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Discuss the development of India's pharmaceutical industry.
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Business and Its Environment
Edition: 7th
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Indian patent law allowed patents on methods of production but not on products themselves. This allowed an Indian pharmaceutical company to produce a drug patented in Europe and the United States if it used a different production process. This spurred the development of a vigorous pharmaceutical industry in India, with many companies producing generic versions of patented drugs. With the adoption of the TRIPS agreement for the protection of intellectual property, India was forced to change its patent system to conform with the type of intellectual property protection found in Europe and the United States. This changed the incentives for Indian pharmaceutical companies, and some began to develop their own proprietary drugs.
As a result of its patent law, India's pharmaceuticals industry had some 5,000 pharmaceutical companies producing 20 percent of the world's generic drugs. One advantage of the pharmaceutical companies was that doctors tended to prescribe drugs using brand names, and pharmacists were prohibited from substituting another generic equivalent drug. In addition, pharmaceutical advertising was prohibited. These factors had three effects. First, they reduced competition among generics. Second, they provided incentives for pharmaceutical companies to market their drugs directly to doctors. Third, companies had an incentive to introduce generic drugs with brand names.
The size and growth of the Indian pharmaceutical market and the new patent protection provided under TRIPS attracted foreign pharmaceutical companies. Major global pharmaceutical companies began to acquire Indian firms.
The acquisitions raised concerns about the future development of the Indian health care market and about the prices of drugs. One policy alternative considered by the government was to restrict acquisitions, but that could signal to a resurgence of protectionism and spur a reaction from global financial markets that could reduce foreign direct investment. A more attractive alternative was to have all pharmaceutical acquisitions reviewed by the Competition Commission, the antitrust regulator.
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