugs and
pharmaceuticals worth over US$ 4.5 billion. It ranks 17th in terms of export
value of bulk actives and dosage. Indian exports cover more than 200 countries
including the highly regulated markets of USA, Europe, Japan and Australia.
As the manufacture of most bulk drugs is neither capital intensive nor
technology intensive, process reverse engineering encouraged the growth of
production bases. There are a large number of bulk drug manufacturers in
India, including many small scale industries. This has increased competition,
leading to a drop in prices and consequently lower margins. Most bulk drugs
under the drug price control order sell below the government administered
prices due to stiff competition and lower import tariffs.
Table No 3.1 shows the production figures of bulk drugs and
formulations from 1990-91 to 2006-2007. The Table No. 3.1 presents the
annual production of bulk drugs and formulations shows that the drugs and
pharmaceuticals sector has continued to maintain steady growth in terms of
production of bulk drugs and formulations. Several proposals for foreign
collaboration for joint venture, research and developments, expansion of
existing units have been received. The present table clearly states that
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98
production of the Indian Pharmaceutical Industry shows increasing trends since
1991-1992 to 2006-2007.
The domestic pharmaceutical industry output exceeds Rs.51471crore of
this around 74 percent is formulations and 26 percent is bulk drugs. Production
of both bulk drugs and formulations increased at a very rapid pace between
1991-1992 to 2006-2007.
Table No.3.1 shows growth of bulk drugs of Indian Pharmaceutical
Industry. The data in table indicates that since 1991-1992 to 2006-2007. The
production of bulk drugs was Rs.900 crore in 1991-92, Rs. 1822 crore in 1995-
96, Rs.5440 crore in 2001-02, and Rs. 13600 crore in 2006-07 and registering a
growth about 15.11 times over the study period.
The bulk drug industry in India has grown considerably over the past
twenty years from Rs. 480 crore in 1987-88 to Rs. 13600 crore in 2006-07,
however, the share of bulk drugs range between 15.97 percent to 26.42 percent
within the total production of pharmaceutical industry. The domestic
pharmaceutical output has increased from Rs.730 in 1990-91 to Rs.13600 crore
in 2006-07. Bulk drug however, maintained the same growth of 16.05 percent
in 1993-94 as in 1994-95. In 1994-95 the compounded annual growth rate of
bulk drug of Indian pharmaceutical industry for the period 1991-92 to 2006-07
is approximately 19.65 percent.
The production of formulations has also increased over the past few
years. It has increased from Rs. 4800 crore in 1991-92 Rs. 9125 crore in 1995-
96, Rs.21107 crore in 2001-02, and Rs. 37871 crore in 2006-07 and registering
a growth about 7.88 times over the study period. Formulation however,
maintained the same growth of 83.94 percent in 1993-94 as in 1995-96. In
1995-96 the production of bulk drugs and formulation were valued at Rs.1822
crore and Rs.9125 crore respectively. The compounded annual growth rate of
formulation of Indian pharmaceutical industry for the period 1991-92 to 2006-
07 is approximately 14.68 percent.
However the share of bulk drugs range between 84.02 percent
to73.57percent within the total production of Pharmaceutical Industry. The
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99
domestic pharmaceutical output has increased from Rs.3840 crore in 1990-91
to Rs.37871 crore in 2006-07. The production of Drugs and Pharmaceutical
Industry is growing constantly. Just before seven years from now in 1999-2000
the production of bulk drug was worth Rs 3777 crore and formulation was at
Rs.15960 crore which has been estimated to grow at Rs. 11300 crore for bulk
drugs production and Rs. 34324 crore for formulations production in 2005-06.
Indian production both bulk drugs and formulations, initially both bulk
drugs production has also been greater than in terms of value production of
formulations since 1994-95.
Before 1991, the focus of most Indian companies was mostly on
consolidating Indian market. This gave way to an emphasis export led growth
in the 1990s. The growth after 1991 has therefore been higher than earlier
period. The Industry manufactures bulk drugs belonging to several major
therapeutic groups requiring various manufacturing processes and has
developed excellent facilities for production of all dosage forms like tablets,
capsules, liquids, ointments, orals and injectibles. This achievement is
strengthened by an assurance with regard to quality of the products. Over the
last several years, policy inputs have been directed towards promoting the
growth of the industry and in helping it to achieve a broad base in terms of the
large range of the products and technologies needed to produce them from as
basic stage as possible.
3.4.2: CAPITAL INVESTMENTS:
The capital investment in the pharmaceutical industry over the sixteen
years is presented in Table No.3.2. The investment follows a steady pattern
over the period 1991-92 to 2006-07 growing from Rs. 950 crore in 1991-92 to
Rs. 6000 crore in 2005-06. With the current government policies and rate of
return prevalent in the pharmaceutical industry, the investment can be accepted
to grow further in the coming years 13.
