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Asian Journal of Management Cases
DOI: 10.1177/097282010600300203
Asian Journal of Management Cases
Jayashree Dubey and Rajesh Dubey
Pharmaceutical Sector
the WTO Regime: A Comparative Analysis with Special Emphasis on the
Investment Opportunities in Madhya Pradesh Relative to Other Indian States in
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A
SIAN JOURNAL OF MANAGEMENT CASES, 3(2), 2006
S
AGE PUBLICATIONS NEW DELHI/THOUSAND OAKS/LONDON
DOI: 10.1177/097282010600300203
Lead Article
I
NVESTMENT OPPORTUNITIES IN MADHYA PRADESH RELATIVE TO OTHER INDIAN
S
TATES IN THE WTO REGIME: A COMPARATIVE ANALYSIS WITH SPECIAL
E
MPHASIS ON THE PHARMACEUTICAL SECTOR
Jayashree Dubey
Rajesh Dubey
The World Trade Organization (WTO) has set rules for international trade, with the
objective to provide maximum benefits to the consumers. One of its aims is to remove
trade barriers to international competition. The Organization is based on the principles
of free trade; predictability through binding and transparency; national treatment
(treating foreigners and locals equally); granting most favored nation status; dismantling
trade barriers, for example, removal of quota restrictions and tariff bindings; and
promoting fair competition. At the same time developed nations have used their power
while negotiating the rules of trade, and this has posed a great challenge to developing
countries. It can be claimed that the rules have been framed in a way which gives
opportunities to serve customers of the WTO countries. Only companies with a competitive
advantage can survive in the global arena, and this also applies to Indian industries.
Since the WTO prevents the use of subsidies and other protective measures,
the economic environment will change. This requires bringing major changes in the
business system in India. Under this system, the textile, food processing and leather
industries will benefit. Although there is confusion among the Indian pharmaceutical
companies at present, in this area also India can take the opportunity to grow. Madhya
Pradesh needs to create a welcoming atmosphere for these companies. This article
presents the economic conditions in Madhya Pradesh and discusses the reasons for
the backwardness. It makes a comparison of the industrial potential specific to the
pharmaceutical industry of Madhya Pradesh with other developed states in India.
Keywords:
Pharmaceutical industry, international trade, WTO, intellectual property
rights
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110 J
AYASHREE DUBEY AND RAJESH DUBEY
The Indian pharmaceutical industry is a success story providing employment for millions
and ensuring that essential drugs at affordable prices are available to the vast population of
this sub-continent
.
Richard Gerster
I
NTRODUCTION
WTO
As a successor to the General Agreement on Tariffs and Trade (GATT), the World Trade
Organization (WTO) came into existence on 1 January 1995. It marked an important
turning point for the world economy. The philosophy behind WTO is liberation leading
to the maximization of global welfare. The goal of WTO is to integrate world economies
by removing trade distortion resulting from different levels of input subsidies, price and
market support, export subsidy, etc. across countries. It embodies the rule of law in trade
relations and constitutes agreements and decisions that represent a movement towards
the liberalization of world trade. It is responsible for supervising the implementation of
agreements made in the final Uruguay round and settlement of disputes among the
members in implementing the agreement and to provide a forum for new negotiations
to promote world trade in goods and services. It is based on the principle of comparative
cost advantage, which ensures optimum utilization of world resources and enables consumers
around the world to choose the best-quality goods at affordable prices (Basavaraja
2003). In the absence of a regulatory mechanism for multilateral negotiations, a nationalistic
behaviour of trade policy adopted by all the trading partners tends to result in a
war-like situation in imposing tariffs, providing subsidies, indulging in dumping activities,
retaliating by countervailing duties, and so on. This necessitates uniform laws on trade
transactions. In addition to GATT-47 and a series of understandings that amend GATT-47,
there are two new sectors in the GATT–WTO system. These are as follows:
1. Services trade under the Agreement on Trade in Services, and
2. The protection of Intellectual Property Rights under the Agreement on Trade-Related
Intellectual Property Rights (TRIPS)
As a member of the WTO, India can save precious human and monetary resources on
negotiations, as it will automatically avail the title of the Most Favoured Nation (MFN)
and receive national treatment for its exports to all WTO Members. In fact, India has already
started realizing the benefits of the WTO regime. There has been a significant gain
in trade to India under the WTO. Export increased to US $44.2 billion in the year 2000
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NVESTMENT OPPORTUNITIES IN MADHYA PRADESH 111
from US $30.63 billion in 1995. Although almost all the sectors will be influenced by
globalization, the Indian pharmaceutical sector will undergo a major change once the
provisions of the WTO are implemented in totality. Dubbed as the darling of the Indian
stock market, this sector has outperformed all expectations.
