Globalisation and its Impact on the Indian Pharmaceutical Industry

Globalisation is a process which involves economic inter-dependence of countries world-wide removing all barriers for economic integration as if the whole world is a single village. Obviously, in this process, the rich nations with their superior financial power, control the scenario and the poor and the developing nations are forced to integrate surrendering their economic independence knowing fully well what they are forced to accept is really prejudicial to their own interest. In this process the world financial institutions like the World Bank, IMF and now the WTO advance the interest of the rich countries alone. The draconian policies of the World Bank and the IMF under the structural adjustment programme resulted in the net transfer of $178 billion between 1984 and 1990 from the poor countries to the commercial banks of rich nations. (UNDP Human Development Report, 1994). The Transnational Corporations (TNCs) of the rich nations are practically controlling the world finances. Today, the whole world is colonised by global finance and the TNCs supported by the neo-colonial structure including the World Bank, IMF and WTO are controlling the financial situation world-wide. The governments of third world countries are powerless against global finance and are unable to control its movement within their own national boundaries.

The situation of the world drug industry is no different. 'Operating at the behest of the Pharmaceutical Research and Manufacturers' Association (PhRMA) for a decade and a half, the U.S.Government has waged a ruthless crusade to force third world countries to adopt strait jacketing intellectual property rules at the expense of protecting public health', says the editorial comment in the June 1998 issue of Multinational Monitor, a journal published from Washington.

The structural adjustment programme introduced by the government of India at the behest of the IMF, World Bank and WTO created a serious impact on India's drug industry, health care system, on the workers engaged in the industry and ultimately on the people of the country. These reform policies are mainly the reduced role of the Government, cut in subsidy in the social sector, increase in administered prices, liberalisation of trade by increasing tariff rates providing incentives for foreign investment, privatisation of the public sector, equating foreign companies with Indian companies, de-regulating the labour market etc. This is aimed at the withdrawal of the state initiative from the social and welfare sectors like health, education, public distribution etc.

In this article I shall try to show how the workers of the drug industry and the people of our country are affected by the impact of globalisation.

At the time of independence, the total drug production in our country was around Rs. 10 crores. At that time the MNCs taking the help of the colonial Patent and Designs Act, 1911 exploited the drug market of our country. They were engaged mainly in the import of drugs from their country of origin. Between 1947-57, 99% of the 1704 drugs and pharmaceutical patents in India were held by foreign MNCs. During that time the MNCs who were controlling 80% of the market did not come forward with financial investment and technological help to establish drug production centres in India. Drug prices in India were amongst the highest in the world. In 1954, the first public sector drug company Hindustan Antibiotic Ltd. (HAL) was established with the help of WHO and UNICEF. The Indian Drugs and Pharmaceutical Limited (IDPL) was established in 1961 with help from the Soviet Union. The establishment of these two public sector units and the coming into force of the Drug Policy of 1978 had been mainly responsible for the availability of drugs and medicines at relatively lower prices in India. The country became almost self-sufficient in the production of drugs.

The Patent Bill was first introduced in Parliament in 1967, but the Patent Act, 1970 came into force only in 1972. The Indian Patent Act 1970 which is in operation in our country does not allow product patents on medicines, agricultural products and atomic energy. This is the most suitable patent act for the developing world. Here, process patents are allowed for 5-7 years. Mainly with the help of the Indian Patent Act 1970 India is today self-sufficient in the production of basic drugs covering various groups of drugs. Indian scientists developed new processes for 107 drugs. Indian companies are now among the world leaders in the production of bulk drugs from basic stages. At present, the prices of drugs in India are comparatively cheaper than many other countries. As per UNIDO, India is identified to produce its own drug needs with its own technology and manpower indigenously. After 1970, many new drug firms were established by Indian businessmen. At present, around 23 thousand small, big, and medium factories are producing drugs in India.