The current capital investment in the industry is estimated at Rs.7100
crore against Rs.24 crore in 1952 and Rs. 56 crore in 1962 and Rs. 600 crore in
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100
TABLE NO: 3.2
GROWTH OF CAPITAL INVESTMENT IN PHARMACUTICAL
INDUSTRY IN INDIA
(Rs. in crore)
Source: As of Table No. 3.1
1982. The capital investment has also increased over the past few years. It has
increased from Rs. 950 crore in 1991-92 Rs. 1380 crore in 1995-96, Rs.3400
Years Investment
1991-1992 950
1992-1993 1000
1993-1994 1060
1994-1995 1200
1995-1996 1380
1996-1997 1600
1997-1998 1840
1998-1999 2150
1999-2000 2500
2000-2001 2941
2001-2002 3400
2002-2003 3900
2003-2004 4500
2004-2005 5200
2005-2006 6000
2006-2007 7100
C.G.R (1991-92 to
2006-07) 15.07
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101
crore in 2001-02, and Rs. 7100 crore in 2006-07 and registering a growth of
about 7.47 times over the study period.
However, the share of bulk drugs range between 2.03 percent
to15.51percent within the capital investment of pharmaceutical Industry. The
compounded annual growth rate of capital investment of Indian pharmaceutical
industry for the period 1991-92 to 2006-07 is approximately 15.07 percent.
Capital investment of Indian pharmaceutical industry 7.4 fold over the 1991-
92.
FIGURE NO: 3.3
GROWTH OF CAPITAL INVESTMENT IN PHARMACUTICAL
INDUSTRY IN INDIA
(Values in Rs.crores)
0
1000
2000
3000
4000
5000
6000
7000
8000
1991-
1992
1992-
1993
1993-
1994
1994-
1995
1995-
1996
1996-
1997
1997-
1998
1998-
1999
1999-
2000
2000-
2001
2001-
2002
2002-
2003
2003-
2004
2004-
2005
2005-
2006
2006-
2007
Year
Va
lues
in
Rs.
cro
res
Investment
Chapter 3
102
3.4.3: RESEARCH AND DEVELOPMENT EXPENDITURE:-
In international trade theory many studies have shown that growth
performance and competitive advantages of countries is always related to the
extent of activities of technological innovation and even imitation. Technology
developments measured by the patent and the amount of research and
development expenditure have great impact on trade performance of
countries.14 The same logic can also be used for growth of a particular industry
or firm. This applies very correctly in case of the pharmaceutical industry as it
is technology based and innovations through research and development can
held in new novel drug discovery leading to new drugs entering the market.
Process and technological change leading to improve production of drugs and
formulations can take place through improvements in products, production
process, and raw material and also through increase in efficiency of the
management system. Technology based improvements through innovations can
be measured by the amount of research and development expenditure made by
pharmaceutical firms, growth of research and development in pharmaceutical
industry in various countries during the period 1997-2001 shows that this
growth in percentage terms was as high as 94 percent in finland, 23 percent in
UK, research and development expenditure as percent of sales in 2002 was
19.7 percent in France, 17.7 percent in Germany, 37.1 percent in Korea.15
India’s pharmaceutical industry did not invest heavily in research and
development. One of the major reasons for this was that there were no product
patent laws in place for pharmaceutical products in India. Without product
patents, domestic Indian firms have grown their indigenous market through the
creation of different processes. In 1999, Indian firms spent only 1.8 percent of
sales in research and development. This trend, however, was changing with
major players such as Ranbaxy, Dr. Reddy’s, and Torrent, recognizing that to
remain viable once product patent laws took effect, they must begin developing
their own molecules to compete effectively in India and abroad.
The investment in research and development is also on the rise as it has
become important for Indian companies to start innovating new drugs in order
Chapter 3
103
to ensure long term sustainable growth and remain competitive at the global
level. Indian companies have invested in New Chemical Entity (NCE) research
and are scouting for global partners for pursuing collaborative research. The
availability of large patient base, skilled manpower and lower costs of carrying
out clinical trials has made India a favorable destination for research and
development outsourcing.
Investment in research and development by industry as a whole in India
has been low only around 0.6 percent of the turnover. In the Indian
pharmaceutical industry, the average research and development expenditure is
around 2 percent of the turnover contributed by around 150 companies. The
low investment in research and development is due to the low levels of
profitability and comparatively small size of the companies. However, the
scenario is now changing. Some pharmaceutical companies now spend nearly 5
percent of their turnover on research and development .
The research and development expenditure by the Indian pharmaceutical
industry is around 1.9 percent of the industry’s turnover. This obviously, is
very low when compared to the investment on research and development by
foreign research based pharmaceutical companies. They spend 10 to 16 percent
of the turnover on research and development. However, now that India is
entering into the Patent protection area, many companies are spending
relatively more on research and development. Indian Pharmaceutical Industry,
with its rich scientific talents, provides cost effective clinical trial research. It
has an excellent record of development of improved, cost-beneficial chemical
syntheses for various drug molecules. Some multinational companies are
already sourcing these services from their Indian affiliates.