I
NDIAN PHARMACEUTICAL SECTOR: IMPENDING CHALLENGES
The story of the emergence of the pharmaceutical sector started in 1959 when, at the
recommendation of Justice Rajgopala Ayyangar, the committee advocated constituting a
patent act to bring down the cost of drugs in poverty-stricken India. The resulting Indian
Patent Act of 1970 led to a rapid growth of the pharmaceutical sector. Today India has a
very healthy pharmaceutical sector, which not only caters to the domestic needs but has
also started offering its low-cost but quality products to developed nations. India is one
of the largest pharmaceutical markets in the world by volume and ranks amongst the top
fifteen by value. The domestic pharmaceutical sales have increased from Rs 4 billion
in 1970–71 to Rs 214 billion in 2002, at a CAGR of 19.8 per cent per annum (ABN-AMRO
sectoral report 2003). Total Indian production constitutes about 1.3 per cent of the world
market in value terms and 8 per cent in volume terms
. Pharmaceutical exports have been
earning a net foreign exchange since 1989. The industry produces about 60,000 finished
medicines and roughly 400 bulk drugs used in formulations. It is no wonder that the
industry is capable of meeting about 70 per cent of the domestic requirements of bulk
drugs and almost the entire demand for formulations. This has led to the availability of
the latest therapeutic moiety to Indian patients at an affordable price. The per capita
consumption of drugs in India stands at US $3. This is amongst the lowest in the world,
as compared to Japan’s US $412, Germany’s US $222, and USA’s US $191 (Source: http://
www.indiainfoline.com/phar/phma.html).
This growth is a result of the Indian Patent Act 1970, which recognizes only the process
patent as opposed to the product patent that developed countries have. To launch a
new drug, big pharmaceutical MNCs like Bayer, Eli Lilly, Astrazeneca, Glaxo, etc., needed
to spend billions in research work spanning several years, but all it took to launch a drug
in the Indian market by Indian companies was a few months to carry out reverse engineering
to find a process. Indian pharmaceutical companies kept making huge profits without
investing anything in basic R&D activity.
With the inception of the WTO, one of the most controversial issues of the Uruguay
round of negotiations, TRIPS, came into force. TRIPS has recognized that intellectual property
rights are private rights under which the creative work of the human mind is protected
through various measures. The agreement recognizes five types of intellectual property:
patents, industrial designs, trademark, copyright, and trade secrets (Ganguly 2002). TRIPS
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AYASHREE DUBEY AND RAJESH DUBEY
ensures that pharmaceutical companies maintain a twenty-year patent on their products
and guarantees exclusive marketing rights (Munjal 2001). Protection will be available for
all inventions, under which only the inventor can market the product. Only the patentee
or his/her assignee or licensee will be able to market the product commercially in
countries where the patent is valid (Mubashir 2003).
In its present form, the TRIPS agreement is tipped too far in favour of multinationals
and developed nations. It is a fact that development takes place by imitation. Most developed
countries (including Japan and the United States) themselves grew by freely
copying products invented elsewhere. Today, they want to deny this right to developing
countries in order to preserve their supremacy.
According to Article 27 of TRIPS, members are obligated to provide patent protection
for any invention, whether product or process, in all fields of technology without discriminating
on the basis of the place of invention or production or field of the technology.
