Small but Mighty: The Evolution and Challenges of India’s Small Pharmaceutical Firms

The Hidden Champions of Indian Healthcare In the vibrant landscape of India’s pharmaceutical industry lies an often-overlooked story – the tale of thousands of small pharmaceutical companies that have played a crucial role in making life-saving drugs accessible and affordable. What makes these companies remarkable isn’t just their numbers (they make up over 90% of pharmaceutical units in India), but their journey from modest beginnings to becoming vital players in India’s healthcare ecosystem.

A Strategic Rise The success of these small firms wasn’t accidental. It was carefully orchestrated through strategic government policies that:

• Created a patent system that allowed companies to develop alternative manufacturing processes
• Reserved certain drugs exclusively for small-scale production
• Gave preference to small firms in government health programs
• Provided exemptions from price controls

David vs. Goliath: The Productivity Challenge However, the data tells an intriguing story about these companies’ operational realities:

• They achieve only 45% of the labor productivity of large firms
• They employ 23 skilled workers for every 100 manual workers (compared to 33 in large firms)
• They invest just 1% of their assets in information technology
• They operate with less sophisticated machinery and equipment

The New Policy Storm The real drama unfolds as these companies face unprecedented challenges from policy changes:

1. The Patent Challenge: The new patent regime blocks their traditional path of reverse engineering, forcing them to find new ways to innovate
2. The Quality Imperative: Global manufacturing standards demand expensive upgrades many small firms struggle to afford
3. The Chinese Factor: Cheaper bulk drug imports from China have caused estimated losses of ₹2,500 crore annually to small Indian manufacturers
4. The Tax Maze: New tax-free zones have created an uneven playing field, forcing some firms to either relocate or shut down

Paths to Survival The paper suggests several survival strategies:

• Focus on emerging generic drug opportunities as patents expire
• Increase investment in IT to improve efficiency
• Form innovation clusters to share R&D costs
• Target contract manufacturing for larger companies

Policy Prescriptions For these firms to survive and thrive, the research recommends:

• Creating a special fund for technology upgrades
• Increasing the excise duty exemption limit
• Providing R&D support specifically targeted at small firms
• Developing Special Economic Zones for small pharmaceutical companies

The Stakes This isn’t just about business survival – it’s about preserving India’s healthcare security. Small pharmaceutical firms have been crucial in:

• Keeping essential drug prices affordable
• Serving rural and remote markets
• Providing significant employment
• Contributing to India’s pharmaceutical self-reliance

Academic Abstract:

Small firms dominate the Indian pharmaceutical industry with significant contribution to the national drug production and employment. They had played an important role in enhancing domestic technological capabilities in drugs production and have been instrumental in keeping drugs prices affordable for the Indian populace in remote rural areas. This rise of small firms in this sector has been facilitated by a set of strategic government polices implemented in the past decades like adoption of a process patent regime, relaxation granted from price control and industrial licensing requirement, reservation of items for exclusive production and preference in government procurement, etc. Since 1990s the regulatory regime for small firms underwent dramatic changes with withdrawal of most of the favoruable policies and implementation of regulations like a long‐term product patent regime, withdrawal of exemption from price controls, implementation of good manufacturing practices, etc. These new policies have a number of implications for the survival and growth of small pharmaceutical firms today.

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Full citation: Pradhan, Jaya Prakash (2011), ‘New Policy Regime and Small Pharmaceutical Firms in India’, in K. Das (2011) (ed.), Micro and Small Enterprises in India: The Era of Reforms, pp. 227–247, London & New Delhi: Routledge.

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