Pharmaceutical research and development can be broadly classified
into three categories:
1. New chemical entities (NCEs);
2. Modification of existing NCEs (new chemical derivatives, new
formulations, and new combinations) and
3. New processes for manufacturing drugs.
Chapter 3
104
Until recently, the research and development activities in India
focused on the third category, namely, new process of manufacturing of
drugs. Research and development on analogues, i.e. modified versions of
the original molecules, has been an area of intensive activity by the Indian
companies.
Driven by the imminent change to a product patent regime at home
from 2005 and the opportunities offered in the international market, the
mindset of Indian companies towards research has altered. The new mindset is
to have a strong foothold in regulated markets and shift from business-driven
research-to-research-driven business. Indian companies are shifting their focus
to innovative research, that is, developing non-infringing processes, New
Chemical Entities (NCEs), Novel Drug Delivery Systems (NDDS),
biopharmaceuticals etc.
The leading pharmaceutical companies in India have been increasing
their research and development budgets over the years. The research and
development expenditure of the Indian pharmaceuticals industry had increased
from Rs.12 crore in 1977 to Rs.400 crore in 2001. During 1996-2002, the top
10 Indian pharmaceutical companies annual recurring research and
development expense jumped 32.3 percent on a year-on-year basis. These
companies made a total capital investment of US$ 116 million over the same
period. The average research and development expenditure of the major Indian
companies has increased to nearly 6 per cent of sales during the financial year
2004 from nearly 2 per cent, two to three years ago. Indian pharmaceutical
companies are likely to double their expenditure on research and development
over the next 2 years.
In the year 2006, research and development erpenditure grew by 12
percent. There are as many as 18 New Chemical Entities (NCEs) developed by
different pharmaceutical companies currently undergoing various phases of
clinical trials. Major domestic players namely Ranbaxy, Dr. Reddy’s Labs,
Cipla, Nicholas Piramal and Wockhardt are aggressively investing in research
and development. DrReddy’s Labs, Ranbaxy and Wockhardt have achieved
Chapter 3
105
some early breakthroughs in New Chemical Entities (NCEs). In some cases,
these companies have out licensed their molecules to global pharmaceutical
leaders, which speak highly of their research capabilities
Source: SSKI
The following table shows the research and development expenditure of
Indian pharmaceutical industry from 1991-92 to 2006-2007.
The Table No. 3.3 shows that the research and development expenditure
has continued to maintain steady growth. The present table clearly states that
research and development expenditure of the Indian Pharmaceutical Industry
shows increasing trends since 1991-1992 to 2006-2007.
The research and development expenditure in India has grown
considerably over the past twenty years from Rs. 50 crore in 1987-88 to Rs.
Speciality Generics
Indian
Pharmaceutical
R and D Initiatives Improved Chemical
Entities
NCE
Generics in
Developed
Countries
NDDS
Biopharmaceuticals
Chemical Synthesis
Chapter 3
106
TABLE NO: 3.3
RESEARCH AND DEVELOPMENT EXPENDITURE OF INDIAN
PHARMACEUTICAL INDUSTRY
(Values Rs. In Crore)
Source: As of Table No. 3.1
Year Sales
R and D
Expenditure
R and D Expenditure
as percentage of sales
1991-1992 9624 70 0.642716
1992-1993 12136 78 0.73336
1993-1994 14181.3 104 0.823529
1994-1995 17000 140 0.780488
1995-1996 20500 160 0.820305
1996-1997 22552.6 185 0.982582
1997-1998 22390 220 1
1998-1999 26000 260 1.155235
1999-2000 27700 320 1.380818
2000-2001 26433.6 365 1.377558
2001-2002 29036.9 400 1.704586
2002-2003 32265.9 550 1.73544
2003-2004 38030.7 660 2.953448
2004-2005 39953.3 1180 2.827609
2005-2006 43146 1220 6.564246
2006-2007 35800 2350 6.564246
C.G.R (1991-92 to 2006-
07) 9.19 23.46
CORREL (1991-92 to 2006-07) 0.72
Chapter 3
107
FIGURE NO: 3.4
TRENDS OF RESEARCH AND DEVELOPMENT EXPENDITURE OF
INDIAN PHARMACEUTICAL INDUSTRY
(Values in Rs. Crore)
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
1991
-199
2
1992
-199
3
1993
-199
4
1994
-199
5
1995
-199
6
1996
-199
7
1997
-199
8
1998
-199
9
1999
-200
0
2000
-200
1
2001
-200
2
2002
-200
3
2003
-200
4
2004
-200
5
2005
-200
6
2006
-200
7
Year
Valu
es in
Rs.
crore
Sales
R&D
Expenditure
FIGURE NO: 3.5
DISTRIBUTION OF RESEARCH AND DEVELOPMENT
EXPENDITURE OF INDIAN PHARMACEUTICAL INDUSTRY: 1991-92 AND 2006-07 (IN %)
Year 2006-2007
94%
6%
Year 1991-1992
99%
1%
Sales R and D Exp.
