Extracts from a speech by HR Khusrokhan, president, Organisation of Pharmaceutical Producers of India at its annual general meeting recentlyEven the greatest sceptics of liberalisation, when it commenced in July 1991, admit today that we have, since the opening up of the economy, witnessed unprecedented economic growth. Our GDP growth since liberalisation has averaged 5-6 per cent, versus the 1-2 per cent witnessed during the first 40 years post-independence. What is amazing is that we have managed this growth, despite the frequent changes of government, global/ regional economic crises and a recent war. However, the downside is that a GDP growth rate of 5-6 per cent, year on year, could make us complacent and that, in fact, there is really no room for complacency.
We may be the world's fifth largest economy (measured in terms of ppp adjusted GDP), but we also have a population of 1 billion, which is growing at around 2 per cent a year. Not only do we have one of the world's lowest Human Development Indices, in terms of per-capita GDP we are still very much in the last quartile of the world's economies. If we extrapolate the rate of growth of our GDP and the rate of growth of our population recorded during the 1990's over the next 10 years, even in year 2010 we will have the same per capita GDP as Thailand had in 1985 (ie, we will be where Thailand was 25 years ago!). Again, if we extrapolate our GDP and population growths over the last decade alongside the corresponding figures achieved in the US, it will take us 154 years to reach 50 per cent of the per capita GDP of the US population!
The challenge of liberalisation in the years to come is therefore to sustain (and in fact accelerate) both GDP growth and GDP growth per capita. To take Development Index. It is only when the focus changes to accelerating both realise the importance of further quickening the pace of change.
The task is not impossible, many countries have done it. The GDP per capita Singapore. Poverty has dramatically come down in these economies and the gap in their human capabilities as compared to the developed world has substantially narrowed.
How have they done it and are there lessons for us? The most telling Jeffrey Sachs of certain commonalities that he has discovered, empirically, in his model:
Speed: The countries that have liberalised quickly have grown faster. Speed at which the process is carried out determines the degree of success.
Economic policies: Commonalities found in countries that succeed were:
Policies that were outward looking versus inward looking Openness of the system to foreign trade Fiscal policy and high rate of government saving as a percentage of GDP High quality of government and industry interaction as evidenced by i. Low levels of corruption
ii. Robustness of the legal system
iii. Time spent by Government constructively with Industry
iv. Low risk of breach of contract by Government.
In the Global Competitiveness Report of the World Economic Forum for 1999, (issue July 13, 1999) the three lowest ranks India gets are with regard to (i) Openness, (ii) Labour and (iii) Infrastructure. Out of 59 countries surveyed, India gets a rank of 59 for Openness, 56 for Labour and 51 for infrastructure. Overall we are ranked 52 in terms of the competitiveness of our economy. The leader in the last issue of the Economist describes India as "the world's biggest under-achiever".
It will not take too long for a discerning and enlightened audience such as this one to realise where we are most lacking today and what the economic agenda of the next decade would need to focus on. A gradual consensus is emerging on "somethingneeds to be donw about long-term sustainable growth" and clearly the highest priority is enhancing the rate of investment. There are only two ways of stepping up investments substantially:
If the government is to invest, it will need to reduce the fiscal deficit, which today is placed at (Centre and states together) somewhere around 9 per cent of GDP. With a negative rate of governmental saving, long-term sustained economic growth will be impossible. Tough decisions will have to be made on items that drain government resources. Privatisation will have to be given the priority it merits and government may have to provide a social safety-net for job losses arising out of the closure of loss-making PSUs, but it cannot go on carrying those losses. Subsidies, both overt and hidden will have to be ended forthwith. Investments can also be funded by foreign direct investment. If FDI is to be attracted, we need to further open the economy and make India more competitive. How long can we remain content with just 0.7 per cent share of world trade?Here again, if we really want to spur investment, it will have to be a combination of both government saving and FDI - not just greater FDI. We must focus on improving our global competitiveness if the rate of progress is to accelerate further.
When our problems are viewed on this wider canvas we will begin to realise the breadth and depth of the term "national interest". National interest is not the preservation of past legacies of poverty and helplessness. National interest is spurring the growth of our economic development in order to alleviate poverty and helplessness.
Growth and progress of pharmaceutical sector
Abundant availability of medicines alone does not automatically guarantee access to medicines. Policies of the past have rarely spoken of "access" or "reach" of medicines. Access is a function of the country's national commitment to healthcare, to the creation of a health infrastructure, developing improved rural distribution channels, and eventually, the alleviation of rural poverty. The average rural per capita annual income in 1994 was placed by NCAER at Rs 4,485 and the proportion of total impact that better availability of medicines, alone, can make on the wider problems of healthcare become apparent. Perhaps the realisation is beginning that the need is not just a new drug policy but a new healthcare policy. This is a priority task and the government and industry will have to work together on this task.
Price control is important, but not when it becomes (in the words of our own finance minister) "counter-productive". The kind of price control system we have now had in the country for over 30 years is clearly "counter-productive" in many ways. To mention a few:
1. In a global context "quality" can no longer be just domestically passable but must become globally acceptable. Policies and practices that drive excessive price control or unrestricted entry into manufacture. If we are to globalise and have access to international markets there can only be one standard of quality. Dual standards are not only a disadvantage to the domestic consumer but also damage our ability to export.
2. Cost-plus pricing leads to disproportions in the prescription habits of doctors and the value of newer therapies is not appreciated. Cost of treatment to consumers can actually rise as the availability of price because they improve profit mix. Market forces and freer competition can eliminate many of these distortions.
Perhaps the greatest paradigm shift of all is the realisation that the creation of knowledge and innovation are vital to the future survival of protected. Indigenous capability for production must give way to indigenous capability for production must give way to indigenous capability for innovation and discovery. Laws and policies need to reward, recognise and protect those who innovate. Innovation will only occur when it can be funded through internally generated resources. If prices are unremunerative and profitability is under strain we will never develop capability for new drug discovery and development.
Policies of the future will therefore have to ensure a greater focus on the need for better quality and better standards of health safety and the bane of the pharmaceutical industry has been the inhibition of major policy change solely because a particular hurdle to growth is removed. Worse still, policies have over the years often been designed to "advantage" one stake-holder at the expense see this industry achieving its full potential.
Specifically, at this point when we are gradually moving to give an advantage to the research-based company and the generic company - not policies that smack of taking away from one to give to the other.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.