Article 65(4) inter alia provides that developing countries may delay up to ten years the
extension of patent protection to pharmaceutical or agricultural chemical inventions, if
it did not presently give product patent protection to them. India would grant product
patent recognition to all New Chemical Entities, that is, bulk drugs developed from then
on (Verma and Singh 2002). By the year 2005, India would be committed to amend its
patent law to recognize product patent. With this, it will be difficult for Indian pharmaceutical
companies to repeat their past success stories (ABN AMRO 2003).
D
EVELOPMENTS IN THE GLOBAL PHARMACEUTICAL INDUSTRY
The pharmaceutical industry worldwide is facing a significant challenge in its goal to
deliver and maintain a high level of performance. Historically, pharmaceutical innovation
has been firmly rooted in research in pursuit of first-in-class products for new identified
targets. However, recent trends of very few new hits and a high number of associated
adverse effects challenge the view that investment in this type of innovation will solve
the productivity gap. The problem is compounded by the fact that the new targets have
significantly lower success rates in every phase of the drug discovery process. Overall,
only 3 per cent of the projects based on new targets are likely to enter preclinical development
in comparison with 17 per cent of projects based on established targets.
In addition to the decreasing productivity of research-based companies, there has been
a very dramatic change in the global pharmaceutical scenario. The major factors that
have contributed to this wave of change are the Hatch-Waxman Act in the United States,
implementation of GATT provisions (especially patent provisions) and the drying pipelines
of major global pharmaceutical firms. Faced by these challenges, pharmaceutical firms
across the globe are embracing different strategies for their growth. These strategies can
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NVESTMENT OPPORTUNITIES IN MADHYA PRADESH 113
be classified mainly into two categories: (
a) in-licensing of pipeline candidates and
(
b) enhanced focus on the generic sector.
1. In-licensing of pipeline candidates:
The decrease in the R&D productivity of the research-based companies like Pfizer,
Novartis, and AstraZeneca has forced them to look to other companies that are excellent
in drug discovery activities but lack sufficient funds for expensive clinical development
of the potential molecule. Here these companies either buy exclusively the potential
molecules (also called leads) or develop the molecules in collaboration with other firms.
There have been several high-profile in-licensing deals. Some prominent and
recent examples are as follows:
I Pfizer acquired Warner Lambert to get exclusive rights for Atorvastatin, the molecule
that contributed about 21 per cent of the total annual sales (almost $11 billion
in 2004) of Pfizer.
II Novartis has gained exclusive rights from Schering AG to develop Vatalanib, an
oral angiogenesis inhibitor for the treatment of macular degeneration.
III Arena Pharmaceutical has signed the biggest biotech/pharmaceutical collaboration
agreeing to develop oral diabetes treatment with Ortho-McNeil Pharm
(part of J&J) in a deal valued at more than $600 million.
2. Enhanced focus on generic growth.
The introduction of the Hatch-Waxman Act in the United States in 1984, the most
lucrative market for pharmaceutical firms, opened the way for non-innovator companies
to manufacture and sell the products which are equivalent (or copies) to products of
innovator companies, provided the product is approved by the federal regulatory agency,
the USFDA. Under this act, two routes existed to introduce generic products in the market:
one was to get “abbreviated new drug application” (ANDA) for drugs that were about to
go off patent and launch the drug soon after patent expiry. The other route—riskier and
hence more profitable—was to file a challenge to the innovator’s patent. Generic players
like Teva, IVAX, Ranbaxy, and Dr Reddy’s Laboratories (DRL) have adopted both the routes
to get a larger pie of the market share. The strategy has been immensely successful, with
many of the generic players including Indian firms like Ranbaxy becoming billion-dollar
companies by earning a significant part of their profits exporting generic products to developed
markets, mainly the United States.
The aggressive onslaught of the generic players has forced the innovator firms to devise
strategies to tackle the eroding profits and falling market share. Innovator firms like
Novartis and Pfizer have aggressively acquired big generic players to take advantage of
the latter’s skills and existing pipeline of generic products. While Novartis acquired Sandoz,
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AYASHREE DUBEY AND RAJESH DUBEY
Pfizer acquired IVAX and Eon Labs. Recently a new concept of “authorized generics” was
adopted where innovator firms give rights to a selected generic firm to market their product
as a generic product and in this way give other generic firms a run for their money.
