Indian Copying Fears Grow as Multinationals Shift to Low-Cost Zones

May 4, 2005

Multinational pharmaceutical companies present in India are spearheading the shift away from the country's traditional drug manufacturing centres, and are increasingly obliging their contract manufacturers to relocate.

The trend has been driven by India's export pricing regime, which is based on official maximum retail drug prices. Wide disparities between prevailing duties and tax incentives in different states have also spurred the move away from the industry's core drug manufacturing regions of Maharashtra and Gujarat.

Aside from the inevitable economic impact, there are fears that manufacturers who relocate to take advantage of export incentives are exposed to weak regulatory standards and law enforcement. Many low-cost states have underdeveloped quality and intellectual property enforcement structures, which have led to a rise in illicit copying and counterfeiting. However, with excise duty set at 16% of retail prices in the major drug manufacturing states, low-tax zones such as the remote states of Himachal Pradesh and Uttaranchal are now attractive for many drug manufacturers.

Indian chamber of commerce Assocham hopes that the value of the country's pharmaceutical exports will rise from the present US$2bn to US$6bn by 2015. Apart from manufacturing incentives and tax breaks, much of India's annual drug export growth of roughly 20% has been driven by generics makers' overseas expansion plans, as well as a safer environment for multinationals in the wake of the new Patent Law. Further, Assocham expects ongoing modernisation and technical improvements to be key growth drivers over the next decade.