A Project on Evolution to Revolution of Pharmaceuticals in the Indian

Economy

A Project Submitted To
University of Mumbai for partial completion of the degree of
Master of Commerce
Under The Faculty of Commerce
(Advance Accountancy)
Semester III
Academic Year2017-18
BY
Abhishek Hitin Bakshi
Under The Guidance of
Ms. Megha Somani
Mithibai Motiram Kundnani College of Commerce & Economics
Adv. Nari Gursahni Road,T.P.S.III,
Bandra West, Mumbai – 400050.
December, 2017

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 A Project on Evolution to Revolution of Pharmaceuticals in the Indian
Economy

A Project Submitted To
University of Mumbai for partial completion of the degree of
Master of Commerce
Under The Faculty of Commerce
(Advance Accountancy)
Semester III
Academic Year2017-18
BY
Abhishek Hitin Bakshi
Under The Guidance of
Ms. Megha Somani
Mithibai Motiram Kundnani College of Commerce & Economics
Adv. Nari Gursahni Road,T.P.S.III,
Bandra West, Mumbai – 400050.
December, 2017

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 Mithibai Motiram Kundnani College of Commerce and Economics
Adv.Nari Gursahni Road, T.P.S.III,Bandra West,
Mumbai 400 050.

Certificate

This is to certify that Mr Abhishek Hitin Bakshi has worked and duly completed his
Project Work for the degree of Master in Commerce under the Faculty of Commerce
in the subject of Advance Accountancy and his project is entitled, “Evolution to
Revolution of Pharmaceuticals in the Indian Economy” under my supervision. I
further certify that the entire work has been done by the learner under my guidance and
that no part of it has been submitted previously for any Degree or Diploma of any
University. It is his own work and facts reported by his own findings and research.

Name and Signature of

Guiding Teacher

Date of submission:

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 Declaration by learner

I the undersigned Mr. Abhishek Hitin Bakshi here by, declare that the work embodied in
this project titled “Evolution to Revolution of Pharmaceuticals in the Indian Economy”,
forms my own contribution to the research work carried out under the guidance of Ms.
Megha Somani is a result of my own research work and has not been previously submitted
to any other University for any other Degree / Diploma to this or any other University.

Wherever “Reference’ has been made, the previous works of others, it has been clearly
indicated as such and included in the Bibliography.

I, here by further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.

Name and Signature of the learner

Certified by
Name and signature of the Guiding Teacher

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 Acknowledgment

To list who all have helped me is difficult because they are so numerous and the depth is
so enormous.

I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to do
this project.

I would like to thank my Principal, Dr.A.C.Vanjani for providing the necessary facilities
required for completion of this project.

I take this opportunity to thank our Coordinator Ms Megha Somani, for her moral
support and guidance.

I would also like to express my sincere gratitude towards my project guide

Ms.Megha Somani whose guidance and care made the project successful.

I would like to thank my college library, for having provided various reference books
and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped me
in the completion of the project especially my parents and peers who supported me
throughout my project

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 INDEX
SR NO TITLE PG NO
1 Introduction 7
1.2 History of Indian Pharma Industry 7
1.3 Evolution of Pharmaceutical Sector in India 7
1.4 Growth of the Pharmaceutical Industry in India 7
1.5 Exports of Pharmaceutical Products from India 8
1.6 Intellectual Property Rights in Pharma Industry 9
1.7 Major Pharmaceutical Companies in India 10
1.8 Greenfield and Brownfield Investments 10
1.9 Government Initiatives 11
1.10 Major Challenges Faced by the Industry 12
1.11 Brief Profile of the Study Area 13
1.12 Different Concepts Pertaining to the Problem 15
1.13 General Industry Background 16
2 Research Methodology 17
2.1 Need for Study 17
2.2 Research Objectives 17
2.3 Hypothesis 18
2.4 Scope of Study 20
2.5 Significance of Study 27
2.6 Important Trends in the Industry 30
2.7 Major Players in India 30
2.8 Important Laws Affecting the Industry 31
2.9 Selection of the Problem 35
2.10 Sample Size 38
2.11 Sampling Technique 39
2.12 Data Sources 39
2.13 Techniques of Analysis 40
2.14 Limitations of Study 44
3 Literature Review 45
4 Data Analysis, Interpretation and Presentation 54
4.1 Introduction on Data Analysis 54
4.2 Demographic Profile of Respondents 54
5 Suggestions 66
6 Conclusion 68
7 Bibliography 72
8 Survey 73

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 1. INTRODUCTION

WHAT IS A PHARMACY ?
Pharmacy is the science and technique of preparing and dispensing drugs. It is a health
profession that links health sciences with chemical sciences and aims to ensure the safe and
effective use of pharmaceutical drugs.
The scope of pharmacy practice includes more traditional roles such as compounding and
dispensing medications, and it also includes more modern services related to health care,
including clinical services, reviewing medications for safety and efficacy, and providing drug
information. Pharmacists, therefore, are the experts on drug therapy and are the primary
health professionals who optimize use of medication for the benefit of the patients.
An establishment in which pharmacy (in the first sense) is practiced is called a pharmacy
(this term is more common in the United States) or a chemist's (which is more common in
Great Britain). In the United States and Canada, drugstores commonly sell medicines, as
well as miscellaneous items such as confectionery, cosmetics, office supplies, toys, hair care
products and magazines and occasionally refreshments and groceries.
In its investigation of herbal and chemical ingredients, the work of the pharma may be
regarded as a precursor of the modern sciences of chemistry and pharmacology, prior to the
formulation of the scientific method.

1.2 HISTORY OF INDIAN PHARMA INDUSTRY

Looking back into history reveals that it was in 1930 when the first pharmaceutical company
in India came into existence in Kolkata. It is called the "Bengal Chemicals and
Pharmaceutical Works". This Indian company is still there and today it is the part of five drug
manufacturing companies that are owned by the government. Till the period of 60 years the
pharmaceutical industry in India was overshadowed by the foreign drug manufacturing
companies but with the Patent Act in 1970, the whole scenario of pharmaceutical companies
in India had changed since then. With this the Indian market was more open to Indian
pharmaceutical companies than the MNCs. So with this pharmaceutical companies in India
started to grow in number At present there is a cut throat competition among top
pharmaceutical companies in India with the native as well as MNCs

1.3 EVOLUTION OF PHARMACEUTICAL SECTOR IN INDIA

The evolution of pharmaceutical sector in India may be set into four stages. The first stage is
the period before the year 1970 in which the Indian market was dominated by foreign
companies with little domestic participation. The second stage is the period between 1970
and 1990. During this period several domestic companies started operations. Indian Patent
Act, 1970 was enacted during this period. The export initiatives were taken during this
period. 1990 – 2010 constituted the third stage. During this period the liberalization led
Indian components to launch operations in foreign countries. The Patents Act was amended

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in the year 2005 which led to adoption to product patents in India. During this period India
became a major generic drug manufacturing country.

1.4 GROWTH OF THE PHARMACEUTICAL INDUSTRY IN INDIA

India’s Pharmaceutical industry is on a good growth path, but will have to watch out
for the regulatory interventions
The Indian pharma industry is on a good growth path and is likely to be in the top 10 global
markets in value term by 2020. High burden of disease, good economic growth leading to
higher disposable incomes, improvements in healthcare infrastructure and improved
healthcare financing are driving growth in the domestic market, the report highlighted.
The Indian pharma industry has been growing at a compounded annual growth rate (CAGR)
of more than 15% over the last five years and has significant growth opportunities. However,
for the industry to sustain this robust growth rate till 2020, companies will have to rethink
their business strategy. They will have to adopt new business models and think of innovative
ideas to service their evolving customers faster and better.
The pharmaceutical industry in India ranks 3rd in the world terms of volume and 14th in
terms of value. According to Department of Pharmaceuticals, Ministry of Chemicals and
Fertilizers, the total turnover of India's pharmaceuticals industry between 2008 and
September 2009 was US$21.04 billion. Hyderabad, Mumbai, Bangalore and Ahmedabad are
the major pharmaceutical hubs of India. The domestic market was worth US$13.8 billion in
2013.

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The government started to encourage the growth of drug manufacturing by Indian companies
in the early 1960s, and with the Patents Act in 1970. However, economic liberalization in 90s
by the former Prime Minister P.V. Narasimha Rao and the then Finance Minister, Dr.
Manmohan Singh enabled the industry to become what it is today. This patent act removed
composition patents from food and drugs, and though it kept process patents, these were
shortened to a period of five to seven years.
The Lack of patent protection made the Indian market undesirable to the multinational
companies that had dominated the market. Whilst the multinationals streamed out, Indian
companies carved a niche in both the Indian and world markets with their expertise in
reverse-engineering new processes for manufacturing drugs at low costs. Although some of
the larger companies have taken baby steps towards drug innovation, the industry as a whole
has been following this business model until the present.
India's biopharmaceutical industry clocked a 17 percent growth with revenues of Rs.137
billion ($3 billion) in the 2009-10 financial year over the previous fiscal. Bio-pharma was the
biggest contributor generating 60 percent of the industry's growth at Rs.8,829 crore, followed
by bio-services at Rs.2,639 crore.
The number of purely Indian pharma companies is fairly low. Indian pharma industry is
mainly operated as well as controlled by dominant foreign companies having subsidiaries in
India due to availability of cheap labor in India at low cost. In 2002, over 20,000 registered
drug manufacturers in India sold $9 billion worth of formulations and bulk drugs. 85% of
these formulations were sold in India while over 60% of the bulk drugs were exported mostly
to the United States and Russia. Most of the players in the market are small-to-medium
enterprises; According to stats 250 of the largest companies control 70% of the Indian
market.

1.5 EXPORTS OF PHARMACEUTICAL PRODUCTS FROM INDIA

Exports of pharmaceuticals products from India increased from US$6.23 billion in 2006-07
to US$8.7 billion in 2008-09 a combined annual growth rate of 21.25%.[2] Some of the major
pharmaceutical firms include Sun Pharmaceutical, Cadila Healthcare and Piramal
Enterprises.
India exported $11.7 billion worth of pharmaceuticals in 2014.
The 10 countries below imported 56.5% of that total
Rank Country Value (US$) Share
1 United States $3.8 billion 32.9%
2 South Africa $461.1 million 3.9%
3 Russia $447.9 million 3.8%
4 United Kingdom $444.9 million 3.8%
5 Nigeria $385.4 million 3.3%
6 Kenya $233.9 million 2%
7 Tanzania $225.2 million 1.9%
8 Brazil $212.7 million 1.8%
9 Australia $182.1 million 1.6%
10 Germany $178.8 million 1.5%

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1.6 INTELLECTUAL PROPERTY RIGHTS IN PHARMA INDUSTRY
With the rapid advancement in technology, the pharmaceutical industry has benefited a lot.
Every day, new life-saving drugs are being introduced in the market. Intellectual property rights
in the pharmaceutical sector is regulated by the law of patents. India has its own patent laws,
and it is also a party to GATT. This has helped the law of patents to become more efficient.
With the introduction of the Patents Act in 1970, pharmaceutical companies were allowed to
patent their process of manufacturing drugs. The patents were valid for seven years. With the
introduction of GATT, due to India becoming a signatory to it in 1994 many changes occurred
in the Indian Market. It was now mandatory to comply with GATT as well as the TRIPS
Agreement. Not complying with these standards meant that the defaulting party would no
longer be a member of the WTO (World Trade Organization). The pharmaceutical industry
also had to meet the minimum standards which were provided under TRIPS. Hence, not only
process patent, but product patent was also introduced, and the period of patents was increased
from 7 years to 20 years. India got some extension to introduce these new measures as it got
the benefit of being a developing country.

PATENT LAW IN INDIA

The introduction of product patent has been one of the most significant contributions of the
TRIPS Agreement. The Patent Act, 1970 also played a major role in taking India to the global
patent arena. As India was a developing country, it took a bit of time to implement the TRIPS
Agreement.
Some major amendments were also done through the second amendment in the year 2000.
Amendments such as an extension of the term of a patent, subject matter of patents, and
compulsory licensing system was done. In 2005, a third amendment was also done to the Act.
This amendment introduced the product patent regime in some areas including the
pharmaceutical industry. The fee structure, penalty provisions, filing procedure, etc. were also
changed through this amendment.

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1.7 Major pharmaceutical companies in India
Even though there are many players in the Pharma Industry in India, the following table reveals
some of leading Indian players in this industry as on July 2015:

List of major pharmaceutical companies in India in sales

Company Name Sales in Rs. crores

Sun Pharmaceutical 2,17,636

Lupin Limited 84,193

Dr. Reddy’s Lab 63,779

Cipla 52,081

Aurobindo Pharma 42,454

Cadila Health care 38,677

Glenmark Pharmaceuticals 29,047

Glaxo Smithkline Pharmaceuticals Limited 28,587

Divis Laboratories 24,847

Torrent Pharmaceuticals 22,320

1.8 Greenfield and Brownfield investments

Greenfield investment is investment in new plants. It is establishing new production capacity
by an investor or company. On the other, Brownfield investment is an investor investing in an
existing plant. Brownfield investment is mainly made through merger and acquisitions.

Green field and Brownfield FDI

Applying the same criteria, Greenfield FDI in India is investment by a foreign investor in fresh
production facilities. It is a situation where an MNC starts a new venture in India by
constructing new operational facilities.
This new production capacity creation will bring new physical assets (like plants and
machineries), creates fresh employment and adds to more production of the concerned good.
Often Greenfield FDI has a merit that it brings superior technology by the MNC.
Brownfield FDI is investment made by a foreign company in existing production
arrangements. An important form of Brownfield investment is merger and acquisition by
foreign MNCs in India. Here, a domestic company is taken over by the MNC.
Greenfield FDI makes additional production capacity, whereas Brownfield FDI is purchase of
existing production capacities. The latter is just a transfer of ownership of existing firm from
a domestic entrepreneur to a foreign one.

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 Disadvantage of Brownfield FDI as a source of investment is that it doesn’t create expansion
of production capacities or employment generation etc.
The debate
The differentiation between Greenfield and Brownfield FDI is very important in the context
of developing countries like India. A sensitive aspect related with Brownfield investment is
that it led to acquisition of domestic companies by MNCs.
Pharmaceutical industry
The issue became very pronounced in India’s pharmaceutical industry. The sector is very
competitive globally and India is known as the pharmacy of the developing world. Takeover
of Indian firms by foreign MNC pharmaceutical companies will reduce competition for MNCs
at the same time they can influence the domestic market by pursuing their own policies.
For example, since 2001, there were at least a dozen notable acquisitions by foreign
companies in India. Mylan pharma, a US based firm has made eight acquisitions starting from
the acquisition of API (Active Pharmaceutical Ingredient) supplying Matrix laboratories of
Hyderabad in 2006 to the takeover of Agila Specialities in 2013. Japanese drugmaker Daiichi
Sankyo acquired Ranbaxy in 2008 though it has later bought by Sun pharma in 2014.
The trend of foreign MNCs making brownfield investment in India through brown field
investment has initiated public policy debate.
Once, the Department of Industrial Policy & Promotion (DIPP) has sought restrictions on
foreign direct investment (FDI) in existing pharmaceutical projects in specific areas, such as
vaccines, injectable and oncology medicines.
In April 2014, the government has modified the FDI regime for pharmaceutical sector by
introducing the more restrictive government approval route for Brownfield FDI in the sector.
As per the new regulations, Foreign Direct Investment (FDI) up to 100 per cent is permitted
under automatic route for Greenfield investments and FDI up to 100 per cent is permitted under
the Government approval route for Brownfield investments (i.e. investments in existing
companies) in pharmaceuticals sector.

