In mid-May, the world cheered as India elected its new Prime Minister, Narendra Modi. Many believed his election foreshadowed a new beginning for India, as Modi and his BJP party ran on a pro-growth, business-friendly platform in an attempt to improve the environment for doing business and open the country up to greater foreign direct investment, further transforming the country into a robust, 21st-century economy. Sworn in at the end of June, Prime Minister Modi has been in office for a little over a month and, while still in its early stages, his desired tone and policies are beginning to take hold.

As ITIF wrote in The Indian Economy at a Crossroads, Modi’s election heralded a potential turn away from India’s recently growing embrace of “innovation mercantilist” policies, such as local content requirements for manufacturers and arbitrary patent denials and revocations, which were one of many factors contributing to Indian economic growth sinking to decade-low levels in 2013. For example, Modi’s campaign platform included specific provisions regarding intellectual property reforms, demonstrating that he understood that fostering an innovative environment in India would be the key to propelling it to the forefront of the global economy once again.

However, a ruling issued last week by Bombay’s high court delivered an unexpected blow to India’s new chapter and sets a dangerous precedent for hopes of Indian economic renewal. In March 2013, India’s Intellectual Property Appellate Board (IPAB) upheld a local patent authority’s grant of a compulsory license to an Indian generic drug manufacturer, Natco, allowing it to produce a generic version of Bayer’s anti-cancer drug Nexavar, even though it was still under patent. Bayer promptly petitioned against the IPAB’s decision, but that decision has now been upheld by the Bombay high court. Bayer has vowed to appeal this verdict to India’s Supreme Court.

In the initial (March 2013) ruling, India’s Patent Controller General ruled against Bayer’s contest of the compulsory license grant on three counts, including one contending that the patent was not “worked” (i.e., exercised) to the fullest practical extent in India because it was not manufactured there—a policy decision that discriminates against imports in violation of India’s commitments as part of the World Trade Organization’s Trade-Related Aspects of Intellectual Property (TRIPS) agreement.  Hopefully, India’s Supreme Court will recognize that issuance of compulsory licenses based in part on the grounds that a company is not adequately producing locally constitutes a distortion of what was intended as a public health exception into an industrial policy, which over the long term threatens to stifle innovation, both by domestic innovators and by foreign enterprises that may be more reticent to introduce innovative products to India for fear their intellectual property rights may be compromised.

Unfortunately, the Nexavar decision comes on the heels of a spate of patent denials or revocations on innovative pharmaceutical or biologics drugs issued by Indian courts in recent years. For example, in June the Indian Patent Office refused to issue a patent for the U.S. firm Abraxis Biosciences’ anti-cancer drug Abraxane. The Indian Patent Office rejected the application on the grounds that Abraxis Biosciences’ patent application failed to demonstrate “an inventive step” and was therefore not patentable, according to Section 3(d) of the Indian Patent Act of 1970. Abraxis joins a lamentably growing list of firms—whose ranks now include Pfizer, Roche, Merck, and Allergan, among others—who have had their patent applications for innovative life sciences products rejected by the Indian Patent Office on the specious grounds that their drug’s development lacked an inventive step or did not show a sufficient degree of “inventiveness.”

India simply cannot usher in a new, innovative economy that will expand and sustain itself for years to come if it continues to revert back to these same tried-and-failed mercantilist practices. That reality is clearly documented in findings from the latest Global Innovation Index, a report jointly published by INSEAD, the World Intellectual Property Organization, and Cornell University which ranks the innovation capacity of 143 economies. The 2014 report, released last week, finds that India has slipped to 76th place (a drop of fourteen spots since 2011), with India ranking last among BRICS nations in innovation capacity. Moreover, the latest World Bank Doing Business report finds India falling to 134th (down from 132nd in 2013) among 189 nations with regard to the quality of its business environment. In part, this is a reflection of Indian policies in recent years that have focused on advantaging domestic producers at the expense of foreign competitors as opposed to boosting the innovation capacity of India’s own entrepreneurs, businesses, and industries. Such policies recently compelled global industry leaders to send a letter to trade ministers attending last weekend’s G-20 Summit in Sydney, Australia urging them to address the rampant forced localization policies (i.e., localization barriers to trade) recently implemented not just by India, but by a wide and growing number of nations around the world. India must turn the page on these types of innovation mercantilist policies if it wishes to achieve sustainable economic growth going forward.

The world community looks forward to maintaining an open and productive dialogue with India in the future. However, Prime Minister Modi must begin bringing about the changes to Indian economic and trade policy that he promised on the campaign trail—improved policy proposals that certainly played a part in helping him get elected.

(Stephen Ezell is a Senior Analyst with the Information Technology and Innovation Foundation (ITIF), with a focus on innovation policy, international information technology competitiveness, trade, and manufacturing and services issues. He is the co-author with Dr. Atkinson of "Innovation Economics: The Race for Global Advantage" (Yale, 2012). Ezell comes to ITIF from Peer Insight, an innovation research and consulting firm he co-founded in 2003 to study the practice of innovation in service industries. At Peer Insight, Ezell co-founded the Global Service Innovation Consortium, published multiple research papers on service innovation, and researched national service innovation policies being implemented by governments worldwide. This blog first appeared The Innovation Files website and is reproduced here with permission.)


(1) comment

Isac A
Isac A

Mr Ezell, perhaps you have a very low opinion of the indian education system. Or you are right and we are missing something important..... If so, would you kindly explain how allowing a US company to evergreen their patents contribute to indian economic development. Sure, it helps America but co-operation is not a zero sum game. It would be good if you don't forget that.

Welcome to the discussion.

Keep it Clean. Please avoid obscene, vulgar, lewd, racist or sexually-oriented language.
Don't Threaten. Threats of harming another person will not be tolerated.
Be Truthful. Don't knowingly lie about anyone or anything.
Be Nice. No racism, sexism or any sort of -ism that is degrading to another person.
Be Proactive. Use the 'Report' link on each comment to let us know of abusive posts.
Share with Us. We'd love to hear eyewitness accounts, the history behind an article.