There are certainly going to be further changes in this sector as fierce struggle continues
between the generic and innovator firms to gain a larger share of the market.
P
HARMACEUTICAL INDUSTRY IN INDIAN STATES
It is estimated that the total number engaged in the pharmaceutical units (including loan
license) is 24,000 (Palanichamy and Sundaram 2003), of which 300 or 1.2 per cent belong
to the organized sector and 23,700 belong to the small and medium sector (GITCO 2000).
The Indian pharmaceutical sector is also heavily skewed in terms of its ownership structure.
The large- and medium-scale firms comprise well-established MNCs and the organized
sector of the Indian drug manufacturers. There are approximately 50 pharmaceutical
MNCs operating in India. Majority of the pharmaceutical units are located in Gujarat,
Andhra Pradesh, Maharashtra, Tamil Nadu, Punjab, Haryana and West Bengal (UNIDO
2001). Although there are no official statistics that tell the exact volume of industrial production,
as per the industrial sources, about 70 per cent of the total production is contributed
by the loan license firms. Although TRIPS has created panic among the Indian
pharmaceutical companies, a survey shows that India stands to benefit since only
10 to 15 per cent drugs may be affected by the patent bill. The fear that the developed
world’s adopting a hard patent regime will adversely affect the Indian drug industry is
daily being disproved as witnessed by the growing collaboration between Indian and
foreign drug companies.
N
EW BUSINESS OPPORTUNITIES
The big question for small-scale industries in the pharmaceutical sector is what will
their core areas be in the patent regime. There is not much time left till India opens its
borders to mammoth MNCs with deep pockets who can do what Unilever and P&G have
done in the FMCG sector, where no Indian company has emerged as a truly multinational
company. The best strategy is to identify areas where we can utilize optimally our limited
resources and manpower. New areas emerging in the pharmaceutical sector are contract
research, contract clinical research, contract manufacturing, loan licensing, co-marketing,
etc. Secondly, it is good that ayurvedic medicines are kept outside the purview of Dunkle.
According to the WHO, as much as 80 per cent of the world’s population relies on traditional
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NVESTMENT OPPORTUNITIES IN MADHYA PRADESH 115
medicine. With increased concerns about rising healthcare costs, some governments are
encouraging the use of medicines rather than expensive imported drugs (Rajasekharan
2002). Since many nations are trying to patent their medicines introducing new terms,
India should take strong steps to protect her rights. Currently India’s share in the global
traditional medicine market is only 5 per cent and there exists enough scope for increasing
its share from the present level of Rs 40,000 million (Rajasekharan 2003).
Outsourcing of production in the areas of formulation and herbal products will create
extraordinary opportunities for Indian companies. The cost of setting up a facility in India
is about 40 per cent lower than in the developed countries (Patel 2001). Table 1 shows
the potential of the emerging fields.
Table 1
Potential of the Emerging Areas in the Pharmaceutical Sector
Emerging areas Expected market size
Generics in regulated markets US $45 bn
Contract research and custom manufacturing US $20 bn
Clinical research outsourcing US $10 bn
Source:
India Infoline.com.
India could emerge as a world-class R&D centre given its large manufacturing base for
active ingredients and other intermediaries, in addition to a large pool of talented and
inexpensive technical manpower and low cost of research. In fact, many Indian pharmaceutical
companies, for example, Ranbaxy, DRL, Wockhardt, that were previously purely
generic players have started focusing on new drug discovery research. Some of the molecules
like Balaglitazone (DRL) and TRC-4149 (Torrent) have entered the clinical phase
of study and hold the promise to become blockbuster drugs. Many companies have instituted
sub-sidiaries that are working as contract research organizations. This includes Astron
Research Centre (promoted by Intas Pharma) and Bio Arc solution (promoted by Alembic).