1.9 GOVERNMENT INITIATIVES

The implementation of the Goods and Services Tax (GST) is expected to be a game-changer
for the Indian Pharmaceuticals industry. It will lead to tax-neutral inter-state transactions
between two dealers, thereby reducing the dependency on multiple states and increasing the
focus on regional hubs. It is expected to result in an efficient supply chain management,
which is expected to reduce its cost considerably. The cost of technology and investment is
expected to reduce on account of tax credit which can be availed now on the duties levied on
import of costly machinery and equipment.
Some of the initiatives taken by the government to promote the pharmaceutical sector in India
are as follows:
• In the Union Budget 2017-18, the Department of Biotechnology (DBT) received Rs
2,222.11 crore (US$ 333.31 million), an increase of 22 per cent, to continue
implementing the department’s national biotech strategy.
• In an attempt to revive the active pharmaceutical ingredient (API) and bulk drug
market in India, the Government of India has proposed peak customs duty on the
import of APIs and also plans to set up mega drug parks to give a boost to domestic
production.

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 • The Government of India unveiled 'Pharma Vision 2020' aimed at making India a
global leader in end-to-end drug manufacture. Approval time for new facilities has
been reduced to boost investments.
• The government introduced mechanisms such as the Drug Price Control Order and the
National Pharmaceutical Pricing Authority to deal with the issue of affordability and
availability of medicines.
• Mr Ananth Kumar, Union Minister of Chemicals and Petrochemicals, has announced
setting up of chemical hubs across the country, early environment clearances in
existing clusters, adequate infrastructure, and establishment of a Central Institute of
Chemical Engineering and Technology.
Road Ahead
The Indian pharmaceutical market size is expected to grow to US$ 100 billion by 2025,
driven by increasing consumer spending, rapid urbanisation, and raising healthcare insurance
among others.
Going forward, better growth in domestic sales would also depend on the ability of
companies to align their product portfolio towards chronic therapies for diseases such as such
as cardiovascular, anti-diabetes, anti-depressants and anti-cancers that are on the rise.
The Indian government has taken many steps to reduce costs and bring down healthcare
expenses. Speedy introduction of generic drugs into the market has remained in focus and is
expected to benefit the Indian pharmaceutical companies. In addition, the thrust on rural
health programmes, lifesaving drugs and preventive vaccines also augurs well for the
pharmaceutical companies.

1.10 MAJOR CHALLENGES FACED BY THE INDUSTRY

The Indian pharmaceutical industry was on a strong growth trajectory in the last decade. It
has achieved several milestones and is well positioned to leverage emerging opportunities.
However, the industry needs to tackle various issues related to its operations and regulations.
It faces several challenges in the form of pricing of pharmaceutical products and impact of
some agreements. This section touches upon several key issues and challenges faced by the
industry;

Impact of GATT-TRIPS agreement: The General Agreement on Tariffs and Trade

(GATT) and Trade Related aspects of Intellectual Property Rights (TRIPS) have an adverse
impact on pricing of pharmaceutical products. Pharmaceutical companies are not allowed to
re-generate existing drugs and formulations and change the existing process and manufacture
the same drug. New investments are required to perform research. This is a major obstacle for
pharma companies, especially the micro, small and medium enterprises. Moreover, transfer
of technology from abroad is difficult and expensive. Consequently, revenue of the pharma
companies is impacted. Hence, adequate measures should be taken to support the industry’s
revenue and minimise losses.
Pricing: At present, pricing of 74 bulk drugs and their formulations, which account for a
large share in the retail pharma market, are controlled by the Drug Price Control Order
(DPCO)-1995. The Government had considered reducing the number of regulated drugs,
but it has not been implemented. There is a need to reduce the number of regulated drugs to
facilitate the growth of the pharmaceutical industry.

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Drug diversions by institutions: Most of the institutional clients of the Indian
pharmaceutical companies comprise of government hospitals, the Indian defence service and
private hospitals; the defence sector is mandated to buy drug stocks through tenders in
quantities twice as large as the projected demand for those drugs in the following year at a
discounted price. At the year-end, surplus available at the institutions is pushed to regular
channels by leveraging the price discounts, resulting in a loss for companies through the
regular distribution channel.

1.11 BRIEF PROFILE OF THE STUDY AREA

The SWOT analysis of the industry reveals the position of the Indian pharmaceutical industry
in respect to its internal and external environment.

Strengths
• Higher GDP growth leading to increased disposable income in the hands of general public
and their positive attitude towards spending on healthcare.
• Low-cost, highly skilled set of English speaking labour force and proven track record in
design of high technology manufacturing devices.
• Growing treatment naive patient population.
• Low cost of innovation, manufacturing and operations.

Weaknesses
• Stringent pricing regulations affecting the profitability of pharma companies.
• Poor all-round infrastructure is a major challenge.
• Presence of more unorganised players versus the organised ones, resulting in an
increasingly competitive environment, characterised by stiff price competition.
• Poor health insurance coverage.

Opportunities
• Global demand for generics rising.
• Rapid OTC and generic market growth.
• Increased penetration in the non-metro markets.
• Large demand for quality diagnostic services.
• Significant investment from MNCs.
• Public-Private Partnerships for strengthening
Infrastructure.
• Opening of the health insurance sector and increase in per capita income - the growth
drivers for the pharmaceutical industry.
• India, a potentially preferred global outsourcing hub for pharmaceutical products due to low
cost of skilled labour.

Threats
• Competition from developing countries is increasing.
• R&D infrastructure and investment are under-developed.
• Transport infrastructure and storage facilities for temperature-sensitive drugs are not readily
available.

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Reasons to Invest
• India is expected to rank amongst the top three pharmaceutical markets in terms of
incremental growth by 2020.
• India will become the sixth largest market globally in terms of absolute size by zero.
• India’s generic drugs account for 20% of global exports in terms of volume, making
the country the largest provider of generic medicines globally.
• India’s cost of production is significantly lower than that of the USA and almost half
of that of Europe.
• A skilled workforce as well as high managerial and technical competence.
• Economic prosperity is likely to improve affordability for generic drugs in the market.
• Approval time for new facilities has been drastically reduced.
• Third largest pharmaceuticals market by 2020 in terms of incremental growth.
• 20% of global exports in generics, making it the largest provider of generic medicines
globally.
• USD 45 Billion in revenue by 2020, revenue of USD 55 billion by 2020 as base case,
and can grow to USD 70 billion in a aggressive case scenario.
• USD 26.1 Billion in generics by 2016.
• USD 200 Billion to be spent on infrastructure by 2024.
• India's filing of Drug Master Files's (DMF's) with USFDA as of Dec 2013 is 3411, the
highest filed by any country in the world.
• Total exports of Drugs, Pharmaceuticals for 2013-14 at USD 15,095 million,
recording a growth rate 2.5% over the corresponding period of previous years.

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1.12 DIFFERENT CONCEPTS PERTAINING TO THE PROBLEM
1. Compliance issues and good manufacturing practices:
• This has somehow always been a problem for the companies. The ongoing rumor is
that the United States Food and Drug Administration is trying to block the growth of
the companies.
Why is the approval of USFDA important ?
• The approval of USFDA is important because the largest consumer of pharma
products is the USA and India is a major exporter. The opinion of the USFDA is
considered to be the standard in the sector as well.
• The companies are trying to improve their standards and this issue can be solved by
having officials who are more stringent and inspections on a regular basis can be done

2. Highly fragmented industry:

• The Indian pharma industry is highly fragmented. The market is overloaded with
generic manufacturers.
Why is this a problem?
This is a cause for concern because high fragmentation causes instability, volatility and
uncertainty. This is certainly not a good omen for the pharma sector.
Pharmaceutical companies can review their strategies to survive in a volatile environment.
Some of the actions that can be taken by the companies are they can periodically review their
product portfolio and build more customer centric products.
The companies need to build their organisation in such a way that will enable better
operational ability and agility.

3. Low margin of profits due to government pricing policies – Drug Price Control Order
The main issue raised by most of the pharma companies is that the profits which they earn are
basically peanuts and this income is not sufficient enough. The companies sight that the
reforms of the Government for the essential medicines has caused them to lower the price of
drugs. This has been done by the Government for the betterment of the public. So the
Government has to think of a way to promote the pharma companies as well. Funding for the
pharma companies might be a way to move forward.

4. Low input for research and development due to pricing norms

The above mentioned challenge directly affects the R&D of the companies.
Why?
Simple enough answer, the lower the profits for the companies, the lower the investments. So
the companies sight that due to the low income they are not able to develop products the way
they want.

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1.13 GENERAL INDUSTRY BACKGROUND
The Indian Pharmaceutical industry (domestic, import and export) as per Market Publishers
Forecast, is valued at USD 27.4 Billion. It is growing steadily at a CAGR of 10+ %. The
industry is typically involved in four types of businesses- production of branded medicines,
production of branded generic medicines, product of unbranded generic medicines and
production of active pharmaceutical ingredients which are used as ingredients in medicines.
India has also become a popular destination for outsourced contract research and
manufacturing service. The Contract manufacturing and research Industry has grown more
than 60 % CAGR between 2007 and 2010, and has a market size of USD 1.5 Billion. The
industry is primarily focused on manufacturing of generic medicine and export of bulk drugs.
The focus on development of new drugs began with introduction of new Patent regime in
2005 which permitted patenting of pharmaceutical products. However, compulsory licensing
remains a concern.

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 2. RESEARCH METHODOLOGY

2.1 NEED FOR STUDY:

Till now public attention in this country has been focused so much on the profitability and
liquidity of corporate finances. Further more, no studies were made on pharmaceutical
industry in connection with examining the relationships between liquidity, profitability and
financing. However, the Indian Pharmaceutical
Industry has been contributing to the social well being of the country by playing a multi-
faceted role of discovering, developing, and manufacturing and also distributing quality
medicines. As a result, the average life expectancy, a leading health and economic indicator,
improved in India form 41.32 years in the 1960s to 62.9 years in 1998-99 and the mortality
rates declined from 146 per thousand births in 1960-61 to 69 per thousand births in 1998
-99 the signing of GATT (now WTO) has included a series of changes in the industry and
continues to guide the growth and development of the industry.

2.2 RESEARCH OBJECTIVES

• To examine the trends in the profits of the pharmaceutical industry in India and
identifying the reasons for the low profits

• To study the changes in structure of finance and to know how far the low profitability
and high pay-out ratios are responsible for the fall of internal sources and raise of
external sources

• To study about the impact of capital structure on profitability and liquidity and
identify the reasons for the inadequate liquidity and high equity of the pharmaceutical
industry

In the study an attempt is made to examine the changes in structure of finance in

Pharmaceutical Industry in India during 1976 to 2006. The principle approaches of the study
are:
• Analyzing the growth and working of the Pharmaceutical Industry in India with a
special reference to the comparison of Large and medium selected companies in terms
of production, productivity, investment, profitability employment generation,
contribution to exchequer etc.;

• Examining the trends in the profits of the Pharmaceutical industry in India and
identifying the reasons for the low profits of the industry

• Analyzing the financial performance of the Pharmaceutical Companies due to the

structural changes in Finance.

• Analyzing the sources of finance in Pharmaceutical Industry and studying how far the
low profitability and high pay-out ratios are responsible for the fall of internal sources

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 • Studying the capital structure of the Pharmaceutical industry and its impact on the
profitability and liquidity and finally

• Suggesting suitable measures for the efficient and effective functioning of

Pharmaceuticals in general and selected companies in particular with special reference
to problems of Profitability, Liquidity and Finance.

2.3 HYPOTHESIS

In order to effectively conduct a study, we must first present a preliminary research

hypothesis. A research hypothesis is the statement created by researchers when they speculate
upon the outcome of a research or experiment. Every true experimental design must have this
statement at the core of its structure, as the ultimate aim of any experiment.
Hypotheses are the situations, which may or may not affect the cause and impact relationship
or may impact beyond expectations. Therefore, hypotheses become important in studies,
where human behavioural aspects are involved and have their significant role. In such
situations the upper limit and lower limit of situations become necessary to identify and
include those into hypotheses to be tested in the research. Accordingly, framing of
hypotheses and testing those under the research is vital task and research findings derived
through this process are the real findings of research work carried out in spheres, where
human behavioural aspects are deeply involved.

The following hypothesis would be the basis of the study: - “Indian pharma sector growth to
moderate in next coming years and then shoot up”

In our study, we will evaluate the validity of the above statement by collecting and analysing
data which will either prove or disprove the stated assumption that is the hypothesis.

Indian pharmaceutical industry is likely to witness moderation in growth in the next three
years mainly due to decline in revenues from the US, its largest overseas market, and
increased competition.

Already, 21 leading players' overall aggregate revenues grew only by 7.4 per cent in FY 2017
as against 10.1 per cent posted in FY 2016

The growth trajectory for Indian pharma industry is likely to be moderate on the back of
slowing growth from the US, increased competition leading to price erosion, generic adoption
reaching saturation levels and regulatory overhang along with base effect catching up.

For the period between FY 2018 to FY 2020, the industry is projected to grow at 7-10 per
cent after mid to high double digit growth over the last five years.

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Commenting on the situation, the growth momentum is likely to face further pressure going
forward, led by limited near term first to file (FTF) generic opportunities and pricing pressure
on generic base business. Revenue growth from US during FY 2012-17 period CAGR of 19.3
per cent. However, growth from the US has come down from 14.4 per cent in FY 2016 to 4
per cent in FY 2017, with the fourth quarter of FY 2017 registering negative growth despite
consolidation and currency benefits.

Besides, increased regulatory scrutiny and consolidation of supply chain in the US market
resulting in pricing pressures along with increased R&D expenses will also have an impact on
profitability of Indian pharmaceutical companies.

Therefore continued regulatory interventions will put some pressure in near term, though
long term growth prospects remain healthy, given increasing penetration, accessibility and
continued new launches by players.

In spite of these ongoing challenges, several Indian pharma companies have ramped up their
R&D spend, targeting pipeline of speciality drugs, niche molecules and complex therapies.

The pharmaceutical industry is in decline. It’s moving to Phase Three, which today is known
as the generics industry. Only this generics industry will be much more competitive and
cutthroat; there are no new branded drugs going off-patent to give up-front profits to offset
the subsequent years of near-zero profits.