Attempts to change the Indian Patent Act 1970 are a part of this globalisation programme. The imposition of an unequal trade treaty like the World Trade Organisation (WTO) is a step towards globalisation in favour of the MNCs of rich nations. With its help, the market of the developing nations is forced open for the developed countries. Most of the developing countries were forced to sign the WTO agreement without realising its implication: as a result, the developed countries are the gainers. Already, at the dictates of the IMF, World Bank and WTO, the Government of India is slackening all checks and controls to invite the MNCs in all industries including the pharmaceutical industry. FERA and MRTP Acts have been amended. Customs duties and corporate taxes have been lowered. Relief, concessions and facilities have been extended to the MNCs as to Indian companies. All these, already, had an adverse impact on the indigenous drug industry. As per the requirement of WTO guidelines for the product patent regime, the availability of new drugs in our country may be delayed depending on the desire of the patent holders. As per the guidelines, a product patent is granted for 20 years and a process patent for another 20 years. At present, newer drugs are made available in our country within a 4-6 years period. Prices of drugs will go up by 5 to 10 times as it is evident from the prices of drugs in India and other countries like Pakistan, U.K. and U.S.A. where product patents are in force. Ranitidine is sold by Glaxo in India at Rs. 7.20. The same product is sold by the same company in Pakistan at Rs. 65 and in the U.S.A. at Rs. 545. Similarly, the anti-viral drug Aciclovir costs Rs. 33.75 in India while the same drug is sold in Pakistan at Rs. 363. There are many such examples. The drug prices in the U.S.A., U.K. and other developed countries have gone up so high that the health care expenditure in those countries is predominantly funded by insurance companies at a very high premium. In those countries people cannot think of treatment without insurance coverage. Product patent regime will definitely hamper India's drugs exports as countries will be forced to purchase from patent holders only.

Unlike consumer goods, drugs are not purchased by the preference of a person, but on a doctors' prescription. Consumers have no choice of their own on this matter.

Prices of drugs are increasing by leaps and bounds along with the prices of other commodities in recent times. The drug manufacturers are flouting the Drug Price Control Order (DPCO). The DPCO was first introduced in 1970. In 1970 most of the drugs were under price control. In 1987 this was diluted and the number of drugs which were restricted declined to 347, in 1987 it was brought down to 163 drugs and in 1994 only 73 drugs were under DPCO. Even then industry is not happy; they want the control to be abolished totally. They have already demanded decontrol of 17 bulk drugs and further recommended full decontrol within 3 years time (Economic Times, 28th September, 1998). Many developed countries of Europe control drug prices directly. In the U.K., the government determines the profit level of drugs supplied by individual companies.A company has to reimburse excess profits to the Department of Health.

A recent study shows that the prices of many life-saving bulk drugs have gone up steeply. Drugs policies in our country are decided not by the need of our people, the pattern of diseases or by the purchasing capacity of the people, but by the profit motive of the industry and the Central Government is playing the role of a silent onlooker.

We are giving below the prices of twelve essential drugs before the liberal decontrol of DPCO in 1995 and today.

The above list is only indicative. Hundreds of such examples can be given.

Further, under the WTO agreement and the imposition of a products patent regime, the prices of all new drugs (patented) will go up without any control of domestic law. The DPCO will become further irrelevant and Indian people's accessibility to newer drugs will be restricted only to the rich of the country. We are giving below the high prices of some of the new drugs introduced in 1997 in the Indian market.

(Source: Paper of A. Guha, in the seminar held at Delhi in May, 1998)

World-wide concern has been expressed about the sharp rise of drug prices. The WHO's goal of Health for All by 2000 AD will remain a distant dream.

Moreover, with the rapid development in technology, a greater number of new drugs are being introduced. Experts say that very few of them are having therapeutic advantages over the existing drugs. 'Out of 348 new drugs introduced by 25 big US companies during 1981 to 1988 only 3 per cent made important potential contribution while 84 percent made little or no potential contribution' said the US federal authority. Hence the introduction of new costly drugs should be properly monitored by the central government.