Chapter 3
108
2350 crore in 2006-07. The compounded annual growth rate of research and
development expenditure of Indian pharmaceutical industry for the period
1991-92 to 2006-07 is approximately 23.46 and registering a growth of about
33.37 times over the study period.
The current research and development expenditure in the industry is
estimated at Rs.2350 crore against Rs.5.86 crore in 1972 and Rs. 29.3 crore in
1981 and Rs. 48 crore in 1985.
The research and development expenditure has also increased over the
past few years. It has increased from Rs. 70 crore in 1991-92 Rs. 160 crore in
1995-96, Rs.365 crore in 2000-01 and Rs. 2350 crore in 2006-07.
The Indian pharmaceutical industry spends about 1.8 per cent, on
average, of its sales on research and development. This is higher than the
average for Indian industry, which is around 0.7 percent.
A key aspect of technological change in the pharmaceutical sector in
India is the close interaction between private sector firms and publicly funded
laboratories of the Council for Scientific and Industrial Research (CSIR). The
three laboratories that are most active in drugs research are the National
Chemical Laboratory (NCL) located in Pune; the Central Drug Research
Institute (CDRI) located in Lucknow; and the Indian Institute of Chemical
Technology (IICT) located in Hyderabad.
The Government offers various incentives in the form of tax
concessions and exemptions of specific products from the purview of price
controls to encourage firms to engage in research and development . The
pharmaceutical industry is eligible for weighted deduction for research and
development expenses up to 150 percent. Three categories of drugs are exempt
from price controls for specific periods. These are:
(a) Drugs using processes developed through indigenous research and
development effort for a period of five years;
(b) Drugs using a new drug delivery system developed indigenously and
approved for marketing, for a period of five
Chapter 3
109
(c) New products developed in India, for a period of 10 years
Amount of research and development expenditure in pharmaceutical
industry is very important for the growth of the industry. Research in
laboratories in drugs needs to always increase so that new industrial application
of the same can be clinically tested and then drugs for commercial sales
manufactured. The amount of research and development made holds the key
for the future growth of this industry. Experience in Western countries has
proved that multinational companies have from brining put more money in
research and development and this has helped their growth in future. Private
sector imitative in this regard is more positive. Ploughing back of profits into
research and development helps the future growth and this was done by private
multinational companies. It is only after 1990s that this trend has been noticed
in India. Further new research and development initiatives are protected well
under new post World Trade Organisation and intellectual property rights
regime and therefore more research and development is neassary for Indian
pharmaceutical future growth. This also calls in for more university industry
Inter-action in areas of applied science research University departments in
science need to go in for more research that the need of industry so that this
collaborative research helps industries. Pharmaceutical industry can also fund
specific research projects so that novel drug discovery is facilitated with
infrastructure of Universities in India.
3.4.4: FOREIGN DIRECT INVESTMENT IN PHARMACEUTICAL
INDUSTRY IN INDIA:-
The pharmaceutical industry has been selected as one of the sunrise
areas where concerted efforts are being made to attract foreign direct
investment (FDI). The Government of India has not only abolished industrial
licensing for bulk drugs, intermediates and formulations but has allowed
automatic foreign direct investment approvals up to 100 percent foreign
ownership. During 1991-2004, the drugs and pharmaceutical sector attracted
nearly Rs 35 billion in foreign direct investment inflows hitherto, the fear of
Chapter 3
110
not recognizing product patents in India made multinational companies shy
away from comprehensive technology transfer to their Indian affiliates.
Controls over the operations of foreign enterprises that were imposed
largely through the Foreign Exchange Regulation Act (FERA) in 1973, were
rapidly reduced through the 1990s.
In 1994, the Government allowed foreigners to hold up to 51 per cent of
the equity capital of enterprises registered in India. This change in policy led
many firms, which had reduced their foreign shareholdings in the 1970s to 40
per cent or less to meet the requirements of Foreign Exchange Regulation Act ,
to increase the foreign share to 51 per cent (for a list of firms which increased
their foreign equity to 51 per cent).
However, apart from the increase in foreign
stakes of some of the major firms operating in India, the pharmaceutical sector
was not among the major beneficiaries of foreign direct investment inflows
during the 1990s; it accounted for only 0.4 percent of total foreign direct
investment approvals during the period 1991-1999, amounting US$ 260
million.