Phases of Growth and Decline in Industry in Pharmaceuticals

The pharmaceutical industry is born from a fortuitous marriage of receptor

Phase 0:
theory and advances in organic chemistry. For the first time organic
Science
molecules could be engineered to target specific receptors, and perform
Innovation
predictable (albeit rudimentary) actions on those receptors (e.g., agonist,
(1960-1980)
antagonist, inverse agonist, etc.)

Phase 0→1: The industry industrializes the receptor approach. Many receptors are
Product simultaneously targeted by many variations of organic molecules, using a
Innovation handful of guiding principles, ramping up output of blockbuster drugs by an
(1980-1995) order of magnitude
Relentless pursuit of standardization and harmonization allows many other
Phase 1→2:
players to enter the industry, both suppliers and competitors, and drives
Process
down activity costs. Standardization hems in the creative spirit in the name
Innovation
of efficiencies. Regulators adopt further standards further narrowing the
(1995-2010)
creative field of play.
Standardization, cost per activity, and harmonization become foremost as the
Phase 2→3:
industry moves toward becoming a commodity provider. Receptor Theory and
Product
Organic Chemistry as approaches to drug development are mostly tapped out.
Commoditization
Management and Wall Street no longer have trust in products filling the R&D
(2010+)
‘pipeline’

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To sustain beyond 2020, domestic companies need to step up focus and investment on new
drug development and biosimilars.

Indian pharmaceutical industry is expected to touch $55 billion by 2020 as against the current
size of $18 billion but the exports may slow down to grow at a CAGR of 7.98% in value
terms due to tightening of regulatory mechanism in top exports markets of US, Russia and
Africa.

2.4 SCOPE OF STUDY

Over the years pharmacy has grown in the form of pharmaceuticals sciences through research
and development processes. It is related to product as well as to services. The various drugs
discovered and developed are its products and the healthcare it provides comes under the
category of services.
Pharmacy involves all the stages that are associated with the drugs i.e. discovery,
development, action, safety, formulation, use, quality control, packaging, storage, marketing,
etc. This profession has a large socio-economic relevance to the Indian economy. In India this
sector is among the future economy drivers. It is committed to deliver high quality drugs and
formulations at an affordable price, so that majority of people can afford them.
This profession has a large socio-economic relevance to the Indian economy. In India this
sector is among the future economy drivers. It is committed to deliver high quality drugs and
formulations at an affordable price, so that majority of people can afford them. The
transformation of the sector from conventional pharmacy to drug experts, which is both
desired and necessary to reach the global standards, has already made commendable progress.
Liberalization, privatization and globalization (LPG) have helped the Indian pharmaceutical
companies to achieve international recognition. It’s remarkable to note that today several
Indian pharma companies are approved by US FDA and are listed at NASDAQ.
The multibillion-dollar pharma industry grows mainly through knowledge wealth creation.
This sector has transformed a lot over the years. The big pharma companies that were there
about 15-20 years back are not in picture these days.
The analysis of Indian pharmaceutical sector shows that the innovative products, product life
cycle management and marketing management steps taken by the pharma companies have led
them to flourish. And the companies that refused to change their strategy lost the race. Cipla
and Sun Pharma are two companies that are focused on new product development and have
grown tremendously.

Though some tax proposals may negatively impact the pharma sector, overall, the budget
proposals have been received positively in this sector and will provide a boost to the industry.
Finance Minister, Mr. Arun Jaitley presented the Union Budget in Parliament on 29 February
2016. While no specific announcements for the pharma sector were made, below are a few
tax proposals that could have an impact on the pharma sector:
1. A flat corporate income tax rate of 25% has been prescribed for Indian manufacturing
companies formed on or after 1 March 2016. This proposal will provide a boost to drug
manufacturers who may want to set up new manufacturing facilities.

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2. Currently, the Central government provides a weighted tax deduction of 200% for any
capital and revenue expenditure incurred on account of in-house R&D by a company,
excluding expenditure on land and buildings. Such weighted tax deduction is proposed to be
reduced from the present 200% to 150% from April 2017 to March 2020 and thereafter from
April 2020 to 100%. This has led to a huge disappointment as the industry was expecting a
300% weighted average reduction. This reduction will have a negative impact for all pharma
companies as it will result in an increase in tax rate.
3. Benefit of section 10AA (applicable to units located in Special Economic Zones) is
proposed to be made available to units, commencing manufacture or production of articles or
things, or providing services before 1 April 2020. This will benefit pharma companies that
are setting up new manufacturing facilities in Special Economic Zones.
4. A special patent regime has been proposed wherein global income by way of royalty from
worldwide exploitation of patents developed and registered in India will be taxed at the rate
of 10% on a gross basis plus surcharge/cess. The income will not be subject to MAT. This
proposal will provide a significant boost to local innovation and manufacturing since the
general tax rate is around 35%. Consequently, pharma companies which have patents
registered in India would be able to commercialize patents on a global basis.
5. Certain changes proposed in the indirect tax regime will affect the pharma sector as
follows:

(a) The effective service tax rate will be increased to 15%. Krishi Kalyan Cess at the rate of
0.5% will be levied on the value of all taxable services. This change is likely to have a
negative impact on all pharma companies as the cost of procuring services would increase.

(b) Excise and customs duty (Basic Customs Duty, Countervailing Duty and Special
Additional Duty) exemption is proposed to be granted to disposable sterilized dialyzer and
micro barrier of artificial kidney. Dialysis equipment manufacturers are likely to benefit from
this exemption.

(c) The proposed exemption of service tax on services provided by biotechnology incubators
approved by Biotechnology Industry Research Assistance Council (BIRAC) is expected to
provide an impetus to start-up biotech enterprises and new units.

(d) Basic Custom Duty exemption is proposed on import of medical use fission
Molybdenum-99 (Mo-99) by the Board of Radiation and Isotope Technology (BRIT) for use
in the manufacture of radio pharmaceuticals. This benefit is limited to imports by BRIT and,
therefore, private pharma companies will not be entitled to avail this benefit.

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GST increased Pharma Industry’s worries
The Indian pharmaceutical industry ranks third largest in the world by volume of production
and 14th in terms of value, thereby accounting for around 10% of world’s production by
volume and 1.5% by value. The industry has witnessed a robust growth over the past few
years moving on from a turnover of approx. USD 1 billion in 1990 to over USD 30 billion in
2015. Indian pharma industry is mainly operated as well as controlled by dominant foreign
companies having subsidiaries in India due to availability of labor in India at low cost of
production.
Through the introduction of a system of product patents since 2005, Indian industry has today
become very a worldwide exporter of high quality generic drugs. Indian exported drugs worth
USD 15 billion to more than 200 countries including the highly regulated markets of US,
Europe, Japan and Australia. Indian companies are also making their presence felt in the
emerging markets around the world, particularly with a strong portfolio in anti-infective and
antiretroviral.
The industry now produces bulk drugs belonging to all major therapeutic groups requiring
complicated manufacturing technologies, the formulations produced are in various dosage
forms. Based on projections by a McKinsey report on Pharma 2020, India's pharmaceutical
sector is to grow to USD 55 billion by 2020.
The industry has been certainly grown yet the pharma sector is in trouble according to a
HDFC Securities Institutional Research report.
Trump thunderous effect on Pharma
Early during the year in Jan’17, President Donald Trump, told US drug makers to bring back
manufacturing to the United States. This “Buy American” move could largely affect the
Indian pharmaceutical companies. India exported USD 6billion worth of drugs to US in 2015
and restrictions on pharmaceutical imports and manufacturing abroad could impact the
industry in India. Trump also promised to relax the regulations required by the United States
Food and Drug Administration (USFDA) and told companies to lower down the prices
keeping trade should be the purpose for prices control.

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How much will be the impact of Trump’s push on the Indian pharma sector is a matter of
time. Yet, can see the results for the fourth quarter of fiscal 2017, the pharma sector’s
performance was impacted by sudden decrease in US sales.
GST adds to pain
Back home in Indian market, the industry’s performance during the first quarter of financial
year 2018 is likely to be affected by GST-led de-stocking of inventory. The implementation
of the Goods and Service Tax (GST) has impacted the primary sales and profitability of
pharma companies in the domestic market and aggravated their overall performance.
Performance Metrics
The top-line of the industry is expected a single-digit decline on year to year basis for the
companies covered under the umbrella. The profitability will decline due to both lower sales
of exclusive products such as gGleevec, gGlumetza and gAbilify, and compensation for lost
tax credits offered to dealers in the face of GST implementation.
During the fourth quarter of 2017, the operating performance had decreased and now during
the fiscal 2018, companies such Cadila Healthcare Ltd (CDH), Glenmark Pharmaceuticals
Ltd (GNP), Aurobindo Pharma (ARBP) and Lupin (LPC) are receiving higher number of
product approvals, leading to stronger base businesses in the US.
The Giants Fall
The Indian giants of the pharmaceutical industry occupying 70 to 80 percent of the market,
includes Sun Pharma, Lupin, Dr. Reddy’s Labs and Cipla. The quarter doesn’t look any rosy
for these companies either.
Sun Pharma (SUNP)
During the first quarter of fiscal’17, SUNP will report decline in its top-line item to 15
percent on a high base mainly owing to high gGleevec sales. However, even excluding
gGleevec, sales will decline 9 percent year on year basis, owing to no product launches and
eroding sales of Taro. Taro is a U.S based subsidiary of Sun Pharma.
Given the domestic market scenario leading to GST implementation, the domestic business of
Sun Pharma is also likely to decline. Although, sequential improvement in operating margins
at 25 percent is expected owing to the absence of the one-off costs of 4QFY17.
Lupin
On a high base and considering the domestic market disruption will lead to a modest top-line
decline of 4 percent for Lupin. The pharma major is expected to report better EBITDA
margins sequentially, with the absence of several one-off cost0, on account of increased R&D
spend and the decreasing contribution of gGlumetza and gFortamet. Lupin’s key measurable
will be visibility of significant product launches in the US market in fiscal’18.
Dr Reddy’s Labs
Dr Reddy’s (DRRD) first quarter is expected to increase its revenue by 4 percent on year to
year basis and improve its margin by 7 percent over the first quarter of fiscal’17, which
included significant remediation cost related to US Food and Drug Administration (USFDA)
plants.
The aspect to look out for the drug-maker is the update on the regulatory matters concerning
its manufacturing facility at Duvvada, Visakhapatnam. The USFDA has made 13
observations relating to deviation from good manufacturing practices (GMP) at the
company’s cancer formulations facility.

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Cipla
During the first quarter of 2018, Cipla’s will likely post negligible revenue growth given its
heavy domestic heavy portfolio. Also, owing to an unfavourable business mix during the
quarter, its operating margins will decline as well. Key measures to look out for Cipla is its
domestic business recovery during second quarter of financial year’18 and visibility on the
US product launches.
India's pharmaceutical industry in the spotlight
In 2001, India’s pharmaceutical industry became the focus of public debate when Cipla, the
country's second-largest pharmaceuticals company, offered an AIDS drug to African
countries for the price of USD 300, while the same preparation cost USD 12,000 in the US.
This was possible because the Indian company produced an all-in-one generic pill which
contains all three substances required in the treatment of AIDS. This kind of production is
much more difficult in other countries as the patents are held by three different companies. In
the final analysis, the price slump was a result of India's lax patent legislation. In 2005, patent
legislation was tightened, so India’s pharmaceutical sector had to adjust.
Cadila Healthcare
Cadila Helathcare’s US business to grow quickly with receiving 18 approvals during the first
quarter of 2018. This will also compensate for any domestic business disruption due to GST.
Growth is expected to increase by 7 percent on year to year basis.
Glenmark Pharmaceuticals Ltd
Despite a 5 percent decline in its domestic business, Glenmark is likely to report overall
better revenue at 20 percent growth on year to year basis with margins improved at 23
percent. After a tepid last quarter of 2017, gZetia sales is likely to improve in this quarter.

INDIA’S PHARMACEUTICAL INDUSTRY ON COURSE FOR

GLOBALISATION

Booming sales: India is gaining in importance as a manufacturer of pharmaceuticals.

Between 1996 and 2006, nominal sales of pharmaceuticals were up 9% per annum and thus
expanded much faster than the global pharmaceutical market as a whole (+7% p.a.). Demand
in India is growing markedly due to rising population figures, the increasing number of old
people and the development of incomes. As a production location, the country is benefiting
from its wage cost advantages over western competitors also when it comes to producing
medicines

India has discovered the world market: Since the end of the 1980s India has been
exporting more pharmaceuticals than it imports. Over the last ten years the export surplus has
widened from EUR 370 m to EUR 2 bn. At 32% in 2006, the export ratio was about twice as
high as in 1996 and will likely rise further in the coming years (Germany: 55% at present).
New patent law necessitated reorientation: Legal changes in India in 2005 made it
considerably more difficult to produce “new” generics. Foreign pharma-ceuticals, which

25 | P a g e
enjoy 20 years of patent protection, can no longer be copied by means of alternative
production procedures and sold in the domestic market. Hence, a reorientation was required
in India’s pharmaceutical industry. It now focuses on drugs developed in-house and contract
research or contract production for western drug makers.

STATISTICS
• The country’s pharmaceuticals industry is expected to account for about 3.1-3.6% of
the global pharma industry by value and currently accounts for 10% by volume, by
2016.
• Industry revenues are expected to expand at a CAGR of 12.1% during 2012-20 and
reach USD 45 Billion.
• The healthcare sector in India is expected to grow to USD 250 Billion by 2020 from
USD 65 Billion currently.
• The generics market is expected to grow to USD 26.1 Billion by 2016 from USD 11.3
Billion in 2011.

GROWTH DRIVERS
• Between 2011 and 2016, patent drugs worth USD 255 Billion are estimated to go off-
patent leading to a huge surge in generic product and tremendous opportunities for
companies.

• By 2020, it will grow to USD 11 billion - a CAGR of 18%, with the potential to reach
USD 13 billion - at an aggresive CAGR of 20%.

• With increasing penetration of chemists, especially in rural India, OTC drugs will be
readily available.

• Pharma companies have increased spending to tap rural markets and develop better
infrastructure. The market share of hospitals is expected to increase from 13.1% in
2009 to 26% in 2020.

• Following the introduction of product patents, several multinational companies are

expected to launch patented drugs in India.

• The purported rise of lifestyle diseases in India is expected to boost industry sales
figures.

• Over USD 200 Billion is to be spent on medical infrastructure in the next decade.

• Rising levels of education are set to increase the acceptability of pharmaceuticals.

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 • India’s patient pool is expected to increase to over 20% in the next 10 years, mainly
due to the rise in population.

FDI POLICY
• 100% Foreign Direct Investment (FDI) is allowed under the automatic route for
greenfield pharma.
• 100% Foreign Direct Investment (FDI) is allowed under the government route for
brownfield pharma in upto 74% FDI is under automatic route and beyond 74% is
under government approval route.
• Non-compete’ clause would not be allowed except in special circumstances with the
approval of the Foreign Investment Promotion Board.
• The prospective investor and the prospective investee are required to provide a
certificate along with the FIPB application as per Annexure-1.
• Government may incorporate appropriate conditions for FDI in brownfield cases, at
the time of granting approval.