With the reduction of the customs duties on foreign imports many drugs manufactured in India have become unviable compared to the foreign goods in the Indian market. As a result, the owner of these factories are closing down their units and throwing the workers out of employment. Messrs. Boehringer Mannheim, and Parks Davis who were the lone producers of Chloramphenicol in India stopped their production as its prices in the international market were cheaper than the cost of production in India. M/s. Sarabhai Chemicals closed their Vitamin 'C' plant for a similar reason. Like Chloramphenicol and vitamin 'C' many other drugs like paracetamol, metronidazole, ampicillin, amoxycillin etc. are available at a cheaper price in our country from abroad because of the lowering of the customs duties so that Indian factories have closed and workers are on the streets. For the above drugs our country has became dependent on foreign supply.

In their attempt to shift the production to the third party manufacturing already, Hindustan Ciba Geigy, Roche, Abbot, Boehringer Mannheim, Boots, Park Davis, Unichem etc. have closed their factories and offered a voluntary retiring scheme to workers and they have sold the land of their factory premises at a premium price. Apart from these closures, Pfizer, Rhone Poulenc, Hoechst, Glaxo etc. have reduced their work force. Crores of rupees have been spent to give VRS. These companies are manufacturing their products with the help of loan licences. Some of the companies have opened new smaller factories in new places and appointed workers with lower wages and more workload. More casual workers are being appointed. In the last two years in the Mumbai Thane region of Maharashtra around 30,000 workers have lost their jobs in the pharmaceutical industry.

Apart from the factory workers the distribution workers are gradually being replaced by Cost & Freight agency system. In this system, the original company does not have any responsibility for the workers. They are employed by agents with more workload and lower wages. In the last decade around 15 thousand distribution workers have lost their jobs in the pharmaceutical industry. Moreover, through the agency system the Government is deprived of sales tax.

In marketing also the field workers or the sales promotion employees are facing tremendous attacks in the name of franchise, co-marketing, appointment of communicators etc. many permanent sales promotion employees are losing their jobs. Many others are appointed in the name of so-called executives to remove them from the fold of the union. More casual and contractual workers are being recruited.

(Source : Annual reports of respective companies and interaction with the office bearers of Unions).

Thus, the total payment on voluntary retirement schemes by firms like Glaxo, Hoechst, Pfizer, Knoll Pharma, Rhone Poulenc, Park Davis, Smith Kline Beecham, Duphar, Bayer etc. are more than Rs. 200 crores in the last three financial years. The main important thing is that employment opportunities in these units have been reduced for ever.

With the reduced role of the state under globalisation the public sector drug companies are faced with serious problems including imminent closures. Public sector drug companies like Indian Drugs and Pharmaceuticals Ltd. (IDPL), Hindustan Antibiotics Ltd. (HAL), Bengal Chemicals and Pharmaceuticals Ltd. (BCPL), Bengal Immunity (BI) and Smith Stanistreet Pharmaceuticals Ltd. (SSPL) played an important role in the production of essential drugs at affordable prices. Under the globalisation process the role of the public sector has been marginalised and they have been made sick. Attempts have been made to either privatise or close them. The Penicillin Plant in HAL, the biggest in the country, has been handed over to private hands. Its Streptomycin plant also has been leased to a private company for manufacture of other drugs. IDPL which is having the biggest pharmaceutical plant in Asia is closed from 1996 for want of proper financial assistance from the government. The public sector drug companies used to supply raw materials to the small scale sector companies. Now, these companies are facing difficulties in procuring raw materials. Similar is the fate of BCPL, B.I. and SSPL. These three units were taken over by the government after they were made sick by the private owners. Proper utilisation of their capacity could not be made due to lack of will on the part of the government, mismanagement at the administrative level and high level corruption.

It is not because of any inherent weakness but due to the lack of political will, deliberate efforts to destroy them, corruption and mismanagement that these public sector units have been rendered commercially unviable.

Moreover, the number of workers engaged in these units have been reduced drastically. When IDPL was established it had a strength of more than 15,000 workers. Today, it has been reduced to less than 7,000.

With the pharmaceutical industry taking a leap towards biotechnology development world-wide, only the public sector drug companies, with the backing of the Central Government, could have faced the challenge effectively from the MNCs in the new situation.

