5555

In the 1950s, riven by drought, disease, pestilence andwar, India appeared to be an archetypal example of aMalthusian population explosion reaping itsinevitable rewards. But since then food productionhas quadrupled and the average life span lengthenedfrom 45 to 62 years, whilst its population has tripledto over a billion.The indications are that these trendswill continue — but only if India continues to makeitself a more hospitable place in which to dobusiness.An important part of this is creating theright incentives to develop new technologies, such as biotech crops and pharmaceuticals.

Much of the improvement in living conditions inIndia over the past half-century has come from theapplication of technology. Green revolution cropsmassively increased agricultural yields, providingpeople with nutrition; vaccination campaigns reducedthe incidence of killer diseases such as TB, hepatitisand typhus; and spraying with DDT brought malariaunder control. More recently, the IT sector hascontributed significantly to economic growth.However, in other areas, lack of appropriateintellectual property laws has undermined incentivesto further technological innovation.

Until 30 years ago, India had strong intellectualproperty laws – modelled on Britain’s system. But in 1971 Indira Gandhi enacted legislation removingpatent protection from pharmaceutical andagricultural products. Speaking to the World HealthAssembly the following year, Mrs Gandhiproclaimed, ‘The idea of a better ordered world isone in which medical discoveries will be free frompatents and there will be no profiteering from lifeand death.’ Sadly – and not entirelyinconsequentially – over 70% of the Indianpopulation still cannot afford pharmaceuticalproducts. In this attempt to prevent profiteering fromlife and death, India’s cloying, corrupt, caste-riddenbureaucracy has imposed a dead hand on Indianpeasants and entrepreneurs alike.

The lack of product patent protection hassignificantly reduced incentives, both domestic andforeign, to invest in product research anddevelopment in India.This is particularly an issue for pharmaceutical and biotechnology companies.In other industries, the costs of research anddevelopment may be recouped through strong initialsales, made possible by a combination of secrecy andstrong marketing, which give the developer a ‘first-mover’ advantage. But for pharmaceuticals andbiotech crops, this strategy is not enough.Development costs are typically very high, whereas

the products, once developed, may be easily copied.This is exaggerated by the requirement that productsbe tested very rigorously prior to marketing – whichincreases development costs and makes secrecy abigger problem.The result is that without productpatent protection there is insufficient incentive toengage in commercial research and development onnew pharmaceuticals and biotech crops.

India’s information technology industry has beenless badly affected by the lack of product patentprotection. In part this is because computer code isprotected by copyright; in part it is becauseencryption makes it easier to keep the source codesecret. Indeed, the IT industry has been the mostdynamic sector in the Indian economy over the past decade. In 1990, the IT industry produced $150 million; in 2000, this figure was close to $6 billion, including around $4 billion in exports.

The IT industry will continue to expand overcoming years for several reasons. First, India willremain a far cheaper place to source IT expertisethan most other parts of the world. Second, nearly 30million people in India speak English.Third, many ofthese people are acquiring IT skills at private trainingcompanies such as NIIT, where a month-long coursecosts only a fraction of what it would in the UK orUS.

Expansion of the Indian IT industry will also bedriven by synergies with other industries –particularly biotechnology. Bioinformatics, or theapplication of databases and computer algorithms to biological information, will be amongst the mostimportant technologies over the next few decades.It is bioinformatics that underpins the decoding ofthe human genome.And it is bioinformatics that will enable the development of ultra-targetedpharmaceuticals and third-generation biotech crops.At present, however, inadequate patent protection hasdiscouraged the development of a fully-fledgedbioinformatics industry in India. For this to emerge,the other synergistic companies (those engaging inbiotechnology and pharmaceutical research) must begiven an incentive to invest.

Fortunately this omission is due to be correctedshortly. Under the Trade Related Aspects ofIntellectual Property (TRIPS) agreement, India mustestablish a patent system that protects such productsby 2005. But why wait? The next few years will becrucial in developing an expertise in bioinformatics.If India wants to become a world-leader in this field– and it is otherwise well-placed to do so – it mustenact strong product patent laws as soon as possible.

Technology

From basket-case to bread

basket andbeyond:

India’s glorioustechnological

futureJulian Morris

Co-Director, IEA Environment and

Technology Programme

ECONOMIC AFFAIRSJune 2001

© Institute of Economic Affairs 2001

Published by Blackwell Publishers

Colu

mns