The real interest of foreign firms in the Indian market will be better
assessed only after India starts giving product patents in pharmaceuticals from
2005. Reporting on disinvestments in the pharmaceutical sector by the firms,
Nicholas, Merind, Roche, and Searle, the Government of India Annual Report,
1993-94 gives the following reasons: the pricing system, lack of patent
protection, advantages in entering into licensing arrangements with local India
firms rather than direct investment.
The benefits for the Indian pharmaceutical industry resulting from the
policy environment change since the beginning of the 1970s also are important.
It is clear that the instruments of policy introduced by the Government during
this phase suited the industry, a fact borne out by its performance over time.
While the more protected environment in the 1970s and 1980s helped the
domestic enterprises to establish their presence in the industry, the adoption of
an open economy framework in the 1990s encouraged the leading firms to
Chapter 3
111
TABLE NO: 3.4
FOREIGN DIRECT INVESTMENT INFLOWS INTO INDIA
(Rs in. million)
Year All sector Pharmaceutical Share of
pharmaceuticals
(%)
Aug1991-Dec
1999
576821.15 8221.75 1.43
2000 123537.34 2079.88 1.68
2001 167777.54 4081.79 2.43
2002 181955.56 2510.52 1.38
2003 116171.7 2793.28 2.40
2004 172665.2 15711.08 9.10
2005 192990.9 5107.25 2.64
Total 1531920 40505.55 2.64
CORRE
(2000 to 2005)
- 0.27 -
C.G.R(2000 to
2005)
5.48 28.00 -
Source: Government of India, Department of Industrial Policy and Promotion, Ministry of
Commerce and Industry, Secretariat for Industrial Assistance, SIA Newsletter, Various Issues
of related years.
Chapter 3
112
expand their overseas operations. The latter aspect can be best understood by
analyzing the performance of the leading firms in the industry.
The Table No.3.4 shows that the all sector investment and
pharmaceutical sector investment has continued to maintain steady growth. The
present table clearly states foreign direct investment that of the Indian
Pharmaceutical Industry shows increasing trends since 1991-1992 to 2006-
2007.
The above table shows the foreign direct investment of Indian
pharmaceutical industry from 1991-92 to 2006-2007.The present table clearly
states that foreign direct investment of the Indian Pharmaceutical Industry
shows increasing trends since 1991-1992 to 2006-2007.
The foreign direct investment in India has grown considerably over the
past seventeen years. The compounded annual growth rate of foreign direct
investment of Indian pharmaceutical industry for the period 2000 to 2005 is
approximately 28 and registering a growth about 2.45 times over the study
period.
The current foreign direct investment in the pharmaceutical industry is
estimated at Rs.40505.55 million against Rs.2079.88 million in 2000 and Rs.
2793.28 million in 2003. The foreign direct investment has also increased over
the past few years. The share of foreign direct investment 2.64 percent within
the total investment of all sectors. In 2005, foreign direct investment was low
compare to previous year.
The percentage of foreign direct investment approved increased sharply
in the year 2000. It could be in part due to amendment in the Patent Act 1970.
The modified act came into force in 1999. Besides, at the beginning of 2000 the
Indian government announced a change in policy regarding the level of
investment by foreign multinationals in their Indian subsidiaries and new joint
ventures. Foreign companies can now have equity stakes of up to 100 per cent
previously it was 51 percent. In the late 1990s, a number of multinational
companies had applied to India’s Foreign Investment Promotion Board for
setting up 100 per cent owned subsidiaries.
Chapter 3
113
3.4.5: SALES:-
Table No 3.5 shows sales figures of pharmaceutical production. Indian
pharmaceutical industry sale bulk drugs, formulations and generic drugs in
domestic as well export market from 1990-91 to 2006-2007.
TABLE NO: 3.5
SALES OF INDIAN PHARMACEUTICAL INDUSTRY
(Rs. in crore)
Source: Industry, Market Size & Shares (CMIE Reports), Aug 2000, Aug 2001, June 2007
Years Sales
1991-92 9624
1992-93 12136
1993-94 14181.3
1994-95 17000
1995-96 20500
1996-97 22552.6
1997-98 22390
1998-99 26000
1999-2000 27700
2000-01 26433.6
2001-02 29036.9
2002-03 32265.9
2003-04 38030.7
2004-05 39953.3
2005-06 43146
2006-07 35800
C.G.R(1991-92 TO 2006-07) 9.19
Increase in 2007 over 1991 3.71
Chapter 3
114
The Table No. 3.5 presents the annual sales of bulk drugs, formulations
and others shows that the drugs and pharmaceuticals sector has continued to
maintain steady growth in terms of sales.
Table No.3.5 shows growth of sales of Indian Pharmaceutical Industry.