FINANCIAL SUPPORT
KEY PROVISIONS IN THE 2015-16 UNION BUDGET:
• SETU (Self Employment and Talent Utilization) to be established as a techno-
financial, incubation and facilitation programme to support all aspects of a startup
business. USD 15.38 million to be set aside as initial amount in National Institution
for Transforming India (NITI) Aayog.
• Atal Innovation Mission (AIM) to be established in NITI Aayog to provide an
Innovation Promotion Platform involving academicians, and drawing upon national
and international experiences to foster a culture of innovation, research and
development. A sum of USD 23.08 million will be earmarked.
• The threshold limit for applicability of transfer pricing regulations to specified
domestic transactions increased from USD 0.77 million to USD 3.08 million.
• Service Tax exemption for common effluent treatment plant operators.
• Rate of income tax on royalty and fees for technical services reduced from 25% to
10% to facilitate technology inflow.
• Time limit for taking CENVAT credit on inputs and input services have been
increased from six months to one year.

INVESTMENT OPPORTUNITIES
• India is expected to be the third largest global market for active pharmaceutical
ingredients by 2016, with a 7.2% increase in market share.
• Indian pharma companies registered 49% of overall DMF filed in the US in 2012.

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 • The Contract Research and Manufacturing Services industry – estimated at USD 8
Billion in 2015, up from USD 3.8 Billion in 2012. The market has more than 1000
players.
• The formulations industry – India is the largest exporter of formulations with 14%
market share and ranks 12th in the world in terms of export value. Double-digit
growth is expected over the next five years.

FOREIGN INVESTORS
• Teva Pharmaceuticals (Israel)
• Nipro Corporation (Japan)
• Procter & Gamble (USA)
• Pfizer (USA)
• Glaxo Smith Kline (UK)
• Johnson & Johnson (USA)
• Otsuka Pharmaceutical (Japan)
• AstraZeneca (Sweden-UK)

2.5 SIGNIFICANCE OF STUDY

The significance of Pharmaceutical Industry in India GDP is immense. For the past few
years the Indian Pharmaceutical Industry is performing very well.

The varied functions such as contract research and manufacturing, clinical research, research
and development pertaining to vaccines are the strengths of the Pharma Industry in India.
Multinational pharmaceutical corporations outsource these activities and help the growth of
the sector. The Indian Pharmaceutical Industry has a bright future.

Role of Pharmaceutical Industry in India GDP-Facts

• The Pharmaceutical Industry in India is one of the largest in the world
• It ranks 4th in the world, pertaining to the volume of sales
• The estimated worth of the Indian Pharmaceutical Industry is US$ 6 billion
• The growth rate of the industry is 13% per year
• Almost most 70% of the domestic demand for bulk drugs is catered by the Indian
Pharma Industry
• The Pharma Industry in India produces around 20% to 24% of the global generic
drugs
• The Indian Pharmaceutical Industry is one of the biggest producers of the active
pharmaceutical ingredients (API) in the international arena
• The Indian Pharma sector leads the science-based industries in the country
• The pharmaceutical sector has the capacity and technology pertaining to complex
drug manufacturing

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 • Around 40% of the total pharmaceutical produce is exported
• 55% of the total exports constitute of formulations and the other 45% comprises of
bulk drugs
• The Indian Pharma Industry includes small scaled, medium scaled, large scaled
players, which totals nearly 300 different companies
• There are several other small units operating in the domestic sector

Pharmaceutical Industry in India-Growth

• As per the present growth rate, the Indian Pharma Industry is expected to be a US$ 20
billion industry by the year 2015
• The Indian Pharmaceutical sector is also expected to be among the top ten Pharma
based markets in the world in the next ten years
• The national Pharma market would experience the rise in the sales of the patent drugs
• The sales of the Indian Pharma Industry would worth US$ 43 billion within the next
decade
• With the increase in the medical infrastructure, the health services would be
transformed and it would help the growth of the Pharma industry further
• With the large concentration of multi national pharmaceutical companies in India, it
becomes easier to attract foreign direct investments
• The Pharma industry in India is one of the major foreign direct investments
encouraging sectors

Role of Pharmaceutical Industry in India GDP-CRAMS

• The Indian Pharmaceutical Industry is one of fastest emerging international center for
contract research and manufacturing services or CRAMS
• The main factors for the growth of the CRAMS is due to the international standard
quality and low cost
• The estimated value of the CRAMS market in 2006 was US$ 895 million
• Indian already has the biggest number of US Food and Drug Administration
(USFDA)
• standardized manufacturing units outside the territory of United States
• Around 50 more new manufacturing units are to be set up in accordance to the
USFDA and UK Medicines and Healthcare Regulatory Agency (MHRA) standards
• With all these development India is posed to become the biggest producer of drugs in
the world
• Some of the major domestic players in this sector are Paras Pharma, Bal Pharma,
Unijules Life Sciences, Flamingo Pharma, Venus Remedies, Surya Organics and
Chemicals, Centaur Pharma, Kemwell, Coral Labs
• The contract manufacturing market in India pertaining to the multinational companies
is expected to worth US$ 900 million by the year 2010

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Role of Pharmaceutical Industry in India GD-India Advantage
• India has the advantage of the cost, as the cost of labor, the cost of inventory is much
lower than other places
• The multinational companies, investing in research and development in India may
save upto 30% to 50% of the expenses incurred
• The cost of hiring a research chemist in the US is five times higher than its Indian
counterpart
• The manufacturing cost of pharmaceutical products in India is nearly half of the cost
incurred in US
• The cost of performing clinical trials in India is one tenth of the cost incurred in US
• The cost of performing research in India is one eighth of the cost incurred in US

Main features of Indian Pharma Market

India is the potential market for MNCs. This is because India’s population is growing
rapidly and its economy – creating a large middle class with the resources to afford Western
medicines. Moreover the changing epidemiological profile of India shall increase the demand
for drugs used to treat cardio-vascular problems, disorders of the central nervous system and
other chronic diseases.

India’s growing pharmaceutical industry is likely could be a competitor and potential

partner in many key areas of global Pharma. India has considerable manufacturing expertise
and as such Indian producers are likely to partner with global Pharma companies to market
their wares outside of India.

India will be the most populous country in the world by 2050, will make its mark as a
growing market, potential competitor or partner in manufacturing and R&D, as a location for
clinical trials and partner with MNCs.

India is a fast growing economy. The Indian economy is rapidly getting bigger. The real
GDP growth reached 9% in March 2008. In the year to March 2009, growth eased to 6.7%.
Reserve Bank of India (RBI) anticipates growth improving to 6% in the year ending March
2010, and expects robust growth of 7.8% p.a for the next ten years. Forecasts such as those of
Goldman Sachs suggest that India will be the only emerging economy to maintain such an
outstanding pace over the longer term, i.e. to 2050.

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India is forecast to grow by at least 5% a year for the next 41 years

2.6 IMPORTANT TRENDS IN THE INDUSTRY

• The Indian Pharmaceutical industry is witnessing healthy foreign direct investment,
amalgamations and collaborations (such as licensing, co- development, joint
distribution and joint ventures)
• Domestic manufacturers are looking to tap into international generic market with high
margins. The Abbreviated new Drug Applications (ANDA) to the US FDA are
increasing every year
• The Industry is witnessing a paradigm change as the focus is shifting from the
manufacturing of generic drugs to drug discovery and development (Sun Pharma,
Cadilla Healthcare and Piramal Life Sciences, had applied for conducting clinical
trials on for numerous new drugs in 2010)
• However, the clinical trials industry is on decline due to various reasons like
regulatory delays, compensation issues etc

2.7 MAJOR PLAYERS IN INDIA

• Leading Indian companies: Cipla, Ranbaxy Labs (subsidiary of Japanese
pharmaceutical company Daiichi Sankyo), Dr. Reddy's Labs, Sun Pharma, Glenmark
Lupin, Aurbindo Pharma, Piramal Healthcare, Cadila Healthcare, Zydus Cadilla, ,
Wockhardt Pharma.
• Leading MNC Companies in India: GSK, Sanofi Aventis, Pfizer, Johnson &
Johnson,Novartis, Abbott, Takeda, Roche, Mylan Pharma
• Important industry associations: Organization of Pharmaceutical Producers of India
(OPPI), Pharmaceutical & Allied Manufactures' & Distributors' Association Limited

31 | P a g e
 (PAMDAL), Pharmaceuticals Export Promotion Council Of India (Pharmexcil),
Indian Pharmaceutical Alliance (IPA), Indian Drug Manufacturers' Association
(IDMA), Bulk Drug Manufacturers Association (BDMA), All India Organization of
Chemists and Druggists (AIOCD)

2.8 IMPORTANT LAWS AFFECTING THE INDUSTRY

Drugs and Cosmetics Act, 1945 and Rules
• Regulates manufacturing, import, distribution and sale [confirm] of drugs (includes
certain medical devices) and cosmetics
• Prescribes product and labeling standards
• Regulates clinical trials
• Regulates advertisements of drugs
Pharmacy Act, 1948
• Regulates pharmacy education, profession and practice of pharmacy in India
• Provides that an offense in a professional capacity by a registered pharmacist may
lead to penal action under the Act to the extent of permanent deregistration
• Impersonation as a registered pharmacist is also punishable under the Act
The Drugs & Magic Remedies (Objectionable Advertisements) Act, 1954
• Regulates advertisements of drugs relating to diagnosis / cure / mitigation / treatment /
prevention of certain prescribed diseases and conditions
• Diseases and conditions include AIDS, Asthma, Cancer etc.
Indian Patent Act, 1970
• Provides for product and process patent for 20 years
• Specific provision for compulsory licensing and prevention of ever- greening
Trade Marks Act, 1999
• Provide exclusive right to use registered trademark in connection with the specific
goods and services in the territory of India
• Act extends protection to only registered trademarks. For infringement of an
unregistered trademark, an action for passing- off will lie.
Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations 2002
(MCI Code)
• Regulates professional conduct of registered medical practitioners in India
• Prescribes that, inter alia, registered medical practitioners will not receive any gift
from pharmaceutical or allied healthcare industry or their sales representative and that
the practitioner will not endorse any drug or product publicly
• Makes recommendations to institutions (such as hospitals) regarding non- ethical
nature of solicitation of patients
• Violation of MCI Code will amount to professional misconduct resulting in penal
action to the extent of permanent disqualification to practice, over and above any
other civil or criminal action which may lie under relevant law

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Drugs Price Control Order, 1995 (DPCO)
• Regulates prices of controlled bulk drugs and formulations
• Regulates margins offered to dealers and retailers
• Imposes obligation to sell bulk drugs and formulations to dealer (conditionally) and
consumer (unconditionally)
Uniform Code for Pharmaceutical Marketing Practices (UCPMP)
• Regulates marketing practices of pharmaceutical industry
• Imposes requirement of prior permission from Drugs Controller General of India for
promotion
• Requires promotion to be accurate, fair, objective, verifiable and not be misleading
• Lays down standards for rival product comparison
• Mandates that promotion will not involve exchange of gifts in any form
• Voluntary code with a condition that non- compliance will result in conversion to
statutory code.
Information Technology Act, 2000 (IT Act)
• Imposes a liability on such body corporate or person who deals with sensitive
personal data or information for negligence in implementation and maintenance of
reasonable security and procedures for securitization of such data, if such negligence
causes wrongful gain or loss to any person
• Penalizes disclosure of personal information to a third person, if it is done without
consent of the person to whom such information belongs or in breach of a lawful
contract, and with the intention or knowledge that the disclosure will cause wrongful
gain or wrongful loss
• Information Technology (Reasonable security practices and procedures and sensitive
personal data or information) Rules, 2011 define sensitive personal data or
information to include medical records and history and such personal information
relating to physical, physiological and mental health condition
Information Technology (Reasonable security practices and procedures and sensitive
personal data or information) Rules, 2011 (Data Protection Rules)
• Define personal information and sensitive personal data or information. Medical
records and history, and such personal information relating to physical, physiological
and mental health condition are deemed to be sensitive under the Rules.
• Impose several obligations on body corporate dealing with personal information and
sensitive personal data or information
• Obligations arise at the time of collection, storing, using and transferring personal
data. For example, a body corporate collecting sensitive personal data or information
is expected to take the informed consent of the owner of the information. The body
corporate is also required to publish a privacy policy on its website

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National List of Essential Medicines (NLEM)
• List published by Ministry of Health and Family welfare
• All medicines in the list are deemed essential, and are available or made available at
affordable costs and with assured quality
• List comprises of a total of 348 medicines (excluding repetition)
• The last list was published in 2011.

TAX LAWS AFFECTING PHARMACEUTICAL INDUSTRY

Income Tax Act, 1961
• It is tax on income imposed by Central Government
• Residents in India are taxed on their worldwide income
• Non- residents are taxed on Indian source of income
• The Indian tax rates applicable to non-residents could be up to 40% (excluding
applicable surcharge)
• If the tax payable by any company, including a foreign company taxable in India, is
less than 18.5% of its book profits, it will be required to pay Minimum Alternate Tax
• Interest received by a non-resident from Indian on foreign currency denominated
loans may be taxable
• Payments towards royalty and fees for technical services is taxable
• Expenditure on scientific research is treated as capital expenditure and is deductible
Transfer Pricing Regulations
• Income tax Act makes provisions for the taxation of income arising from international
transaction between associated enterprises
• Transfer Pricing Regulations lay down that any income arising from such an
"international transaction" shall be computed having regard to the "arm's length price"
• The Regulations also lay down methods for calculation of arm's length price
Research and Development Cess Act, 1986
• All payments made towards the import of technology are subject to a tax of 5% under
the Act
• Technology includes any special or technical knowledge or any special service
required for any purpose whatsoever by an industrial concern under any foreign
collaboration, and includes designs, drawings, publications and technical personnel
Custom Duty
• Import of drugs and pharmaceuticals is liable to basic customs duty and additional
customs duty
• Import of pharmaceuticals and health supplements is liable to basic customs duty,
additional customs duty and a special additional customs duty
• There is no additional customs duty on certain drugs (life- saving)
• Import of medical devices is liable for basic customs duty and additional customs
duty

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Sales Tax / Value Added Tax (VAT)
• Sales tax / VAT is levied by states on sale of goods within its territory
• Sale of drugs (including bulk drugs) and medical formulations is taxable
• Life- saving drugs are many a times exempt from sales tax
• Central Sales Tax is applicable in case of the sale of goods in the course of inter-state
trade or commerce
CENVAT
• Duty imposed by Central Government on manufacture of goods
• Generic excise duty rate on the inputs (Active Pharmaceutical Ingredients or APIs) is
currently at 10.3%
• Generic excise duty rate on finished formulations is 4.12%
Service Tax
• Under the current service tax regime, all services are taxable unless exempt.
• Exempted services include: 'Health care services' by a clinical establishment, an
authorised medical practitioner or para-medics
• 'Health care services' means any service by way of diagnosis or treatment or care for
illness, injury, deformity, abnormality or pregnancy in any recognized system of
medicines in India and includes services by way of transportation of the patient to and
from a clinical establishment, but does not include hair transplant or cosmetic or
plastic surgery, except when undertaken to restore or to reconstruct anatomy or
functions of body affected due to congenital defects, developmental abnormalities,
injury or trauma

