From Copycats to the Pharmacy of the World: How India's Pharmaceutical Industry Adapted to Trade Related Global Intellectual Property Reform

This brief is part of the Insights @ Center for Emerging Markets, a publication focused on cutting-edge ideas and advice for global leaders about emerging markets.

By Preet S. Aulakh (York University, Canada)

In Short: This brief analyzes India's response to the 1995 TRIPS Agreement, which replaced process patents with stricter product patents. Previously, Indian firms thrived through reverse engineering, exploiting a legal framework that allowed them to manufacture affordable versions of patented drugs by altering the production process. The new intellectual property regime threatened this source of competitive advantage. By combining government policies that balanced research incentives with the social goal of affordable medicines and an industry focus on high-quality manufacturing, India became a global leader in generic medicines. For decision makers in emerging markets, this case highlights how proactive policy and niche specialization can sustain competitiveness amidst shifting global standards. India's experience shows that global institutional shifts do not necessarily lead to industrial decline when states and firms respond strategically through coordinated action.

The competitiveness of industries in emerging markets is frequently shaped by changes in global institutional frameworks. A significant example is the transformation of the Indian pharmaceutical industry following the 1995 Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. Prior to this, India's 1970 Patent Act protected “process” rather than “product” patents for substances intended for use as food or medicine. This legal distinction allowed domestic firms to produce the same molecules under product patents in other countries at a fraction of the original cost by altering the manufacturing process. Combined with drug price controls and increased public investments in R&D, this regime fueled exponential growth in the domestic industry, with Indian firms' market share rising from 20 per cent in 1970 to almost 80 per cent by 2006. However, the TRIPS Agreement mandated product patents with a minimum of 20 years of protection, negating the process patent distinction that had been the foundation of India's competitive advantage.

To adapt to this global institutional shift, the Indian government and private sector followed a dual-track strategy to maintain global standing. First, the government made effective use of legal flexibilities within the TRIPS Agreement to prevent evergreening, which is the practice where companies make minor modifications to extend the life of a patent. The government also retained provisions for compulsory licensing to allow for production during public health emergencies. Second, the 2002 Pharmaceutical Policy created incentives for research and development while further reducing the rigors of domestic price controls. The policy also allowed 100 percent foreign equity ownership to encourage the transfer of technology and facilitated technology agreements between Indian firms and foreign companies.

The success of this adaptation is evident in India's trade figures. Exports grew from approximately 1 billion dollars in 2000 to over 7 billion dollars by 2010, and more than doubled again by 2016. India has the largest number of US FDA-approved production facilities outside of the United States. Since Indian firms had neither the resources nor the capabilities to carry out radically new product innovations (that is, new drug discovery), their route for growth in global markets was through off-patented innovations. Instead of pursuing new chemical entities, they found creative detours by focusing their innovation on improving manufacturing processes and delivery systems for generic drugs. Of more than 1,500 patents granted by the US Patent Office to the Indian pharmaceutical industry between 1992 and 2013, only 19 were new chemical entity patents; most were related to process patents, new drug delivery systems, and new substances.

Indian companies also used outward foreign investment to acquire firms in developed markets. This gave them access to advanced technology and established distribution networks. This dual approach of asset exploitation (entering new markets with generic and low-cost products) and asset exploration (acquiring know-how and marketing assets) allowed the industry to move up the value chain without the prohibitive costs of radical innovation. Small and medium-sized companies made a large proportion of these foreign acquisitions. By focusing on becoming a world-class supplier of high-quality drug formulations, India maintained a trade surplus even though its imports of raw chemical ingredients increased.

Managerial and Policy Implications

The primary lesson for decision makers is that global institutional shifts that reduce national protection do not necessarily lead to national industrial decline. Emerging markets can maintain competitiveness by identifying alternative pathways (or creative “detours”) that leverage existing national strengths, rather than just following strategies that worked in the past in other geographical and temporal contexts. By balancing social goals like affordable medicine with incentives for private sector research, states can foster industries that meet both domestic needs and global market demands. India's experience also demonstrates that state-facilitated development must continue to evolve: since 2018, new policies have supported technology upgrades for small and medium-sized firms, product diversification, and the development of high-value goods beyond generics through initiatives such as production-linked incentive schemes.

Original Work

Aulakh, P. S. 2025. Intellectual property rights and global competitiveness of developing economies: the case of India's pharmaceutical industry. In Rolland, S. (Ed.), Research Handbook on Trade Law and Development, Edward Elgar Publishing, pp. 190–206 (ISBN 978-1-03532-595-5).

Contact

If you are interested in learning more about this work, contact Preet S. Aulakh at [email protected].