The data in table indicates that since 1991-1992 to 2006-2007. the sales of
pharmaceutical product was Rs.9624 crore in 1991-92, Rs. 20500 crore in
1995-96, Rs.29036.9 crore in 2001-02, and Rs. 35800 crore in 2006-07 and
registering a growth about 3.71 times over the study period. The compounded
annual growth rate of sales of Indian pharmaceutical industry for the period
1991-92 to 2006-07 is approximately 9.19%. Bulk drug however, maintained
the same growth of 16.05 percent in 1993-94 as in 1994-95.In 1994-95.
FIGURE NO: 3.6
SALES OF INDIAN PHARMACEUTICAL INDUSTRY
(Values in Rs.crores)
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-200
0
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
Year
Va
lues
in R
s. c
rore
Sales
Chapter 3
115
3.4.6: DOMESTIC CONSUMPTION:-
Domestic pharmaceutical consumption means use of total production by
domestic population. The following table shows domestic consumption of
Indian pharmaceutical industry from 1991-92 to 2006-07.
TABLE NO: 3.6
DOMESTIC CONSUMPTION OF INDIAN PHARMACEUTICAL
INDUSTRY
(Rs. In Crore)
Source: As of Table No. 3.5
Years D. Consumption
1991-92 8632.4
1992-93 11416.2
1993-94 12980.1
1994-95 15424.9
1995-96 18449.2
1996-97 21747.4
1997-98 22027.8
1998-99 25359.1
1999-2000 22086.1
2000-01 23304.3
2001-02 24191.9
2002-03 24039.1
2003-04 25244.8
2004-05 23311.5
2005-06 24536.3
Increase in 2005-06 over 1991-92 2.84
C.G.R(1991-92 to 2006-07) 6.5
Chapter 3
116
FIGURE NO: 3.7
DOMESTIC CONSUMPTION OF INDIAN PHARMACEUTICAL
INDUSTRY
(Values in Rs.crores)
0
5000
10000
15000
20000
25000
30000
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
Year
Va
lue
s in
Rs.
cr
or
e
D. Consumption
The Table No.3.6 shows the annual domestic consumption of bulk
drugs, formulations and others. During the study period domestic consumption
has increased from 1991-92 to 2006-07.
Chapter 3
117
The data in table indicates that since 1991-1992 to 2006-2007. The
domestic consumption of pharmaceutical product was Rs.8632.4 crore in 1991-
92, Rs. 18449.2 crore in 1995-96, Rs. 24191.9 crore in 2001-02, and Rs.
24536.3 crore in 2006-07 and registering a growth about 2.84 times over the
study period. The compounded annual growth rate of domestic consumption of
Indian pharmaceutical industry for the period 1991-92 to 2006-07 is 6.5
percent.
With the onset of economics reforms, the growth of the Indian economy
has increased and has also become steady. Industrial and service sector growth
rates have increased and this has resulted in rise in per capita incomes more so
in urban and semi-urban areas. Rise in per capita incomes has increased the
capacity of people to spend more on health and hug genie care of the family
and with this rise sales of the pharmaceutical industry and health care and even
cosmetic industry is rising, leading to more domestic sales of the
pharmaceutical industry in India. A large population with growing per capita
income leads to increase in domestic sales.
As sales both domestic and foreign increase the production of
pharmaceutical industry has also increased and the turnover of this industry
increased during the period under study.
This can be measured by the size of the market for the period under the
study. The rise in market size of the pharmaceutical industry during the post
reforms period is depicted in Table No.3.7. The market size which was
Rs.1018.5 crore in 1991-92 increased to Rs.29316.2 crore in 1999-2000 and
further rose to Rs. 46115.2 crore by the year 2005-06. Compound Growth Rate
rise was 11.14 percent and this adequately reveals that the overall market size
depicting the sales of the pharmaceutical industry has grown at an impressive
rate during the period under the study.
Chapter 3
118
TABLE NO: 3.7
MARKET SIZE OF INDIAN PHARMACEUTICAL INDUSTRY
(Rs. In Crore)
Source: As of Table No. 3.5
Years Market Size
1991-92 10182.5
1992-93 12949.2
1993-94 14989.8
1994-95 17937.2
1995-96 21858
1996-97 26089.2
1997-98 2447.1
1998-99 31615.2
1999-2000 29316.2
2000-01 32061.8
2001-02 34026.6
2002-03 36865.2
2003-04 40458
2004-05 41169.3
2005-06 46115.2
Increase in 2007 over
1991 4.52
C.G.R(1991-92 to
2005-06 11.14
Chapter 3
119
FIGURE NO: 3.8
MARKET SIZE OF INDIAN PHARMACEUTICAL INDUSTRY
(Values in Rs.crores)
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
1991
-92
1992
-93
1993-
94
1994-
95
1995-
96
1996-
97
1997-
98
1998-
99
1999-
2000
2000-
01
2001-
02
2002-
03
2003-
04
2004-
05
2005-
06
Year
Va
lues
in R
s.C
ro
re
Market Size
3.4.8: HEALTH INFRASTRUCTURE:-
The government, public sector and private sector provide healthcare
services in India. The size of the Indian healthcare delivery market is estimated
at US$18.7 billion. The private sector provides for sixty three percent of the
healthcare market. With only fifteen percent of the population covered by
insurance, a large proportion of the healthcare spending is out of pocket
spending.
