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TRIPS and its impact on Indian Pharmaceuticals

“Nations have no permanent friends or enemies; they only have permanent interests.”

The innovations in a knowledge intensive sector are essentially a dynamic process. India’s stance at WTO has undergone a sea change. India being a founder member of WTO, acceded to the TRIPS agreement, and the product patent regime was reintroduced in India. The patent system is a social policy tool that aims to stimulate innovation. Internationally, patent protection is governed by the World Trade Organization (WTO) Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. TRIPS does not establish a uniform international law, but sets out minimum standards of patent protection that must be met by all WTO members. The significance of the new IP regime on pharmaceutical industry in India, the amendment to the Patents Act, 1970, in fulfilment of the obligation to comply with TRIPS. The Indian pharmaceutical industry, which had little technological capabilities to manufacture modern drugs locally in the 1950s, has emerged technologically as the most dynamic manufacturing segment in the Indian economy in the 1990s. It achieved a significant scale and level of technological capability for manufacturing modern drugs indigenously and cost efficiently to emerge as a major developing country competitor in the world market. Only after the emergence of TRIPS on the horizon, Indian pharmaceutical industry woke up to the challenges of new intellectual property regime. The Indian pharmaceutical industry became part of the knowledge industry consequent to TRIPS. India has had a unique position among the countries in the developing world for it has a strong generic pharmaceutical industry, which has been able to provide medicines at prices that were among the lowest in the world. Much of the credit for this development goes to the Patents Act that India enacted in 1970.

A successful patent policy of any developing country is one that strikes a clear balance between protecting the rights of innovators & services at affordable prices to the population. In a democratic country, like India, it is not easy to shift the policy against public interest. Earlier, India’s patent policy , in fact, protecting the interest of public more than that of the monopoly rights. After the TRIPS, India was in the difficult situation of protecting people’s interest on the one hand and fulfilling the WTO’s agreement of TRIPs on the other hand. Now the social cost of granting patent would obviously entail in monopoly. As a result, there will be a rise in price, accompanied by lower supply of quantity. So in the short run, it is true that consumer welfare will fall. Hence short run costs will have an adverse impact on society. TRIPS implementation in India and other manufacturing countries will effectively cut the lifeline of affordable drugs unless safeguard measures are implemented to prevent this. One danger in compulsory licensing is that it will discourage further the commercial R & D necessary to new drugs to fight global epidemics. Criticizing IPRs as monopoly power that would affect the growth and expansion of the health sector. However, the monopoly power in the short run would encourage more innovation and greater enthusiasm in research and development which would be beneficial in the long run. Patent is one of the IPRs which gives the inventor sole right to produce his property or license it to other producers. But misuse of this right is not desirable and it is not expected that patent holders would get into anti competitive ways such as ever-greening of patents, patent pooling etc.

But in the long run, intellectual property rights will result in more inventions, greater efficiency in production, better and useful allocation of scarce resources, and in turn the right spirit for competition towards invention and innovation. Be it a process patent or a product patent, it would help in efficient mechanism of production along with optimal utilization of scarce resources in the longer run. Though producer surplus increases under monopoly, consumer surplus is less under compared to perfect competition and there is a net deadweight loss in the former case. Moreover, we are usually more concerned about increase in consumer surplus than producer surplus as it is assumed that consumer surplus indicates better welfare situations.

Introduction of product patent is expected to impact Indian pharmaceutical market. It is true that there would be huge pressure on copiers and firms which work mainly based on the process of reverse engineering and reformulation of the latest drugs. But it is expected that Indian companies would work on Research and Development for innovation of newer drugs, at least for the diseases which concerns developing countries.

India has always been a treasure house of technically qualified people for the global research and knowledge driven manufacturing community. The post- TRIPS scenario further encouraged technical and legal professionals in pharmaceutical industry in India to incorporate IP/Patent practices in their knowledge up-gradation and work culture. Consequently, the post- TRIPS knowledge driven pharmaceutical research environment in India has encouraged pharma professionals of Indian origin to be part of the reverse brain-drain.

It is also a devastating development for many poor countries that rely on India as a source of affordable quality medicines. TRIPS allows countries to overcome patent barriers by issuing compulsory licenses or licenses for government use, which allow the production or importation of generic medicines without the consent of the patent holder. These policy tools are commonly used by developed countries, mostly in cases of anti-competitive practices.

Inventions precede innovations. Discovering a drug is not only considered as one of the premier intellectual pursuit of human endeavour, but also a hugely cost-intensive and high-risk process. Such a knowledge industry can bring out a useful medicine only on sustained efforts along the lines of understanding a disease process and its possible intervention strategy. Provision for protecting such intellectual property rights seems a prerequisite for drug discovery.

In a single country world the identity of the inventor is not of much concern. The transfer of consumer surplus from the consumers to profits which accrue to the producer will basically change the distribution of income and the overall welfare of the country will not be affected much. But in a multi country world, the static cost consists of not only the deadweight loss accruing to the economy, but also will have a strong bearing who is the patent holder. Though it creates a short term monopoly and loss in social welfare, but the long term benefits are enormous. the idea of making India compliant with TRIPS policy thereby attracting more foreign direct investment or multi-national corporations in this sector, needs to be looked into carefully.

The Amendment changes India’s position on TRIPS with respect to one main Issue. In keeping with its obligations under TRIPS, India will allow product patents for pharmaceuticals, unlike earlier when only process patents for the same were allowed. This is a huge blow for the generic drug manufacturers, as there are many Indian pharmaceutical companies that have thrived on the manufacture of cheaper versions of existing drugs. However, the bigger issue in this case is of access to essential medicines for the common man in India – the problem of public health.

Majority of the foreign pharmaceutical companies based in India spend much less than half of what an Indian company spend on R & D of the sector. India is a net exporter of pharmaceutical products, mainly generic versions with an export growth rate of around 4.5-5 percent and import growth rate of around 0.7 percent. So this sector needs proper regulation so that it can improve India’s balance of payment situation. Lastly, pharmaceutical sector needs to be a highly regulated sector not only in terms of price and quantity, but also in the way it functions. India being a 1.2 billion population country with a large chunk of people living below the poverty line, the Government should look into the abuse of patent rights and monopoly rights in this sector, because this sector is a vital priority sector.

About the Author
DSC00099 - CopySonal Gupta is pursuing her B.A. LLB from HariSingh Gour University. She is fond of reading and loves to write on various legal topics. She plans to serve her country through the eminent pillar of judiciary. She is currently pursuing her internship with Alexis Centre for Public Policy and International Relations.

One thought on “TRIPS and its impact on Indian Pharmaceuticals

  1. First I want to thank Sonal for such a baronial article.
    As we have seen GoI is playing on both side but mainly focusing on public intrest rather TRIPS. So can we say that TRIPS is showing neo-colonism intrest? What is the best way in such a situation that GoI will take so that its international relations didn’t get affected due to this ?

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