These organizations get contract research from big Indian companies or companies in
other countries, including those in the United States and the United Kingdom. The phenomenal
growth in the concept of contract research is an opportunity for the small and
medium enterprises (SMEs) with niche expertise to service large corporations dealing
with advanced technology. The activity that involves development of a product takes
around a year. Another very profitable business opportunity that has emerged in the
last few years is preparing Common Technical Documents (CTDs). This is basically an
outsourcing activity where the outsourced company checks the feasibility of the production
of a product. Once the feasibility is checked, companies receive the order for the
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production of the product. Many companies, including the big pharmaceutical com-panies,
are trying to grab the opportunity. Clinical research is another very big opportunity. The
study involves checking the therapeutic and toxic effects of new drugs on human beings.
It also involves checking if a dosage form is bioequivalent to other formulations of that
drug in the market. Indian companies are better positioned for this business model because
of easy availability of human subjects for clinical trials and sound scientific knowledge
in this activity. The cost could be lower by as much as 75 per cent when com-pared to
that in developed countries (Patel 2001). Spurred by these advantages, the CRO sector
has witnessed a sharp increase in the number of organizations offering clinical ser-vices.
Some examples include Quintiles, Lambda, ClinInvent, and Oscar Research, a division of
SRL Ranbaxy.
In fact, many organizations have taken concrete steps in this direction. A lot of companies
have acquired firms having regulatory approval in other countries so as to get
easy access in the developed countries. Table 2 shows some of the recent acquisitions
made specifically with the aforesaid purpose.
Table 2
Acquisitions by Indian Pharmaceutical Companies
Acquired Company Acquired By
Alpharma, France Zydus Cadila
RPG Aventis, France Ranbaxy
Basics, Germany Ranbaxy
CP pharma, UK Wockhardt
Klinger, Brazil Glenmark
Synthon chiragenics, NJ, USA Suven Pharma
The generic market is also going to explode as many blockbuster medicines go off patent
in the coming years (Figure 1). The generic market will increase to 90 per cent in
the period 2005–2010 after the introduction of product patent in 2005 and it will fall from
90 per cent to 75 per cent of the pharmaceutical market in 2015; ultimately the rate may
settle at around 65 per cent of the generic version (Palanichamy and Sundaram 2003).
This is the area of most hectic activity as every firm is trying to get a share of the market.
However, to be eligible to grab a share of emerging opportunities, companies not only
need manpower and infrastructure but, more important, regulatory approval. Regulatory
approval is given by the regulatory agencies of different countries after the team inspects
and successively approves the facility for the desired activity. This is not so easy, and
especially when companies are used to carry on business even without basic good manufacturing
practices (GMP) approval.
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NVESTMENT OPPORTUNITIES IN MADHYA PRADESH 117
I
NDUSTRIAL POTENTIAL IN MADHYA PRADESH: A COMPARATIVE ANALYSIS
The industrial potential of any place depends upon the availability of factors of production
and government support. The factors considered here to evaluate the industrial capacity
of states are as follows:
• Power
• Manpower
• Transport facility (roads/railways)
• Geographical area
• Population density
• Plan layout allocation
Other factors which carry high importance are the raw materials and the market. As the
level of importance of both the factors is highly fluctuating across various industries, it
has not been considered for evaluation in the present study.
M
ETHOD
Eleven states are compared on the basis of these factors to determine the relative potential
of Madhya Pradesh for being a preferred destination for industrial investment. To have a
fair view of the potential, care has been taken to select relatively well-developed states
Figure 1
Number of Drugs Going off Patent in Coming Years
2004 200
6 2008 2010 2012
0
1
2
3
4
5
6
7
8
9
10
No. of drug
s going off patent
Year
drug
s going off patent
Source:
India Infoline.com.
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AYASHREE DUBEY AND RAJESH DUBEY
as well as those considered semi-developed or underdeveloped. Each state has been
ranked separately for each of the five selected factors. A state with the highest value of a
variable was assigned the first rank, while the state having lowest value of the variable
was assigned the last (eleventh in the present case) rank. To calculate the overall potential
of each state for industrial development, arithmetic average of ranks for each factor has
been taken. All the factors have been given equal weightage as different factors carry
different importance for different industries. So the factors have not been differentiated
while calculating the overall potential of the states. Secondary sources have been used to
collect information on the availability of factors considered. Most of the secondary data
were collected from Yearbook-2003 (
Encyclopaedia Britannica and The Hindu), Chennai.