REGULATORY AGENCIES
Central Drug Standard Control Organisation (CDSCO)
• Established under Drugs and Cosmetics Act, 1945
• Responsible for- approval of new drugs; conduct of clinical trials in India;
preparation, implementation and maintenance of standards for Drugs; maintenance of
quality of imported Drugs and screening of drug formulations available in Indian
market.
• Arm of Ministry of Health and Family Welfare
State Drug Standard Control Organisation
• Established under Drugs and Cosmetics Act, 1945
• Responsible for regulation of manufacture, sale and distribution of Drugs in
respective States
• Monitors quality of Drugs manufactured in respective state and initiates penal
proceeding for any violation of standard
The Drug Controller General of India (DCGI)
• Authority established under Drugs and Cosmetics Act, 1945
• Statutory authority for the purposes of Drugs and Cosmetics Act, 1940 and Rules,
1945

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 • Head of CDSCO
• Carries out licensing and controlling function of CDSCO
National Pharmaceuticals Pricing Authority (NPPA)
• Authority established under Drugs Price Control Order, 1995
• Fixes/ revises the prices of controlled bulk drugs and formulations
• Enforces prices and ensures availability of the medicines
• Recovers amounts overcharged by manufacturers for the controlled drugs from the
consumers
• Monitors the prices of decontrolled drugs in order to keep them at reasonable levels.
• Arm of Department of Pharmaceuticals, Ministry of Chemicals and Pharmaceuticals

2.9 SELECTION OF THE PROBLEM

Patents and Intellectual Property Rights
India's new product patent regime is the result of the WTO's Doha Round of negotiations in
2001. Final agreement was reached on TRIPs ground rules for patent protection among WTO
member countries, stating that both processes and products should be protected.
Subsequently, on March 22, 2005, India's parliament approved the Patents (Amendment) Act
2005, bringing in a system of product patents backdated to January 1, 2005. The new regime
protects only products arriving on the market after January 1, 1995, abolishing the previous
process patent system established by the 1970 Patent Act.
Since the introduction of product patents the MNCs have largely returned, the most recent
being Merck &Co, which inaugurated its wholly owned subsidiary MSD India Pvt Ltd in July
2005 after being absent for approximately 20 years. “With passing of the patent regime in
India, we thought the atmosphere was conducive for business, and we are lookingat bringing
our products here soon,” said the subsidiary's Managing Director, Leonard Tauro. While the
firm did not plan to set up manufacturing facilities in India within the near future, it was
looking at R&D prospects in the country, beginning with clinical trials, he added.38
Assocham believes the new patent regime will enable the development of innovative new
drugs, which will increase profitability for MNCs. It will also force domestic players to focus
on R&D, which, for those who can afford to do so, will have long-term beneficial effects, it
says.39
The draft National Pharmaceuticals Policy 2006 states that the government is committed to
making India's laws and policies relating to IPR, including data protection, fully compliant
with TRIPs provisions. Also, new rules are being framed under the Patents Act1970
amendments introduced from April 1, 2005, for product patents, and these will be brought
into law soon. “Under these rules, it would be the endeavor of the government to simplify
procedures and shorten the timelines of various approvals,” says the draft Policy.40 Kewal
Handa, managing director of Pfizer India, applauds the introduction of India's product patent
regime at the start of last year as a very positive move by the government in honoring its
TRIPs commitments, but adds that a number of big issues remain to be addressed.
Of crucial importance is the issue of patentability, he says. The industry is keenly awaiting
the publication of the Technical Expert Group, which has been set up under the chairmanship

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of RA Mashelkar, Director General of the Council for Scientific and Industrial Research, to
examine issues such as whether it would be TRIPs-compatible for the patent regime to limit
the granting of patents to New Chemical Entities or New Medical Entities involving one or
more inventive steps.
The industry is also waiting to see whether the government will follow international
guidelines governing compulsory licensing, the process by which the TRIPs agreement
permits governments, in special cases, to waive the patent on a particular medicine.
Elsewhere in the world, the trade treaty allows compulsory licenses to be issued in response
to a national emergency, but in India they may currently be invoked due to factors such as the
reasonability of a product's price, and its potential for export and local manufacturing, among
other issues. Government policy in this area needs to be more clearly defined, said Handa.
Pfizer is one of the longest-established MNCs in India and was the first to set up R&D
facilities there, but he believes that, for R&D activities to expand as the government wishes,
the industry must have high levels of confidence in the country's regulatory framework. A
major drawback is that India offers no data protection (although it is provided by China,
which also has a good patents protection regime and a bigger domestic market than India). A
further disincentive is that drug prices on the Indian domestic market are the lowest in the
world.

Pricing Issues
The prices of 74 bulk drugs and their formulations, which account for around 40 percent of
the retail pharmaceutical market, are controlled by the Drug Price Control Order (DPCO)of
1995. The government's 2002 Pharmaceutical Policy would have reduced the numbers of
price-controlled drugs still further, but this proposal is currently under judicial review in the
Supreme Court. If it is approved, the number of price-controlled drugs is expected to drop to
25. 42
A new DPCO is expected to be introduced by the end of 2006, which will take account of
two recent major reports-one on drug pricing, produced in November 2004 by a government
panel headed by GS Sandhu, joint secretary of the Department of Chemicals and Fertilizers,
and the September 2005 report of the Prime Minister's Task Force on Drug Affordability,
headed by Pranob Sen, Chief Adviser to the Planning Commission.
Looking to the future of the domestic market, as envisioned by the provisions of the
government's newly proposed National Pharmaceuticals Policy for 2006, Kewal Handaof
Pfizer India says that the market will be defined by the manner in which the prices of
patented products are controlled and, therefore, it is critical that the government gets this
right.
Having provided product patent protection, the government must now look at the holistic
picture and decide where value is to be created-through controlling prices or encouraging
manufacturing and research, he says.
As the government's draft National Pharmaceuticals Policy, published in January 2006, is
under discussion with all, the industry hopes the last several years' trend of reducing the
number of price-controlled drugs will continue, says Ranjit Shahaniof Novartis India, and he
calls for a move away from micro-managing price controls to price monitoring. The Indian
market is highly competitive and its prices are now the lowest in the world, at almost 10
percent of U.S. prices.

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Zydus Cadila Chairman and Managing Director Pankaj Pateldescribes the draft National
Pharmaceuticals Policy as confusing, noting that it emphasizes R&D but also price controls
and keeping drugs cheap. Implementation of the latter will keep the industry from moving
forward, he warns.
“It's tough to move ahead by looking into the rearview mirror, and that's exactly what's
happening,” he says, adding, “On one hand, there is emphasis on R&D in the Policy, which is
futuristic, but at the same time it does not address the issue of price controls, which will tie
the industry down and not allow it to accelerate the pace of growth and move forward.”
Discussing the issue of compulsory licensing in India, Pankaj Patel notes that, globally, it has
always been a practice to approve new drugs on the basis of safety, efficacy and, lately, the
economic value of drugs. India is also looking at economic criteria as well as national
importance for to the reasons why it could permit compulsory licensing. But it is important,
he adds, that India's government has in fact never invoked these criteria, not even in the case
of Roche's anti-flu drug Tamiflu, which it could have done while still remaining TRIPs-
compliant. “The provision is, therefore, more of a safeguard to ensure optimal pricing for
Indian patients, taking into account the heavy disease burden and purchasing power of people
in India,” he says.

Regulatory Reforms
While he feels it is premature to discuss the proposals contained within the government's
draft National Pharmaceuticals Policy, Ajay Piramal of Nicholas Piramal stresses that the
government must take steps to make the domestic industry more robust and create an
environment that is conducive to research. The pressure to reduce prices must end, he says.
Instead, the government needs to provide incentives and allow companies to make additional
profits that they can plough back into research.
Tax incentives are also necessary to attract more foreign investment into the country, as they
have proved successful in regions such as Singapore, Puerto Rico and Ireland, he says.
The government is now starting to develop an infrastructure for clinical trials in India, with
amendments made recently to Schedule Y of the Drugs and Cosmetics Rules of 1945 to allow
for multicenter concurrent clinical trials in India and address the protection of trial
participants, and the integration and quality of data. Among other developments, Good
Clinical Practice guidelines have been published and made mandatory.
“The success of government moves to encourage further outsourcing activities will depend on
both the new Policy and improvements to the regulatory framework, Kewal Handa of Pfizer
India says. In terms of TRIPs compliancy, he urges the government to take a pragmatic view
and create a truly level playing field so that all companies can operate on an equal footing.
The government must also focus more on health care spending and devise ways to give
people access to the drugs they need. These improvements can be achieved through
partnerships between the government and industry rather than subsidizing through price
controls. “However,” he adds, “currently there is no infrastructure in place to facilitate such
developments.”
R&D Spending
Indian manufacturers cannot fulfill their ambitions to become players on the world stage
unless they make significant increases to their R&D expenditures; at 2 percent of sales, these
are currently far below the global level of 10 to 20 percent. In fiscal 2005, the leading five
Indian companies increased their R&D spending 47 percent overall to a total of $192.3

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million from $131 million in fiscal 2004. Within that total, individual companies' spending
rose as much as 90 percent, with Dr Reddy's amounting to 14.7 percent of its net sales.
However, Nicholas Piramal and Cipla still spend less than 5 percent of their net sales on
research, and the combined R&D expenditures of the five is still less than 3 percent of Pfizer,
the world's leading research-based drug manufacturer. Moreover, the average for the leading
Indian firms represented just 5.7 percent of their net sales in fiscal 2004, compared to 14.5
percent for Merck &Co. and 15.6 percent at Sanofi-Aventis.43
Generally, however, he expects that the effects of the new patent regime on the market in
India will be as limited as those that followed similar changes made in Poland and Brazil
around 10 years ago. Apart from some innovative therapies developed for use in niche areas,
most innovator drugs provide only marginal improvements over existing products, yet they
carry very high prices. Therefore, as drug prices in India are among the lowest in the world,
these products will have only a very limited market available to them in the country, he says.

Developing the Domestic Indian Pharmaceutical Market

India currently spends 4.5 to 5.0 percent of its GDP on health care, but public spending
accounts for just 0.9 percent, putting the nation among the 20 lowest-spending countries
worldwide. Total health expenditures were $29.3 billion in 2004, with around 83 percent
accounted for by private providers. The balance of spending is also iniquitous; while the
poorest 20 percent of the population has double the mortality rates, malnutrition and fertility
of the richest quintile, the latter group receives about three rupees for every one rupee spent
on the former. Two-thirds of what the government spends on health care goes to secondary
and tertiary care rather than basic services.46
Ninety-four percent of all private health spending is out of pocket, mostly at the time of the
incident, and more than 40 percent of hospitalized people borrow money or sell assets in
order to cover their expenses. The remaining 6 percent of spending is provided by insurance -
3.7 percent social, 1.6 percent employer-sponsored and 0.7 percent private insurance. Just 15
percent of the population has some form of insurance; an estimated 800,000,000 people in
India have none.47
The health insurance market was opened up to the private sector in 2000 and, since then,
growth has been fast, with nearly 10.3 million policies sold in 2003-04 compared to 7.5
million in 2001-02. A 40 percent compound annual growth rate (CAGR) is forecast for the
health insurance sector over the coming years,48 making it a significant driver of the
domestic health care market, which analysts at McKinsey believe could be worth $40 billion
by 2012.
2.10 SAMPLE SIZE
The population under study shall consist of various changes in Pharmaceutical Industry
consisting of growth and decline towards the revenue of the industry and its impact on the
economy.
The sample size is determined by various factors such as:
1) Area of Research.
2) Revenue Phase.
3) Investor Funding etc.
This study is conducted on the basis of the selected sample and findings are drawn based on
their response. The sample size shall consist a strength of 50 respondents.

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2.11 SAMPLING TECHNIQUE
There are various kinds of sampling techniques that can be used as shown below:

2.12 DATA SOURCES

There are two kinds of data sources which will be used in the study:
1) Primary Data Source - Data observed or collected directly from first-hand experience. Data
will be collected for our study through the means of a well-structured questionnaire/survey
method.

2) Secondary Data Source – Data that is readily available from published printed sources.
The secondary data is generally used in the case of academic research, we will make use of
articles, websites, and magazines to obtain crucial secondary data for further analysis.

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2.13 TECHNIQUES OF ANALYSIS
There are various kinds of Techniques to analyse data,

1) Regression Analysis - In statistical modelling, regression analysis is a set of

statistical processes for estimating the relationships among variables. It includes many
techniques for modelling and analysing several variables, when the focus is on the
relationship between a dependent variable and one or more independent variables (or
'predictors'). More specifically, regression analysis helps one understand how the
typical value of the dependent variable (or 'criterion variable') changes when any one
of the independent variables is varied, while the other independent variables are held
fixed. Regression analysis is widely used for prediction and forecasting, where its use
has substantial overlap with the field of machine learning. Regression analysis is also
used to understand which among the independent variables are related to the
dependent variable, and to explore the forms of these relationships. In restricted
circumstances, regression analysis can be used to infer causal relationships between
the independent and dependent variables.

2) Co-relation Analysis Correlation analysis is a method of statistical evaluation used to

study the strength of a relationship between two, numerically measured, continuous
variables (e.g. height and weight). This particular type of analysis is useful when a
researcher wants to establish if there are possible connections between variables. It is
often misunderstood that correlation analysis determines cause and effect; however,
this is not the case because other variables that are not present in the research may
have impacted on the results. If correlation is found between two variables it means
that when there is a systematic change in one variable, there is also a systematic
change in the other; the variables alter together over a certain period of time. If there
is correlation found, depending upon the numerical values measured, this can be
either positive or negative.

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 3) Dispersion Analysis - n statistics, dispersion (also called variability, scatter, or
spread) is the extent to which a distribution is stretched or squeezed. Common
examples of measures of statistical dispersion are the variance, standard deviation,
and interquartile range. Dispersion is contrasted with location or central tendency, and
together they are the most used properties of distributions. A measure of statistical
dispersion is a nonnegative real number that is zero if all the data are the same and
increases as the data become more diverse. Most measures of dispersion have the
same units as the quantity being measured. In other words, if the measurements are in
metres or seconds, so is the measure of dispersion. Examples of dispersion measures
include:

Standard deviation

Interquartile range (IQR)

Range

Mean absolute difference (also known as Gini mean absolute difference)

Median absolute deviation (MAD)

Average absolute deviation (or simply called average deviation)

4) Measures of Central Tendency - In statistics, a central tendency (or measure of

central tendency) is a central or typical value for a probability distribution. It may also
be called a centre or location of the distribution. Colloquially, measures of central
tendency are often called averages. The term central tendency dates from the late
1920s.

The most common measures of central tendency are:

a) Arithmetic mean or simply, mean

The sum of all measurements divided by the number of observations in the data set.