International and national level mergers, acquisitions and takeovers have now become a common phenomenon in the pharmaceutical industry. Internationally American Home Product merged with Cyanamid, SKB with Sterling, Rhone Poulenc took over Fashions, BSF with Boots, Glaxo with Burroughs Welcome, Ciba Geigy with Sandoz, Warner Hindustan with Parke Davis, Hoechst with Rhone Poulenc etc. are some of the examples of big take overs. By mergers and acquisitions these companies became even larger with more financial power at their disposal over their competitors. (See Table IV for the top pharmaceuticals of the world).

In coming days, with the help of international financial companies the MNCs will capture and take control of Indian companies to control the Indian market.

To match the situation created by international mergers and takeovers, Indian companies are adopting the same path. For example Wockhardt took over Merind and Tata Pharma, Ranbaxy took over Croslands, Nicholas Piramal took over Roche, Boehringer, Sumitra Pharma. The inevitable results are job loss of workers. Because of overlapping of jobs large numbers of workers are declared surplus. After merger Glaxo-Welcome and Ciba-Sandoz announced a reduction of 15 thousand and 10 thousand of their work force respectively world-wide. Upjohn and Pharmacia decided to close 24 of their 57 plants in different countries after their merger.

Some countries are adopting the 'buy and grow' method. They are taking over some popular brands and increasing their business. SKB took over Crocin from Duphar, Ranbaxy took over 7 leading brands from Gufic, Dr. Reddy's Lab purchased 6 products of Dolphin and two each from Pfimex and SOL Pharma. Sun pharma purchased all leading brands of NATCO, after selling the popular brands the companies are becoming sick and closing their shutters throwing the workers on the street.

The governments permission to the MNCs to come to India with 100% equity have threatened the existing companies with the same origin and their workers.

Through the process of mergers, acquisitions and takeovers MNCs will gradually perpetuate their grip on the Indian industry by the creation of a limited number of mega companies having monopoly control and domination world wide. In the absence of competition people will have to pay any price as it happens in the sellers market.

The present government at the centre is bringing a bill in the winter session of Parliament to change the Indian Patent Act 1970. The change in the Act is not in the interest of the people of the country. Now patents have become an object of business instead of development. Considering the wide gap of industrial and technological development between developed and developing countries monopoly rights through the patent system should not be allowed to the rich nations. Today 85% of the patents are being controlled by the TNCs of the rich nations. 'Globalisation is hurting poor people, not just the poor countries. In this process poor countries and poor people will become increasingly marginalised', says the 1997 world development report of UNDP.

The question is why this pressure and hurry? The main aim is to impose the conditionalities of WTO and to change the Indian Patent Act as MNCs need more markets and are eyeing Asia which is the largest continent of the world where 60% of the world population lives but contributes only 20% of the world pharmaceuticals business. With a high rate of population growth it is expected that the need of drugs will tremendously increase in the third world countries including India in the next millennium. India contributes 16.1% of the world population, but it produces only 1.2% of world drug production (See Table V). Hence the MNCs are trying to have more control over the pharmaceutical markets of the developing nations.

Developed countries are backing their own big companies to capture markets in other countries even at the cost of the interest of the people there. The United States has successfully battled for the inclusion of strict intellectual property rules in international trade agreements such as NAFTA and GATT. Often the U.S. position has literally been drafted by PhRMA. These trade agreements disregard public health considerations and have forced dramatic changes in the intellectual property rules the world over. Still PhRMA is not satisfied. And when PhRMA is not happy the office of U.S. Trade Representative (USTR) is not happy, says the editorial comment of Multinational Monitor.

The above comments clearly indicate the intention of the USA and other rich nations. Unfortunately, the Government of India is dancing to their tune. Against this, it is necessary to develop and launch broad-based movements everywhere with the active support of people hailing from all walks of life to force the government to change their stand.

(Source: Compilation from reports published in various news papers at different times)

(Source : Business Standard, February 19, 1997)

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