All calculations were carried out using MS Excel (MS Windows 2000).
R
ESULTS AND DISCUSSION
The relative position of Madhya Pradesh in comparison to other states with respect to
each of the five selected factors is shown in Table 3.
Table 3
Rank of Madhya Pradesh in Industrial Investment
in Comparison with Other Selected States
Factor Rank Comment
Power 5 Average
Manpower 4 Average
Geographical area 2 High
Transport (roads) 3 High
Transport (railways) 2 High
Overall rank 3 High
Note:
1–3: high; 4–8: average; 9–11: poor.
The relative position indicates the tremendous potential of Madhya Pradesh for faster
industrial growth. It was the first state in the country to abolish octroi and to go into fiber
optics technology and also the first to develop a toll road, opening up infrastructure development
to the private sector. In the following section, Madhya Pradesh has been compared
with other Indian states with respect to each of the various selected factors separately.
Power
The rank of Madhya Pradesh is fifth in both power generation and per unit power consumption,
as can be seen in Figures 2 and 3 respectively.
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NVESTMENT OPPORTUNITIES IN MADHYA PRADESH 119
Figure 2
Total Power Generation in Indian States (2002)
0
10
20
30
40
50
60
Andhra Pradesh
Bihar
Gujarat
Haryana
Karnataka
Kerala
Madhya Pradesh
Maharashtra
Rajasthan
Uttar Pradesh
States
Power generation (bn kWh)
Figure 3
Per Unit Power Consumption in Indian States (2002)
0
200
400
6
00
800
Andhra Prade
sh
Bihar
Gujarat
Haryana
Karnataka
Kerala
Madhya Prade
sh
Mahara
shtra
R
ajasthan
Uttar Prade
sh
S
tates
Power con
sumption (kWh per person)
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AYASHREE DUBEY AND RAJESH DUBEY
The overall power production in Madhya Pradesh is 20.56 bn kwh, almost one-third of
that in Maharashtra (55.63 bn kWH). A similar condition exists for per unit power consumption.
Per unit power consumption in Madhya Pradesh is 398 kWh, almost half of
that in Gujarat, which has the highest per unit power consumption (724 kWh).
Manpower
Another important constituent of industries is manpower (both skilled and unskilled).
Availability of capable manpower reflects industrial success. In the present case, the
availability of skilled manpower has been derived in terms of the number of universities.
Madhya Pradesh ranks fourth among the eleven selected states (Figure 4).
Figure 4
Number of Universities in Indian States (2002)
0
10
20
3
0
Andhra Prade
sh
Bihar
Goa
Gujarat
Haryana
Karnataka
Kerala
Madhya Prade
sh
Mahara
shtra
R
ajasthan
Uttar Prade
sh
S
tates
Number of Univer
sities
There are seventeen universities in Madhya Pradesh. Almost all offer engineering,
management, pharmacology and other technical and professional courses. The faculties
in most of the private institutes are working at smaller salaries or are going out of the
state for jobs. This is eroding the quality of education. However, due to less or underdeveloped
industrialization, the state cannot offer enough job opportunities to university graduates,
and therefore capable manpower get diverted to other states offering better job
opportunities.
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NVESTMENT OPPORTUNITIES IN MADHYA PRADESH 121
Geographical Area
The geographical area of Madhya Pradesh is very high, with low population density. It
indicates easy availability of land. In fact, Madhya Pradesh ranks second in terms of geographical
areas among various selected states (Figure 5). There are large numbers of industrial
areas in various districts. The cost of prime land is among the lowest in the country.
Madhya Pradesh also has a special economic zone (SEZ) in Indore, which provides various
benefits to the industries located there.
Figure 5
Geographical Area of Select Indian States
0
50,000
100,000
150,000
200,000
250,000
3
00,000
3
50,000
Andhra Prade
sh
Bihar
Goa
Gujarat
Haryana
Karnataka
Kerala
Madhya Prade
sh
Mahara
shtra
R
ajasthan
Uttar Prade
sh
S
tates
Geographical Area (
sq. km)
Despite the high availability of land and designated industrial areas, inadequate facilities
for industrial growth and factors of production are a hindrance to investors.