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 b) Median

The middle value that separates the higher half from the lower half of the data set.
The median and the mode are the only measures of central tendency that can be used
for ordinal data, in which values are ranked relative to each other but are not
measured absolutely.

c) Mode

The most frequent value in the data set. This is the only central tendency measure that
can be used with nominal data, which have purely qualitative category assignments.

d) Geometric mean

The nth root of the product of the data values, where there are n of these. This
measure is valid only for data that are measured absolutely on a strictly positive scale.

e) Harmonic mean

The reciprocal of the arithmetic mean of the reciprocals of the data values. This
measure too is valid only for data that are measured absolutely on a strictly positive
scale

For our study we will employ the use of SURVEY ANALYSIS–

The essence of survey method can be explained as “questioning individuals on a topic

or topics and then describing their responses”.

Survey method pursues two main purposes:

1) Describing certain aspects or characteristics of population and/or 2) Testing

hypotheses about nature of relationships within a population.

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 We will use a well-structured questionnaire to obtain first-hand primary data from the
respondents by random sampling method.

A few advantages are:

• Relatively easy to administer

• Can be administered remotely via online, mobile devices, mail, email, kiosk, or
telephone.

• A broad range of data can be collected (e.g., attitudes, opinions, beliefs, values,
behaviour, factual).

• Standardized surveys are relatively free from several types of errors

• Numerous questions can be asked about a subject, giving extensive flexibility in

data analysis.

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2.14 Limitations of Study :-

The reliability of survey data may depend on the following factors:

 Respondents may not feel encouraged to provide accurate, honest answers

 Respondents may not feel comfortable providing answers that present themselves in a
unfavourable manner.
 Respondents may not be fully aware of their reasons for any given answer because of
lack of memory on the subject, or even boredom.
 Surveys with closed-ended questions may have a lower validity rate than other
question types.
 Data errors due to question non-responses may exist. The number of respondents who
choose to respond to a survey question may be different from those who chose not to
respond, thus creating bias.
 Survey question answer options could lead to unclear data because certain answer
options may be interpreted differently by respondents. For example, the answer option
“somewhat agree” may represent different things to different subjects, and have its
own meaning to each individual respondent. ‘Yes’ or ‘no’ answer options can also be
problematic. Respondents may answer “no” if the option “only once” is not available.
 Customized surveys can run the risk of containing certain types of errors.

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 3. LITERATURE REVIEW
Mukhopadhyay (2009) examined the structure of fiscal concession, the compensation policy
adopted and the credibility of the project figures, based on the variation across different
projects of the similar type and finds them lacking. Based on data available from Ministry of
Commerce, the study finds that most of the SEZs are in the IT/ITES sector and a large share
of projected employment is also expected to come from this sector. Furthermore, the SEZs
also appear to be concentrated in few relatively developed districts, near urban centers. This
will mean that the additional economic activity engendered by the fiscal concessions for
SEZs will be in the sector that is already doing well, as in the Information Technology
Enabled Service (ITES). Further, regional imbalances will worsen as a result of the
concentration of SEZs in a few locations.

Mukhopadhyay and Pradhan (2009) explored the location of SEZs. The study examines
the district-Wise location of SEZs and relates them to the characteristics of district as
available in the census. It finds that most of the SEZs, especially the tiny (less than 100
hectares or 1 sq. km. in size) SEZs are concentrated in districts in top quartile of urbanization.
These tiny SEZs and IT/ITES SEZs appear to be concentrated in the districts that are
proximate to the six mega cities of Delhi, Kolkata, Mumbai, Hyderabad, Bangalore, and
Chennai. The study then statistically examines the concentration of SEZs in the IT/ITES
sector. It was identified that more than 70 per cent of all SEZs and 93.4 per cent of all
notified IT/ITES SEZs are having less than one square kilometer size.

Murayama and Yokata (2009) examined the historical trajectories and outstanding labour
and gender issues of EPZs/SEZ on the basis of the experiences of South Korea, Bangladesh
and India. The findings suggest the necessity of enlarging our analytical scope with regard to
EPZ/SEZ, which are inextricably connected with external employment structure. Further, the
study calls for an immediate and comprehensive review of the labour and gender conditions
in Indian SEZs where workers are in a disadvantageous position not only against capital but
also in comparison with workers in South Korea and Bangladesh EPZs/SEZs.

Ota (2003) analysed the changing role of SEZs in the context of China’s economic
development and some of the emerging problems that SEZs were confronted with at the new
stage of development. An attempt is laid here on study of policy and performance of the
SEZs in comparison with those of Asian EPZs which managed to shift the industrialization
strategy from the import-Substitution to the export-Orientation at the critical stage of
development. The SEZs were in a better position to elicit lessons from the experiences of
Asian EPZs, despite various conditions and limitations prevailing in China’s socialist market
economy. The study also finds that since the implementation of economic reform policy in
1979, China’s economic development is quite impressive with her average annual rate of
economic growth of over 10 per cent between 1980 and 1995, increasing her GDP from
451.8 billion yuan to 5826 billion yuan. SEZs apparently triggered her economic growth

Pillai (2007) in his study on SEZs highlighted that in India, the SEZs that were set up prior to
the SEZ Act, are providing employment to about 1.85 lakh persons of which about 40 per
cent are women. Export from the existing SEZs increased from Rs. 13854 crore in 2003-04 to
Rs. 34789 crore in 2006-07, an increase of about 151 per cent in the last three years and
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expected investment of Rs. 100000 crore including foreign direct investment of US$ 5-6
billion by the end of December, 2007. He concluded that SEZ scheme will act as a catalyst in
the development process of the country.

Prabu (2009) in his research paper highlighted many issues related to SEZs such as land
acquisition, the problem of rehabilitation, loss of tax revenue, incentives and facilities to the
developers of the SEZs, etc. The researcher concluded that though theoretically,
conceptually, economically, financially and operationally SEZs appear to be a blessing, but
actually it is not true. Throughout the country the creation of SEZs has created a big fever
among politicians, economists, farming community, tax people and social workers.
Specifically, the states in which the SEZs have been approved are facing intense protests
from the farming communities accusing the government of forcibly snatching fertile land
from them at heavily discounted prices as against the prevailing in the commercial real estate
industry.

Raj and Roy (2008) in their article concluded that the SEZ Act, 2005 is anti-Democratic and
unconstitutional as it completely violates the right to life and livelihood of the people, who
are being forcibly displaced for the implementation of these projects. The Act promotes large
scale privatization and monopolization of resources into the hands of a few private
developers at huge costs to the state exchequer as well as the economy and environment of
this country. In their case study they found that the issue regarding Nandigram and Singur is
a purely economic one. Politicians have merged this issue with the political framework which
emerges as the crux of problem. Public participation is necessary for the welfare of the
community. The economic aspect has been neglected which should be addressed by the state.
Policies have to be streamlined to ensure that the pain and profits of growth are more
equitably distributed.

Ramachandran and Biswas (2007) in their study focused on the possible locations of SEZs,
and developed a set of criteria and methodology for identifying such locations. The most
critical consideration in their case pertains to proximity to the national highways, broad gauge
railing lines and large cities. Only the wasteland is related for the establishment of SEZs
instead of productive agricultural land. Applying such criteria, they found 64 districts in 16
states as most suitable for setting up of SEZs. The authors warn that the politicians may be in
a hurry to implant such zones anywhere but it does require care and patience for not only
finding desirable location but also working for their impact on mankind.

Reddy (2009) made a detailed analysis on the need and evolution of SEZs in India and the
performance of Indian SEZs. The study highlighted that the over whelming response to the
SEZ scheme is evident from the flow of investment, creation of additional employment,
export performance and attracted FDI in the country. The study concluded that the SEZs are
real growth engines for the economic development of the country.

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Reddy and Srinivas (2008) explained that the promotion of SEZs is an attempt to deal with
infrastructural deficiencies and procedural and bureaucratic complexities caused by
monetary, fiscal, taxation and labour policies. The objective of setting up of SEZs is to gain
structural growth with world-Class infrastructure, which is helpful to the economic growth of
India. This study presents an overview of the process and progress of SEZs in the country in
general and in Andhra Pradesh in particular.

Reddy et al. (2009) analyzed the nature and significance of SEZs in India, Inter-State formal
approvals of SEZs and land allocated to them. The study is based on the secondary data
drawn from the Ministry of Industry and Commerce, Government of India. It is found that
southern-Region has not only dominated with the highest number of formally approved
SEZs, but also in all the other categories of SEZs. The state-Wise comparison reveals that
Maharashtra and Andhra Pradesh have occupied first two positions in the total formally
approved SEZs and also in IT/ITES,Pharma/Bio-Tech and other categories of SEZs. On the
other hand, a large portion of land was allocated to multi-Product SEZs and a meagre share of
land was allocated to IT/ITES and Pharma/Biotech SEZs in the country.

Reddy et al. (2010) analyzed employment generated by SEZs in southern India. The data has
been drawn from the Ministry of Commerce and Industry, Government of India. The study is
confined to notified SEZs only. The study found that of the total current employment
generated by notified SEZs in India (370700 persons), about 41 per cent employment has
been generated by SEZs of southern-region. Among the states in the southern region Tamil
Nadu stands first with about 20 per cent followed by Karnataka and Andhra Pradesh with
about 10 per cent each in the total current employment in India as on 31st March 2008.

Roychowdhury (2007) in his study analysed the pros and cons of the SEZ model for
resettlement and rehabilitation. He stated that land for land can be an effective and justified
mode of resettlement, provided comprehension for developing the new land is made
available. For that, a land bank should be set up after taking the stock of present barren and
infertile land in the states and the land available under the sick units and closed factories. In
no circumstances, a very fertile land should be acquired as that will dampen the growth and
productivity of agriculture which is dangerous for economy as that will endanger food
security.

Sampat (2008) explored some stand in the political schema of SEZs in India with specific
reference to one immediate fallout of serious concern and contestation the imminent
displacement of thousands of people livelihoods in countrywide where these SEZs are stated
to come up. A factsheet on SEZs on the Government of India website gives details of the
number of approved and proposed SEZs, their land requirements as well as export and
employment potential. However, there is no mention of the number of people to be displaced
by these zones and it is not clear, how the government intends to attend the issues of
displaced.

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Sanyal et al. (2007) in their research study criticized the SEZ policy in India and stated that
the claim of creating lakhs of jobs in SEZs is a complete hoax. The corporate who will
establish production units in SEZs, will also seek jobless growth and only a small number of
jobs for a highly skilled workforce can be expected in sectors like IT. Acquisition of
cultivable land will not only make millions of farmers and agricultural labourers lose their
livelihood but also will definitely have adverse effect on production of agriculture and
environmental resources such as water and forest resources. In the SEZs, there will be
exploitation of labourers as labour law does not applicable within these zones and there will
also be a possibility of sex harassment of women labourer

Sen and Dasgupta (2007) in their paper, which is based on a field study found a state of
severe in security in terms of job contracts, income and other labour status for those
employed in the highly subsidized and growth-Oriented enclaves of SEZs. They further
stated that India’s drive towards industrialization by setting up a large number of SEZs in
different parts of the country needs to rethink. Unconditional benefits to capital as are offered
to these privileged zones only with the sections to expropriate labours on legal huge
landscapes by displacing the agrarian community open up the need to revisit India’s current
industrialization policy.

Sengupta et al. (2007) in their study, concluded that the SEZs policy has run into a public
debate on the logic of special concessions being granted to already well-Entrenched and well-
Performing capital and the manner in which the required land is being acquired with state
intervention. It has also brought into sharp public focus the resistance of local residents
facing the prospect of displacement and their plight in the absence of viable alternative
livelihood system. Although the need for accelerating infrastructure development for
industrialization and taking advantage of agglomeration economies within these zones is
acceptable but the way in which they are being sought to be created and their overall
implications for industrial growth and economic development need to be thoroughly
examined. It is, therefore, necessary to analyse SEZ Policy and orient it to a justifiable
economic programme. The National Commission for Enterprises in the Unorganised Sector
(NCEUS) suggests “Growth Pole” as an alternative form of SEZs utilizing their potential
benefits but avoiding the pitfalls into which unrestricted expansion of SEZs mayfall in our
country. Instead of creating ‘special enclaves’ for the big and the strong on freshly acquired
land, the authors feel that a hard look is warranted towards areas that have spawned clusters
of single products or multi-Products and services

Shankar (2008) analyzed that the SEZ Act and Rules have evoked considerable interest and
a large number of applications for approvals continue to receive almost on daily basis,
especially from the private sector. The anticipated exports, investment and employment send
positive signals. Another positive development is that the SEZ scheme is being overseen by
an Empowered Group of Ministers. At the same time an effort should be made to see that the
scheme parameters are not changed frequently since certainty and stability of Government
policy is necessary for investment.

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Sharma (2009) in the report of Conference held at the Indian Institute of Advanced Study on
SEZs raises doubts about their desirability on different counts: It is centered around three
themes: SEZs and economic development; SEZs and distributed implications; and SEZs and
legal issues. The study found that SEZs can lead to some serious consequences. Struggles on
the land issues are already surfacing in different parts of the country. The SEZ policy can
lead to serious and adverse consequences including social conflict, civil strife and breakdown
of democratic institutions. It is also likely to lead to increased inequalities: and there is
possibility of shrinking of economic space for the ordinary people by making their production
more unremunerative.

Siddhartha Mitra (2007) describes On the basis of economic theory and history we can
conclude that absorption of agricultural labour is necessary for sustained economic
development of a developing country. Special Economic Zones (SEZs) constitute a medium
for such sustenance. However, the SEZ policy in India has suffered from permission being
granted for far too many sub-optimally sized SEZs or for others serving as appendages to
mega cities and therefore inheriting all the diseconomies associated with the large size of the
latter.

Sikidar and Hazarika (2008) in their study highlighted that the SEZ is being increasingly
seen as an alternative way of economic growth through exports and duty exemption. As a part
of SEZ policy, the government offers several incentives to investors like tax holiday for up to
10 years, duty free imports and exports, world class infrastructure, strategic locations and
market access.
The article provides an overview of SEZs evolution and global growth besides focusing on
several operational aspects of the SEZs, related constitutional requirements and relief and
exemption from income tax. The authors suggested that there is an urgent need to pay
attention to some key issues to ensure a transparent and effective SEZ management.

Sivaramakrishnan (2009) focused on implication of SEZ policy for urban growth and the
governance of the SEZs. It has been argued in the paper that the SEZ is conceptual not only
as a production centre but it is also an urban centre. However, the existing policy is unclear
about both urban growth implications and their management. The emerging model of
governance promoted by different states and also encouraged by the center appears to be
‘non-municipal’. The paper presents the views of various stakeholders such as government
departments and individuals expressed in the hearings of the Parliament’s Committee on
SEZs.
Nevertheless, the ‘non-municipal’ approach, enabling an SEZ to become a private ‘fiefdom’
rather than a part of the country subject to the Constitution and the laws of the land appears to
be prevailing. The paper also critically examines how a constitutional loophole, namely, the
Proviso to Article 243Q, is being exploited for this purpose.

