India: the world's next knowledge superpower

Over the past decade, India has been on the cusp of a knowledge revolution that would launch it into the 21st century as a global competitor. Yet for more than 35 years, the country has been mired in poverty and sputtering economic growth that has largely failed to trickle down to the poorest populations. In 1970, then Indian Prime Minister, Indira Ghandi, said that there should be no "profiteering from human life or death", which then prompted the government at the time to eliminate product patent rights, including those for medicines.

Far from alleviating Indians from the diseases of poverty, the health of the poorest proceeded to deteriorate. Yet with the recently passed new patent law, putting India in compliance with WTO requirements, Indians have been given new hope.

Patents provide a short period of exclusivity to the entrepreneurial innovator of a product, which acts as an incentive to invest in high value-added research and development (R&D). This is particularly important in the context of pharmaceutical products, which can cost hundreds of millions of dollars to develop, but can be copied for pennies. The new Indian legislation now provides important incentives to companies to develop new drugs for India's myriad diseases.

The improved legislation protecting private property is already showing signs of stimulating long-term economic growth, creating more high quality jobs and attracting foreign investment. But more importantly for India's poor, these companies are beginning to develop new medicines for the diseases that most directly affect them.

Despite all this, there still remains strong objection from self-styled health activists, who are part of a long running campaign by anti-capitalists who oppose all forms of intellectual property. One of the central claims of this movement is that the patent law will switch off the world's greatest source of cheap medicines, because Indian generics companies will no longer be able to copy vital medicines that are on-patent elsewhere.

But this claim is bogus. Of the medicines that Indian generics firms produce, 97 per cent are off-patent anyway, so the law will affect, at most, 3% of all drugs produced in the country. Moreover, fewer than 2 per cent of the medicines on the World Health Organisation list of essential medicines are currently on patent, so it is simply not possible that the new Indian patent law will have a significant impact on access to medicines in other parts of Asia and Africa.

The unfortunate reality is that even with at least 9,000 Indian copy firms pumping out cheap off-patent medicines, access to medicines still remains desperately low in parts of these regions. This suggests that there are far more serious problems at play here besides IP rights.

The other common claim made by anti-IP activists is that countries should be able to develop their own commerce by copying other people's innovations. But, this argument for "infant industry" protection simply doesn't wash. Where it has been tried, it has often resulted in the opposite of what was intended, with local industries producing cheap copies but doing no innovation and hence fostering industries of limited value.

India is a case in point. There, the pharmaceutical sector, "protected" from foreign competition by import restrictions and an absence of product patent protection, has produced very few new chemical entities. By contrast, the IT industry, whose products are protected by copyright, but are still subject more or less to the full force of competition, has boomed, producing billions of lines of code for local and foreign companies.

The pharma industry in India, now valued at $9 billion, is expected to expand to $25 billion by 2010, according to Mckinsey and Co. Dr. Swati A. Piramal, director of the Piramel Centre is an advocate of the potential brought about by these legal changes. "Indian companies are no longer going to be just copy cats. We want to take our rightful place at the head of the table with the developed nations." As an indication of the increasing domestic priority on research instead of copying, local firms had already invested more capital into R&D under the expectation of the patent bill passing - the number of patents filed by Indian companies in the fiscal year ending March 2004 rose from virtually none to 855. That figure is sure to rise higher as new research facilities are built and the challenges of rapidly expanding markets are met.

The recent changes in intellectual property law are already stimulating Indian firms to research and develop drugs for diseases that predominantly affect the local population. For instance, the company Nicholas Piramel has recently opened a $20 million research and development centre in Bombay to carry out basic research in a wide range of disorders, ranging from cancer to malaria, which is contracted by at least 600 million people, predominantly in poor countries, including India.

Ranbaxy, India's largest pharmaceuticals company, and Dr. Reddy's are also pursuing similar R&D projects. India currently has the largest number of approved pharmaceutical manufacturing companies outside the US, and has increased spending on R&D from 4 per cent, five years ago, to 8 per cent.

The change in patent law is also attracting significant investment from abroad. Multi-national pharmaceutical companies such as Merck and Bristol-Meyers Squibb now see India as a prime location for establishing research facilities. India is an attractive option not only because of lower basic costs, but also because of the many well educated researchers that can reliably conduct quality capital-intensive clinical trials and more complicated forms of later stage drug development.

The management consultants McKinsey estimate that by 2010, US and European pharmaceutical companies will be spending $1.5 billion annually in India on clinical trials alone.

Many Western firms are also seeking to partner with local expertise - Danish-based Novo Nordisk is the latest example, having collaborated on a venture with Dr. Reddy's to create a new treatment for diabetes. Japanese firms have also expressed interest in investing substantial sums into Indian R&D projects. Instead of imposing prohibitive barriers, as it once did, the Indian government has been actively courting these foreign investments by providing incentives, such as a ten year tax break to pharmaceutical companies involved in research and development.

Such developments mean that an Indian firm may well develop a vaccine for malaria or improve current tuberculosis therapies, resistance to which contributes to the deaths of over 1,000 people each day in India alone. Investments are even going into R&D for a vaccine for HIV/AIDS. Human trials are underway for the second preventative HIV vaccine candidate India has produced.

In a relatively short time, the new patent law is also speeding up collaboration between the information technology sector and the pharmaceutical and biotechnology industries. Up until only recently, the fledgling research-based biotech and pharmaceutical sectors have had to rely on patenting in the U.S and Europe. They have also faced difficulties in establishing joint ventures with IT companies because of weak local patent laws and the reluctance of foreign businesses to make large, risky commitments. Now, instead of exporting raw materials and basic active ingredients that go into cheap generics, firms in India now have the ability to compete globally, producing high value-added, life-saving medicines.

India has been often been labelled the "next great knowledge superpower". Better laws to protect IP have already enabled Indians to take important steps towards realising that destiny.

Mssrs. Morris and van Gelder are, respectively, director and research fellow, at the International Policy Network, a think-tank based in London.