Transportation
As shown in Figures 6 and 7, in terms of road length, Madhya Pradesh stands third after
Maharashtra and Uttar Pradesh, whereas in terms of railways it is next only to Uttar Pradesh.
Although the length of roads and railways indicate available transportation facilities, because
the condition of the roads is extremely bad, transportation facilities can be termed
poor.
There is also a dry port in the city of Indore.
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Figure 6
Railway Length in Indian States (2002)
0
2,000
4,000
6
,000
8,000
10,000
Andhra Prade
sh
Bihar
Goa
Gujarat
Haryana
Karnataka
Kerala
Madhya Prade
sh
Mahara
shtra
R
ajasthan
Uttar Prade
sh
S
tates
Road Length (km)
Transportation is one of the essential factors in selecting the location of the plants.
Again Madhya Pradesh is lagging behind many states in attracting industries. In addition
to this, fewer airports, low frequency of flights, and the absence of international airport
are factors negatively affecting industrial development.
Investment by Pharmaceutical Companies
As stated in the initial section of this article, there is a huge opportunity for the Indian
pharmaceutical sector under the WTO regime. In fact many pharmaceutical majors have
recognized this and have already started expanding and upgrading their facilities to worldclass
standards to get the approval of regulatory agencies of other countries. Table 4 indicates
the extent of spread of major pharmaceutical companies.
The table indicates the total absence of many well-established companies in Madhya
Pradesh. In fact, companies established in Madhya Pradesh have preferred to improve
the infrastructure in other states (e.g., Lupin has shifted its R&D to Pune). Schedule M
has been revised per the WHO standards for the pharmaceutical companies, which
necessitate the pharmaceutical companies to update their manufacturing and R&D facilities.
While some companies have upgraded their infrastructure to world-class levels and
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NVESTMENT OPPORTUNITIES IN MADHYA PRADESH 123
have started investing substantial money in R&D, most of the medium and small firms
kept going unaware of the impending crisis. As of now, only eleven pharmaceutical companies
in Madhya Pradesh comply with the WTO standards. This indicates the huge opportunity
for the state to attract investment by pharmaceutical companies.
Table 4
Investment by Major Indian Pharmaceutical Companies:
Indian States (In Terms of the Number of Plants)
Pharmaceutical Company Plant in Madhya Pradesh Total Plants in India
Ranbaxy 1 6
Cipla None 10
Sun Pharma None 4
Torrent None 2
IPCA 2 5
Cadila Healthcare None 2
Lupin 1 6
Source:
Companies Websites as on March 2005.
C
ONCLUSION
The overall position of MP is third among various selected states in having the potential
for attracting investment. But the actual scenario is totally different. Besides having a
sound potential to be an industrial hub of the country, it is a prominent member of
bimaru
state (underdeveloped despite having the potential). The tragedy is that these
factors that have stunted the growth of the state come to be now more used for wooing
votes rather than being a concern for drawing the strategists of the industrialization of
the state. They are the reasons political parties lose elections, due to BSP, which stands
for
bijli (electricity), sadak (roads) and pani (water).
Although in terms of overall power generation as well as per capita power generation,
Madhya Pradesh stands fifth among the sample states, there is a huge gap between demand
and supply. This needs to be reduced. The main reason behind the failure in meeting the
demand is the losses incurred by the Madhya Pradesh electricity board due to power
theft. This may be arrested by
1. Reducing the commercial rate of electricity
2. Giving tax exemption on electricity expenditure
3. Providing cheap credit to companies, especially SMEs, for setting their own electricity
generation plants
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4. Instead of state control, the electricity department should be controlled by the central
government, with transparent rules for sypplying electricity from surplus states
to deficit states, thus removing any political influence over critical issues.
Sufficient money has been allocated for the development and maintenance of roads in
Madhya Pradesh. Care needs to be taken that the money is used honestly and for the
intended purpose. Some of the burden for developing roads should be transferred to the
users. The users may be charged pocket-friendly toll tax. While planning roads, special
care should be taken to reduce the distance between places. Although the Panchayat system
has been started for the purpose of focusing on rural development, it is not serving
the purpose. Perhaps it has added one more link to a deep-rooted bribery system in the
Indian bureaucracy. This needs to be checked.