Stoltenberg (1984) in his study examined that SEZ have begun to bear fruit for China.
Indeed, they represent the focus of a substantial share of all foreign investment to date. While
the source of the vast bulk of such investment has been Hong Kong and overseas Chinese,

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there are indications that the base is broadening. Although gaps remain in the framework of
administrations and significant uncertainties continue to confront potential investors, the
flexibility shown by the Chinese in responding to problems as they arise must be encouraging
from the investors’ point of view. Such a response is not surprising in view of the support the
central leadership has voiced for continued SEZ development. The SEZs provide
environments for resting structural reforms and learning about the law of value and market
forces and have also provided employment opportunities. The degree to which the zones will
serve to filter foreign capital, technology, and equipment to other regions, remains to be seen
generators of economic growth.

Subrahmanian and Mohanan (1978) analyzed the central idea behind the setting up of
EPZs in underdeveloped countries to motivate Multinational Corporations (MNCs). In their
paper the authors studied the Santa Cruz Electronics Export Processing Zone (SEEPZ) and
brought out that operations of the MNCs have not achieved the expected results. First, the
overall production and export, as well as the proportion of value added, by units in the
SEEPZ have been far below the targets. Second, the proportion of the value added has varied
inversely with the degree of foreign control, with Indian owned units using Indian technology
performing far better than units controlled by the MNCs.

Sung-Hoon Lim (2011) Risks in the North Korean Special Economic Zone: Context,
Identification, and Assessment this examines the key factors (firm-specific conditions,
political risk, and countermeasures for reducing political risk) affecting the risk assessment of
the Kaesong Industrial Complex, a North Korean special economic zone extremely sensitive
to the North Korean nuclear issue. The empirical results suggest that of the foreign firms
operating in Kaesong, those with a structure sufficiently flexible to cope with the rising cost
of labor are more likely to face higher levels of political risk. In addition, investment
decisions involving high levels of political risk are closely related to company strategies such
as minimizing the initial investment and deploying a dual-plant strategy.

T.N.Srinivasan(2004) China and India: economic performance, competition and

cooperation: an update. China and India chose similar economic development strategies in
1950 of near autarky, industrialization, and the dominance of the state in the economy. China
came out of insulation and began reforming its economy in 1978. India’s hesitant and
piecemeal reforms, initiated in the 1980s, became systemic and broader in 1991. Since 1
980, China has grown at an average rate of around 10% per year and India at 6%, though both
have experienced a slow down since 1997.
Viswanadhan (2006) analyzed the export performance of SEZs in India. The author
examined that total export from the existing EPZs notified as SEZs after the SEZ Act, for the
year 2004-05 were Rs.18300 crore. Nearly 45 per cent of the total exports came from just one
such zone,
SEEPZ, the most successful zone among the earlyzones.

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Wang (2009) in his research paper examined the impact of SEZs on foreign direct investment
and other economic outcomes by using a comprehensive and unique data set on Chinese
municipalities from 1978 to 2007. The study found that SEZ policy increased per capita
foreign direct investment by 58 per cent. It did not crowd out domestic investment and
domestically owned capital stock and increased total factor productivity growth rate by 0.6
percentages point.
The results suggest that creating SEZ not only brings capital, but also more advanced
technology; and provides important policy implications for many developing countries.

Wang and Bradbury (1986) examined the role of SEZs along China’s coast zone and their
place in the progress of modernization in Chinese industry. A special case study is made of
Shenzhen SEZ where the Chinese government has attempted to promote the inflow of foreign
capital and technology, while at the same time maintaining control over direction and types
of development taking place. The state has developed joint ventures and local firms as the
platform into which new technology is injected and from which new industries in the interior
of country will be spawned. Total investment in Shenzhen increased from $ 120 million in
1979 to $ 1130 million in 1983 due to government efforts. Shenzhen’s manufacturing
employment grew from 5000 persons in 1978 to 25000 persons in 1980.

Warr (1989) examined that EPZs are economic enclaves within which manufacturing for
export occurs under virtual free trade conditions. Many developing countries have established
EPZs with the hope of reaping economic gains through employment, foreign exchange
earnings and technology transfer. This article studies the benefits and costs of EPZs in
Indonesia, the Republic of Korea, Malaysia and the Philippines; and reviews the relationship
between the welfare effects of EPZs and the host country’s economic policies.
Wong (1987) attempted to provide a review of the latest development of China’s SEZs,
assessing their achievements in terms of the attraction of foreign capital, export growth and
foreign exchange earnings and technology transfer. Reforms and innovative measures
initiated in the zones that have implications for other parts of China are also discussed.
Problems encountered in the course of SEZ development are examined, nothing in particular
the heavy capital expenditure on infrastructure provisions, the development of trade-Based
economy, the over-Ambitions objectives which would be difficult to achieve in a short period
of time as well as other economic and social issues. It is observed that the development of the
SEZs has been proceeding without careful and co-ordinated planning and that the designation
of economic development zones in the open coastal cities stands to undercut the allures of the
SEZs and has made the latter much less “special” than they used to be.

Wong and Chu (1984) examined the general concept of free zones which include customs
bounded warehouses/factories, EPZs and SEZs to free ports or comprehensive free trade
zones. Special emphasis is placed on discussing the objective and characteristics adopting a
strategy of export led growth by way of establishing EPZ/SEZs in the Asian region. Major
difference between EPZs in countries with market economies and SEZs in socialist country
(China) are brought out. Performance of Asian EPZs/SEZs is evaluated in terms of
achievements in attracting foreign country investment, earning foreign exchange, export
growth, employment generation and transfer of technology, backward and forward domestic
linkages and regional development. Common problems encountered by the Asian Zones
include inadequate infrastructure provision, social problem due to high percentage of female

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workers and the exploitation of the indigenous labour force, inefficient government
administrations and low standard of management. Despite great regional variations in the
source of EPZs/SEZs, the continuing growth in the number of such zones indicates an
increasing interest on the part of Asian governments to adopt the EPZ.

Zhang Lei (2008) the Evaluation of the Process of Indian Special Economic Zone
Construction and its Achievements. India has been engaged in special economic zone
construction since 1960's and the process of which has accelerated since the beginning of the
21st Century, especially since 2006.In recent years, Indian special economic zone has made
great achievements in promoting economic development, expanding export, attracting foreign
investment, and creating jobs. But at the same time, there exist such problems as insufficient
infrastructures, harsh labor laws and disputes over land expropriation.

The study conducted by Confederation of Indian Industry, Northern Region (2006)

analyzed the export performance of SEZs in India. Export from SEZs grew by 16.4 per cent
during the period 2000-01 to 2004-05. In the same period, total export in India grew by 12.1
per cent. Electronics and gems & jewellery contributed more than 75 per cent of the exports
from
SEZs during the year 2002.

The study conducted by World Bank (2008) examined 30 years of experience of Zones,
reviewed development patterns and economic impact of zones world-wide. The experience
shows that while zones have been effective in addressing economic growth and development
objectives, they have not been uniformly successful. Success in East Asia and Latin America
has been difficult to replicate, particularly in Africa and many zones have failed.

A study conducted by Seth Associates (2007) explored the Indian policy framework for
SEZs. The study also examined the various incentives and facilities available to SEZs, and
recent legal and regulatory development pertaining to SEZ in India. The study highlighted
that in India during 2004-05, as many as 948 units were in operation in the SEZs, providing
direct employment to about 1.10 lakh persons from which 40 per cent of them were women.
The exports from the SEZs during 2004-05 have registered a growth of 32 per cent in rupee
terms over the previous year.

The study by Nishith Desai Associates (2006) concluded that the establishment of the SEZs
has, undoubtedly, helped to increase the volume of international trade. Further, a large
amount of foreign investment has found its way not only into the export trade, but also into
infrastructure construction and commerce. Foreign companies have been encouraged to
establish their presence in the territories and the export industry has grown. Advanced foreign
technology has been brought in with the inflow of foreign investment. All these factors have
contributed to the growth of the Indian economy. The enactment of the SEZ Act and its
implementation would enable the GOI to fulfil its agenda of economic reforms as the
multiplier effect on the economic activities triggered bySEZ materializes.

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The review of literature brings out that most of the studies relating to Indian experience of
SEZs analysed the SEZ scheme in India, incentives and facilities provided to the developers
of the SEZs. The sector-wise, state wise and region-Wise distribution of formally approved,
approved in principle, and notified SEZs in India has been undertaken in many studies. On
the other hand, some studies have taken up the issues such as land acquisition, problem of
displacement and
rehabilitation of farmers and agricultural labourers, effect of SEZ on agriculture sector,
labour laws, concentration of SEZs, revenue losses to government, effects of SEZs on
environment etc.
The studies relating to global experience of SEZs examined the performance of SEZs in
terms of employment generation, export promotion, attracting investment (both domestic and
foreign), technology upgradation and skill formation. But in India, there are very few studies
which examined the performance of SEZs and these studies are narrow in scope. So, there is
a need of comprehensive analysis on the performance of SEZs in India. The present study is a
modest attempt to fill the gap in SEZ literature.The review of literature of pharmaceutical
industry presents in a new way of explaininng and understanding the relation of Indian
Pharma zone with Global pharma Zone. Its review helps us to understand the position and
place of Indian pharma industry in the World. It try to find out the actual demand of this
industry in the world market.

Sujay Shetty, leader, pharma life sciences, PwC India, said, “The industry has seen many
regulatory interventions over the last one year, which will require careful consideration by
Pharma companies as they plan their future strategies.
Pharma companies will continue to grow both organically and inorganically through alliances
and partnerships. They will continue to focus on improving operational efficiency and
productivity. Developments in the health insurance, medical technology and mobile
telephony can help the growth of the pharma industry by removing financial and physical
barriers to healthcare access in India, he added.”

Rajiv Modi, chairman CII pharma summit & vice chairman, CII Gujarat State Council said,
“The report highlights the different levers that have fuelled the growth of the Indian market,
emerging new business models, as well as the key success factors that need to be kept in
mind to achieve sustainable long-term growth.”

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 4. Data Analysis, Interpretation and Presentation

4.1 Introduction on Data Analysis

In this chapter, the survey conducted is analysed and interpreted using statistics and
percentages. The data collected from the questionnaire responses has been tabulated in
graphical form and presented as follows:

4.2 DEMOGRAPHIC PROFILE OF RESPONDENTS.

Sample Size 50
What is your age group ?
Age Group Count

18-20 4
20-25 13
25-30 13
30 and Above 20
Total 50

Age Group
20 20

15 13
13
10
4
5

0
18-20
20-25
25-30
30 and Above

From the above table we can observe that a total of 50 respondents were taken into
consideration for the survey, sorted according to their age group providing the total sample
size of the population under study.

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 What is your gender?

Gender Count

Female 27

Male 23

Total 50

Gender

23, 46% Female

Male
27, 54%

The above pie chart shows us, how many male and how many female respondents we have
for our survey.

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 Demographic Representation of Gender Ratio

Age Group

Gender 18-20 20-25 25-30 30 and Above

Female 2 9 8 8

Male 2 4 5 12

Total 4 13 13 20

30

25

20
30 and Above
15 25-30
20-25
10
18-20

Female
Male

From the above table we can observe that a total of 50 respondents were taken into
consideration for the survey, sorted according to their age group and gender
simultaneously providing the total sample size of the population under study. The X-axis
in the above chart shows the gender that is male or female and Y-axis shows the count of
the respondents in their following age group.

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 Do you think the cost of pharmaceutics are value for money?

Yes 26

No 24

Grand Total 50

48%

52%

Yes No

After the survey of 50 respondents we have derived a pie chart which explains to
us as to how many people think pharmaceutics are value for money.

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 Do you prefer using a generic drug or a branded drug?

Reason Count
Branded 27
Generic 23
Grand Total 50

Total
28

27

26

25
Total
24

23

22

21
Branded Generic

From the above chart we can derive according to the survey and the sample size that the
respondents prefer buying branded pharmaceutics rather than generic drugs.
In this figure X axis shows us the reason that is Branded and Generic and the Y axis shows us
the count as to what the respondents prefer.

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 What is your occupation?

Reason Count
Self-Employed 13
Business 19
Other 12
Student 6
Grand Total 50

Total
20
18
16
14
12
10
Total
8
6
4
2
0
Self-Employed Business Other Student

This graph show us representation of the number of people who are into different
occupations like business, self-employed, other and student.

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 Demographic Representation of the Occupation

Occupation

12

10

0
18-20 20-25 25-30 30 and Above

Business Self-Employed Other Student

Age Group
Occupation 18-20 20-25 25-30 30 and Above
Business 9 10
Self-Employed 8
Other 9 4 2
Student 4 4

The employment profile of the respondents is summarised as shown in the figure above.
The respondents are classified into various occupations on the basis of age. The
respondents are classified into various occupations on the basis of age. Since the age group
of 18-20 years of age not many are employed, the total sample size here is 50.

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 How often do purchase pharmaceutics?

Daily 14
Once a Week 10
Once a Month 22
Rarely 4

Purchase Frequency

Rarely

Once a Month

Once a Week

Daily

0 5 10 15 20 25

From the above chart we can analyse the purchasing frequency made by the respondents as to
whether they purchase Daily, Once a Week, Once a Month or Rarely.

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 Do you feel the VAT charged is reasonable?

Is the VAT charged reasonable Count

Yes 16
No 16
Maybe 18
Grand Total 50

Total

32%
36%
Yes
No
Maybe

32%

The above chart explains to us the count as to how many people think the VAT charged
on pharmaceutics is reasonable.

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 Where do you prefer purchasing your medicines from?

Online Physical Store

15 35

40

35

30

25

20 Sum of Online
Sum of physical store

15

10

0
Total

From the above bar chart we can understand that people prefer buying medical drugs
from physical store rather than purchasing them online.

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 Do you think pharma industry creates customers rather than curing
customers?

YES 28
NO 14
MAYBE 8

30

25

20

Sum of Yes
15
Sum of No
Sum of Maybe

10

0
Total

The above chart shows there are majority of people who think the pharma industry is
more focused on money making rather than for the greater cause.
Therefore majority respondents think pharmaceutical has become revenue centric.

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 Which Companies do you Think are Trustworthy ?

14

12 Sum of Cipla
Sum of Dr. Reddy’s Lab
10 Sum of Lupin
Sum of Cadila Healthcare
8 Sum of GlaxoSmithKline
Sum of Glenmark
6 Sum of Aurobindo Pharma
Sum of Sun Pharma

4 Sum of Divis Laboratories

Sum of Torrent Pharmaceuticals

0
Total

Cipla 12
Dr. Reddy’s Lab 5
Lupin 6
Cadila Healthcare 3
GlaxoSmithKline 3
Glenmark 2
Aurobindo Pharma 4
Sun Pharma 13
Divis Laboratories 1
Torrent Pharmaceuticals 1

From the above graph we can see that respondents think Sun Pharma is the most trustworthy
followed by Cipla and others.