The government healthcare infrastructure includes primary health
centers and sub centers in the villages that are the first point of contact that
provide basic drugs for minor ailments. At the secondary level, the district
hospitals and the community healthcare centers, and finally, at the tertiary level
are the government owned hospitals and medical colleges. The private
healthcare providers consist of private practitioners, for profit hospitals and
nursing homes, and charitable hospitals. They are numerous and fragmented.
Chapter 3
120
TABLE NO: 3.8
HEALTH INFRASTRUCTURE
Source: As of Table No. 3.1
Years
No. of
Doctors
No. of
Nurses Hospitals
M.
Colleges
Primary
Health
Centers
1991-92 394068 264504 11571 128 22243
1992-93 405253 340208 11571 146 22243
1993-94 410825 385410 13692 146 22243
1994-95 489189 559896 13692 162 21854
1995-96 489189 559896 13692 162 21854
1996-97 489189 559896 13692 162 21854
1997-98 498689 565696 15097 162 22291
1998-99 498689 565696 15097 162 22291
1999-00 498689 565696 15097 162 22291
2000-01 498689 565696 15097 162 22291
2001-02 498689 565696 15097 162 22291
2002-03 498689 565696 15097 162 22291
2003-04 605840 832000 16000 171 164000
2004-05 625130 836000 17300 171 164000
2005-06 625130 836000 17300 171 164000
2006-07 625130 836000 17300 171 164000
Chapter 3
121
FIGURE NO: 3.9
DISTRIBUTION OF HEALTH INFRASTRUCTURE
Year 1991-92
394068264504
11571
128
22243
No. of Doctors No. of Nurses Hospitals M. CollegesPrimary Health Centers
Year 2006-07
62513
0
83600
0
17300
171
16400
0
The above table present health infrastructure of Indian pharmaceutical
industry, health infrastructure in terms of no of doctors, no of nurses, hospitals,
medical colleges and primary health centre. The data in table indicates that
since 1991-1992 to 2006-2007.The no of doctors of India 65000 in 1955-56,
and 625130 in 2006-07. The no of doctors in India has grown considerably
over the past twenty years from 330755 in 1987-88 to 605840 in 2003-04. The
no of doctors has also increased over the past few years. It has increased from
394068 in 1991-92, 499189 in 1995-96, 605840 in 2003-04, and 625130 in
2006-07 and registering a growth about 1.58 times over the study period.
The no of nurses in India has grown considerably over the past
seventeen years from 264504 in 1991-92 to 836000 in 2006-07. No of nurses
maintained the same growth of 559896 in 1993-94 as in 2002-03 and 836000 in
2004-05 as in 2006-07. It has increased from 264504 in 1991-92 559896 in
Chapter 3
122
1995-96, 832000in 2003-04, and 836000 in 2006-07 and registering a growth
about 3.16 times over the study period.
During the year of 1991-92 the no of hospitals of this industry was
11571 and in 2006-07 it increased to 17300 and registering a growth about 1.49
times over the Study period. . No of colleges maintained the same growth of
146 in 1992-93 as in 2002-03 and 171 in 2003-04 as in 2006-07. It has
increased from 128 in 1991-92 and 171 in 2006-07 and registering a growth
about 1.33 times over the study period. During the year of 1991-92 the no of
primary health centers of this industry was 22243 and in 2006 – 07 it increased
to 164000 and registering a growth about 7.37 times over the study period.
3.4.9: HEALTH INDICATORS:-
In spite of the progress made, a high proportion of the population,
especially in rural areas, continues to suffer and die from preventable diseases,
pregnancy and childbirth related complications as well as malnutrition. In
addition to old unresolved problems, the health system in the country is facing
emerging threats and challenges. The rural public health care system in many
States and regions is in an unsatisfactory state leading to pauperization of poor
households due to expensive private sector health care.
