The Indian Pharmaceutical Alliance (IPA), which consists of 23 top domestic drugmakers, has recommended that, to address the issues potentially arising from reciprocal tariff plan by the US, India’s basic customs duties on medicine imports from that country be reduced to zero. This may sound curious because despite the substantial liberalisation of world trade over the last few decades, vast segments of Indian industry are still perceived to seek protection from imports. The US imports pharmaceutical formulations worth $9 billion from India annually, which is roughly a third of India’s total exports of these items. The highly lucrative nature of US market makes it very relevant and crucial for Indian drug-makers.
The fact, however, is that even the US would not be happy to block Indian drugs. Just 5.6% of the US’ annual pharma imports of $160 billion are from India, but the country accounts for roughly half the “branded generics” being sold there. Indian products are of acceptable quality, cost roughly half the global average, and enable the US consumers to cut their healthcare costs. As such, India has been consistently reducing import duties on lifesaving medicines, with most attracting nil or minimal levies. Anyway, rather than tariffs, cost incompatibility is what places Indian markets out of bounds for Big Pharma. So, the IPA’s suggestion is doable and pragmatic.
But the eagerness of leading Indian drug companies to accept tariff cuts for the US needs to be understood from another angle also. What is likely to hit them, rather than any further lowering of tariffs, is a possible liberalisation of India’s patent regime. Washington has been persistent with its demand that India must either remove or dilute the Section 3(d) of the Patents Act, which disallows patenting of “the mere discovery of a new form of a known substance”. India ushered in product patents in pharmaceuticals in 2005, yet patented drugs constitute barely 5% of India’s medicinal formulations market. Higher patent protection could jeopardise the extant business model of Indian companies, which have traditionally been adept in “reverse engineering”, with almost all off-patent drugs being manufactured in the country.
Restrictive norms apart, what is called by courts as “extremely arbitrary and whimsical” decision-making by patent authorities is also putting a lid on expansion of the share of highly-priced proprietary medicines in the Indian market. While this strategy may have kept drug prices in India from flaring up, it is highly restrictive of innovation, and serves as a disincentive for investments in fundamental drug research. Patent grants in India jumped eight-fold in five years to cross the 100,000 mark in 2023-24, but this is largely due to the practice of “global patenting”, and the preemptive “patent thickets” being created. A better indicator of the country’s “innovative stock” would be the share of patents granted to residents, which, in India’s case, is less than a quarter of total grants, compared with 87% for China.
While Big Pharma has turned risk-averse (new drugs pipeline is drying up), it is incumbent on Indian companies to raise R&D spend, especially for tropical ailments most prevalent in India, and other developing countries. Indian companies cannot be content with the slim opportunity of branded generics. A less restrictive patent regime is imperative for long-term growth of Indian industry. Reasonable price regulations and schemes to promote generic medicines would do well to safeguard the interests of low-income consumers.