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5. SUGGESTIONS

1. As it is absorbed that India’s Pharmaceutical Industry has seen outstanding growth

and positioned itself like a ‘Pharmacy’ in the developing countries; therefore it is
suggested that by all means India should maintain and improve its image in Generic
Pharmaceutical Production and Export, Quality, Safety, Efficacy and Rational
Pricing.

2. Although there is huge number of pharmaceuticals manufacturing units (PMUs) in

India having more than 200 international approvals, maximum units are situated in
only 5 states namely, Maharashtra, Gujarat, West Bengal, Andhra Pradesh and
Tamil Nadu; therefore it is recommended that if representative distribution of
PMUs will done, it will create Job prospects in other states of India and help in all-
round growth of the country.

3. Many unethical practices are either lawful or have not yet hauled under
circumference of law. It is suggested to authorities of government that fresh study
of the matter is needed and strong Laws should be made so that maximum unethical
practices are minimised and good practices become the culture of the
Pharmaceutical Industry.

4. It should be duty of the Pharmaceutical Companies to not promote the drugs and
aggressively influence the doctors to just persuade people to buy more drugs and/or
to pay higher prices but, the aim of the promotion should be for helping the needful
and saving the life of the patients.

5. It is suggested that Pharmaceutical Marketing Professionals should not make much

contacts with the Chemists (retailers of the supply chain of Pharmaceutical
Products) and their reach should be limited to Doctors and Stockiest/Distributors
only; because it is found that at Chemists‟ level the malpractices related to samples
of the medicines and in other forms exist mostly.

6. This is good that Pharmaceutical Companies employing mainly science graduate

but it is recommended that especially marketing and sales professionals in this
industry should have knowledge of basic Sociology and Ethics along with
chemistry and biology. The combination of science graduate plus MBA with Ethics
as a paper will be better for choosing recruits for the job.

7. Proper guidelines for working hours and days in field, number of doctors to meet
daily and, maximum visit to one doctor in a month, etc., should be formulated by
the State and Union governments and implemented forcefully.

8. It is suggested to Pharmaceutical Companies that they monitor and ensure the

behaviours of the doctors related to the samples of the drugs so that they are not
sold for price to patients but must be distributed free of cost.

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 9. The behaviours of PMPs related to their working habit and time utilization in the
market should be monitored by their companies as it is common practice that for
achieving the target of the business and even sometimes just for personal benefits,
PMPs manipulate the information, expenses, company resources, time and samples
etc.

10. Union government must make Laws and regulations more powerful which would
carry heavy punishments also, related to Marketing Practices of Pharmaceuticals.
The arrangement should be made that Pharmaceutical Companies in India should
perform ethically and behave like a Corporate Citizen.

11. In the large country like India where all the societal development activities cannot
be done by the government only and seeks the help of business world. Therefore
corporate sector should also be responsible for the development of basic amenities
in society and for Sustainable Development of the whole country, it is need of the
hour that Pharmaceutical Companies must perform CSR activities also. It is found
that they are working mostly in the field of Health Care, Education and Community
Welfare, but along with it the emphases would be given on Environment, Water and
Rural Development also.

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6. CONCLUSION
The Indian Pharmaceutical Industry has shown great potential and continues to grow
consistently. The Indian generic drug sector is robust and is establishing its presence in
foreign markets too. The new- drug sector is also expected to record a healthy growth owing
to significant industry- wise increase in R&D expenditure and proposed new- drug launches.
However, since health is an important subject, the industry continues to be heavily regulated.
Multiple Ministries continue to regulate the pharmaceutical industry such as the Health
Ministry, Chemicals and Fertilizers Ministry, Science and Technology Ministry, Food
Ministry etc. Numerous legislations, regulations and judgments affecting the industry have
come into existence recently and numerous others have been proposed. The Industry will
have to realign itself with these legal changes in order to ensure continuance of its success
story.
There has never been a more important time for India's government and its drug producers,
both multinational and domestic, to work together in partnership for the good of the industry
and the nation. With its enormous advantages, including a large, well-educated, skilled and
English-speaking workforce, low operational costs and improving regulatory infrastructure,
India has the potential to become the region's hub for pharmaceutical and biotechnology
discovery research, manufacturing, exporting and health care services within the next decade.
However, in order for this to happen, it is imperative that the regulatory environment
continues to improve. Otherwise, India needs to look to the achievements of China, where the
government's strong commitment pro-industry policies have produced a positive environment
that not only offers drug manufacturers a product patent regime but also, and crucially, data
protection. India's continuing failure to do so needs to be urgently rectified.
The goals set out in the Indian government's draft National Pharmaceuticals Policy for 2006
in terms of domestic market development are ambitious, and will require a positive pricing
environment if the country's 1 billion people are to be able to access the life-saving and
innovative medicines they need. Again, partnership is key: industry leaders are keen to work
with government on issues of affordability and point out that price controls will do nothing to
increase access to new and effective treatments.
For foreign investors, collaborations with India present a huge opportunity both in terms of
joint production for the global market and supply of the growing domestic market.

Considering the broader context

•Macroeconomic and health sector reform set the context for changes in the pharmaceutical
sector. Pharmaceutical policy reform must be viewed in the broader context of
socioeconomic change, changes in political ideology, health sector reform and trends towards
globalization.

•Governments must focus on public health goals. Equity of access, rational drug use and drug
quality are the ultimate goals. Altering the relative roles of the public and private sectors is
solely a means to achieving these goals. Privatization is not a goal in itself.

•Policies reforming public-private roles need to be rooted in an overall policy framework.

The national drug policy, based on the essential drugs concept, provides such a framework.
The pharmaceutical market is different from other markets.

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•The pharmaceutical market requires separate analysis and different Treatment from markets
for most commodities. Drugs are different from cabbages and candies. The pharmaceutical
market is a far more complex and critical market than markets for most other commodities.

•Unregulated pharmaceutical markets will not promote efficiency in health care.

Competition, flexibility and the profit motive may make the private sector efficient in a
narrow technical sense. But the essential drugs concept and focus on cost-effective treatment
may result in greater therapeutic efficiency in the public sector (greater health outputs for a
given cost).

•Unregulated pharmaceutical markets will create inequitable access to drugs. Equity of access
means that essential drugs are affordable and available to the entire population. In a free
market access will be based on people's ability and willingness to pay for drugs, not on their
need for drugs.
Low-income populations, people in remote areas and those requiring certain categories of
drugs (e.g. "orphan drugs" and high-cost drugs) will be denied access.

Regulating pharmaceutical markets is a highly complex and difficult task. The problems
associated with pharmaceutical markets cannot easily be vanquished by regulation. Even
highly sophisticated governments with substantial capacity struggle to regulate effectively. In
many instances direct government provision of drugs may be an easier task than regulating a
private market.

Cornerstones of a government strategy

•The state has fundamental responsibilities to ensure equity of access to drugs, rational drug
use and drug quality. In order to assure these the state is likely to be involved in: −financing
of drugs (particularly for low-income and vulnerable groups, and for drugs and vaccines for
communicable diseases); −organization and provision of services;−regulation of both public
and private sectors.

•Affordability is a major concern in the private for-profit sector. A high percentage of

consumers cannot afford to purchase a therapeutic quantity of drugs when needed. The state
must find mechanisms to ensure that essential drugs are affordable. Such mechanisms may
try to: −influence the price of drugs in the market;−establish equitable health financing
mechanisms.

•Greater private involvement does not mean less public involvement. An increasing role for
the private sector means a different role for the public sector, not a decreased role.

•Increasing resources for regulation—especially for registration, licensing, inspection, quality

assurance, enforcement and information provision —should be a high priority for most
governments. This is particularly so if there is increasing reliance on private pharmaceutical
supply.

•The integration of market mechanisms in the public sector needs to be approached with
caution. While on a prior grounds there are good reasons to believe that such mechanisms
may reap benefits, there is no empirical evidence to support this. Lack of capacity in both
public and private sectors may prevent the successful use of such mechanisms.

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•The establishment of new state-owned and state-managed production facilities has little to
recommend it—and much against it.

•The private sector is heterogeneous. Government policies need to distinguish between

different actors within the private sector. In particular the potentially key role played by the
"third sector" or NGOs should be defined and explored in greater detail.

It is not the purpose of this document to recommend a specific public-private mix for the
pharmaceutical sector. As has been seen, the balance of public-private involvement varies
widely and a particular combination of roles may function well in one situation or culture, yet
may fail to ensure satisfactory accessibility and rational drug use in another. Rather, the
purpose has been to stress the importance of flexibility in reviewing the balance of public-
private roles and the importance of being forewarned when considering economic, social or
development policies that may affect that balance. The complex issue of public-private roles
in the pharmaceutical sector has certainly not been settled.
It will continue to be a focus of concern for governments since it involves a great many
aspects of society, a great deal of money and, most importantly, the maintenance of health
standards for a great many people.

The Indian market is impossible to ignore, given its economic prospects. Foreign companies
view India as a potential significant contributor of future sales and are ramping up their
investments in the country accordingly. India’s domestic market looks promising for global
pharma looking to launch new products. The country’s growing capabilities in contract
manufacturing, R&D and clinical trials also make it a preferred outsourcing partner for global
pharma at every stage of the value chain. So what strategy should foreign pharmaceutical
companies eager to enter the country or expand their existing operations adopt? One
approach is to call on India’s increasing expertise in biotechnology, bioinformatics and
clinical testing. Several overseas companies have outsourced research and clinical trials to
Indian contractors, while others have entered into collaborative R&D arrangements to
supplement their R&D productivity. Many foreign companies have also already initiated
research on neglected diseases. We believe that many more will do so, as the patent regime is
strengthening. This will enable them to capitalise on the cost savings to be gained from
shifting some research activities to India, without jeopardising their most valuable intellectual
property. Another approach is to tap into the growing domestic market. Foreign companies
with a product portfolio spanning across different therapeutics segments can look at bringing
newer products in India by entering into collaborative networks across the value chain, from
sourcing and manufacturing to marketing and distribution. These companies will have to
understand how to get their product to market and develop a realistic pricing strategy,
particularly as India is still far away from a widespread shift to an insured payer model.

India’s pharma market is highly fragmented and remains extremely price sensitive.
Affordable healthcare continues to pose a challenge, although there are a number of
healthcare initiatives by the Government underway to improve the situation for India’s vast
population. Indian courts and regulatory authorities are very sensitive to pricing issues in
making decisions around intellectual property. Pharma companies coming into India may
need to consider a differential pricing. They will need to evaluate access to medicines, a

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volume-based pricing strategy and take into account gradually increasing per capita incomes
to come up with acceptable price levels for their drugs. Global pharma companies will then
need to decide how to manufacture their products, and identify and develop strong local
partners. One way to build a presence in India may be through an increased presence in the
OTC market. Promoting a range of OTC products could serve as means of building brand
awareness and as a source of new revenues. Indigenous producers dominate the generics
business, and about 97% of all drugs sold in India are already off patent. The OTC market is,
by contrast, relatively undeveloped. Indian consumers already pay privately for the lion’s
share of their healthcare, and the Government is too hampered by budgetary constraints to
reverse this pattern. In future, then, it seems likely that access to OTC medicines will be
improved and the market will continue to expand. The pharmaceutical business model is
witnessing a paradigm shift, moving from a fully integrated company structure towards a
future where companies use a wide range of outsourcing, partnership initiatives and other
contractual and relationship arrangements to create networks of collaboration and discovery.
Investing in India will be a vital component of this networked future. Companies that will be
most successful in doing business in India will be those that are most adept at managing and
mixing a range of contractual relationships and partnership strategies. Some practical issues
will need to be addressed, regardless of the business model selected. Infrastructure deficits
continue to exist, although some are being addressed. Intellectual property protection has
improved substantially but some holes remain. And while the regulatory environment in India
has improved substantially in recent years, the industry still faces a number of question
marks. Finalisation of Government policies around drug price control, access to OTC drugs,
tax policy, intellectual property protection and infrastructure spending is still pending.
Nonetheless, India’s appeal is growing rapidly in a number of respects. It has long been a
formidable player in pharmaceutical manufacturing, but its socio-economic strengths provide
even greater grounds for optimism. If the economy outpaces that of every other emerging
country for the next half century, as many commentators expect, large portions of the
population will be able to afford modern medicines. India’s increasing scientific expertise
will also equip it to play a significant role in researching and developing those drugs. It has a
large pool of highly educated, English speaking scientists who can undertake research and
conduct trials more cheaply and in some cases faster than their Western peers. These are
major advantages in a world where drug development costs are soaring and getting to market
fast is vital.

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7. BIBLIOGRAPHY
https://www.pwc.in/press-releases/india-pharmaceutical-industry-is-on-a-good-growth-
path.html

https://en.wikipedia.org/wiki/Pharmaceutical_industry_in_India

https://blog.ipleaders.in/patent-law-india-pharmaceutical-industry/

https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=6854&kw=growt
h-pharmaceutical-industry-india

http://www.indianeconomy.net/splclassroom/9/what-is-the-greenfield-versus-brownfield-fdi-
debate/

https://www.ibef.org/industry/pharmaceutical-india.aspx

https://economictimes.indiatimes.com/industry/healthcare/biotech/pharmaceuticals/indian-
pharma-sector-growth-to-moderate-in-next-3-years-icra/articleshow/59425280.cms

https://www.outlookindia.com/outlookmoney/investment-ideas/gst-increased-pharma-
industrys-worries-1958

http://www.business-standard.com/article/companies/sun-pharma-expects-fy18-revenues-to-
decline-due-to-pricing-pressure-in-us-117090300309_1.html
http://www.business-standard.com/article/companies/india-s-pharma-industry-may-touch-55-
bn-by-2020-115122800464_1.html
https://business.mapsofindia.com/india-gdp/industries/pharmaceutical.html
http://www.infocusrx.com/blog/module-2-indian-pharma-market/
http://apps.who.int/medicinedocs/pdf/whozip27e/whozip27e.pdf
http://shodhganga.inflibnet.ac.in/bitstream/10603/10199/9/09_chapter%202.pdf

http://www.dw.com/en/pharma-industry-accused-of-drug-testing-in-poorer-countries-with-
lax-regulation/a-16832331

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 8. Survey

What is your gender?

o Female
o Male

What is your age group?

o 18-20
o 20-25
o 25-30
o 30 &above

Which companies do you think are trustworthy?

o Cipla
o Dr . Reddy’s lab
o Lupin
o Cadila Healthcare
o GlaxoSmithKline
o Glenmark
o Aurobindo Pharma
o Sun Pharma
o Divis Laboratories
o Torrent Pharmaceuticals

Do you think the cost of pharmaceutics are value for money?

o Yes
o No

Do you prefer using a generic drug or a branded drug?

o Generic Drug
o Branded Drug

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What is your occupation?
o Business
o Self-Employed
o Student
o Other

How often do purchase pharmaceutics?

o Daily
o Once a week
o Once a month
o Rarely

Do you feel the VAT charged is reasonable?

o Yes
o No
o Maybe

Where do you prefer purchasing your medicines from?

o Online
o Physical Store

Do you think pharma industry creates customers rather than curing customers?
o Yes
o No
o Maybe

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