Healthcare has emerged as one of the largest service sectors in India. In
2004, national healthcare spending equaled about 5.2 percent of nominal gross
domestic product or about US$ 34.9 billion. Healthcare spending in India is
expected to rise by 12 percent per annum through 2005-09 (in rupee terms) and
scale up to about 5.5 percent of gross domestic product or US$ 60.9 billion, by
2009. Other estimates suggest that by 2012, healthcare spending could
contribute 8 percent of gross domestic product and employ around 9 million
people. A survey by NCAER, an independent economics research agency,
suggests that per-capita expenditures on healthcare rise with higher education
levels. Households that have higher education levels tend to spend more per
illness than households with lower education levels. In the domestic market,
Chapter 3
123
TABLE NO: 3.9
HEALTH INDICATORS
Source: As of Table No. 3.1
Years
Birth
Rate
(per1000
)
Death
Rate
(per1000)
Infant
Mortalit
y rate
(per1000
live
births)
Life
Expectanc
y (years)
Hospital
Bed
1960-61 41.7 22.8 146 41.2 125000
1981-82 33.3 12.4 131 52.09 466677
1984-85 32.6 11.9 106 56.6 514989
1987-88 32.6 11.1 96 58.6 585889
1989-90 30.5 10.2 91 59 637604
1990-91 29.9 9.6 80 59 806409
1991-92 29.3 9.8 80 59.9 810548
1992-93 29 10 79 61 810548
1993-94 29 10 80 61 596203
1994-95 28.6 9.2 70 62 596203
1995-96 28.3 9 74 62 870161
1996-97 28.3 9 74 62 870161
1997-98 27.2 8.9 71 62.4 N/A
1998-99 26.4 8.9 69 62.9 N/A
Chapter 3
124
health spending will be sustained by two demographic trends: increased life
expectancy and an ageing population.
Life expectancy, which averaged 63.3 years in 2000-04, is expected to
increase to 65.1 years in 2005-09 and to 66 years in 2006-10. The proportion of
the population aged 65 years and over is also on the rise, and will increase from
4.7 percent in 2000 to 5.3 percent in 2005 and 5.8 percent in 2010. Although
the rate of ageing in India is slower than the developed world, the large
population makes any increase significant in terms of absolute numbers, and
therefore also in terms of market potential.
The contribution of the private healthcare sector is on the rise, with
investments from the corporate sector steadily growing since the mid1990s. In
the last few years a number of new players have entered the healthcare delivery
sector, and set up specialty and super speciality centers. In the government
sector, the States provide the bulk of healthcare.
3.5: CONCLUSION:-
The Indian pharmaceutical industry has made good progress during
the period under the study. Stages of growth reveals that this industry has
grown from being merely an import depend to emerge today as a self- reliant
industry. Today the Indian pharmaceutical industry is also making technology
based improvements and its strength lies in its competitive ability. In the early
period the Government policy was to protect the domestic sector from foreign
multinational companies and develop the public sector. However, in the 1970s
due to the introduction of New Patent Regime the domestic pharmaceutical
firms became more technology driven and this led to development of new cost
effective process and new drug developing systems also emerged. This
technological growth has led to growth of scientific managerial and general
skills in the pharmaceutical industry. The Indian pharmaceutical industry has
emerged today to be a major competitor in global market and is also in the
position to produce drugs at a cheaper price and this change in noticed during
the period under study.
Chapter 3
125
References:-
1 – Organisation of Pharmaceutical Producer of India, Annual Report-2006-07
and TIP Division, Ministry of External Affairs, Government of India 12/5/2007
2– Government of India, Economic Survey, 2006-07
3 – Organisation of Pharmaceutical Producer of India, Annual Report-1991-92
& 2006-07 and TIP Division, Ministry of External Affairs, Government of
India 12/5/2007
4 - Ibid
5 - http://www.naukrihub.com/india/pharmaceutical/overview/
6 -“India gears up for unprecedented manufacturing growth, in Pharma
Technologist.com, 8th August 2006
7- Cuts Drug Prices, Else Face Action, Paswan Tells Industry,” The Associated
Chambers of Commerce and Industry of Industry, Nov. 29, 2006
8 – Organisation of Pharmaceutical Producer of India, Annual Report-2006-07
and TIP Division, Ministry of External Affairs, Government of India 12/5/2007
9 - Nayar 1983Nayar, B.R. 1983. India’s Quest for Technological
Independence, Lancers Publishers,New Delhi
10 -Ajit Ranade and Gaurav Kapur, SECTORAL REPORT:
PHARMACEUTICALS INDUSTRY, 12 April 2001
11 - Key Statistics of pharma industry (2004). Retrieved on 20th October 2005
from http://www.indiaoppi.com/keystat
12 – Organisation of Pharmaceutical Producer of India, Annual Report-2006-
07 and TIP Division, Ministry of External Affairs, Government of India
12/5/2007
13 - Govindaraj Ramesh & Chellaraj.(2002), The Indian Pharmaceutical
Sector,Issue and Options for Health Sector Reform, World Bank Discussion
Paper No 437, Washington.
14 – Pradhan J.P, (2006), Global competitives of Indian Pharmaceutical
Industry: Trends Strategies, ISID, Working Paper No: 2006/05, June 2006,
P.17
Chapter 3
126
15 – (A) – Fergerberg J.(1987), A Technology Gap Approch to Why Growth
Rate Differ : Research Policy, 16 pp.87-99.
(B) - Verspangen.B.(1991), A New Empirical Approch to Catching Up or
Falling Behind, Structural Change and Economic Dynamics, 2 page – 359-380.