There is also a need to develop a strong cluster, so that companies may get mutual
benefit in terms of cheap raw material through backward integration, credit guarantee
schemes, technical knowhow, contract manufacturing, and research. For this a special
team should be formed that will ensure coordination among local companies so they can
benefit from mutual support. Extension of technical and management support to companies
should be made mandatory for the academic institutes, and they should be made
accountable for that. Clusters and coordination with technical and professional institutes
has played a great role in the success of pharmaceutical companies in Gujarat.
The Agreement on Sanitary and PhytoSanitary Measures and Non-trade Barriers necessitates
pharmaceutical companies to follow GMP and new schedule M to avoid rejection
from developed countries. The Government needs to make a special taskforce to study
the problem areas in adopting schedule M by large enterprises and SMEs and help them
in implementing new schedule M. Some incentives should be given to big pharmaceutical
companies to encourage support to pharmaceutical SMEs in infrastructure development
and to pass on some manufacturing and research activities to SMEs to help them survive
in the tough times to come.
Information and Sensitizing Centre:
Many small organizations are headed by a single
man and are unaware of the WTO and its implications. WTO information centres should
play an aggressive role in spreading the information by organizing workshops and seminars
at places convenient to the target audience. Also it should be made mandatory for at least
two to three persons of each company to attend it. TRIPS being very complicated, there
is a need to develop many information and facilitating centres to provide knowledge
about the filing of patents.
Madhya Pradesh should also take the initiative to form an organization like the Federation
of South Indian Pharmaceutical Manufacturers Association (FOSIPMA). FOSIPMA
was initiated by the secretary of the Pharmaceutical Manufacturers’ Association of
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NVESTMENT OPPORTUNITIES IN MADHYA PRADESH 125
Tamil Nadu, Sethuraman, along with Lakshmi Narayanan, honorary secretary of Alathur
Pharmaceutical Manufacturers Association, Tamil Nadu. On its invitation, Kerala,
Karnataka and Andhra Pradesh offered to join the Federation in March 2003. The Federation
was formed after completing the memorandum and byelaws and FOSIPMA was
formerly launched on 27 June 2003. The objectives of FOSIPMA are
• To bring together small, medium and large pharmaceutical industries of South India;
• To have frequent interactions to support each state’s activities;
• To represent to the government or trade, particularly All India Chemists and
Druggists Associations, and resolve industry problems and
• To deliver the latest information on central excise, VAT, sales tax, regulatory affairs,
new products and other relevant information to the industry.
Madhya Pradesh possesses every ingredient for success but one—vision and firm
planning, executed with equal firmness. Which goals should Madhya Pradesh have met
by now, and where does it actually stand? There is a need to think beyond agriculture
and other traditional businesses. Madhya Pradesh should accept the reality that it could
not capitalize upon the emergence of the IT industry. The state needs to improve the
missing factor in adequate infrastructure, and carefully plan the next move instead of
simply planning to do what has already been done by other states. There is no dearth of
opportunities. If it was IT in the last decade, it is going to be pharmaceuticals and biotechnology
in the years ahead. Simply constructing a Technology Park will not help. Madhya
Pradesh needs to take business empires in confidence to make it a favourite destination
for foreign direct investment and big muscles of Indian business. It needs to spur the existing
industries to grow by being sensitive to their concerns and recognizing their hurdles.
The state needs to take revolutionary steps, such as putting ministers with the required
mindset in office. Such examples have already been set by the central government. Performance
of the ministers and each person involved in such jobs should be critically
evaluated. The idea should not be to mimic other states but to do what suits MP the best.
Please address all correspondence to Jayashree Dubey, Institute of Public Enterprise, Osmania
University Campus, Hyderabad, India and Rajesh Dubey, Dr Reddy’s Laboratories, Hyderabad,
India. E-mail addresses: joyss72@yahoo.com and rajeshrrd@yahoo.com
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