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L E A D S T O R Y A Bitter Pill
Damned if you do, damned if you don't. That, in effect, is the dilemma staring policymakers in the face in New Delhi's Ministry of Chemicals and Fertilisers. Even as the Vajpayee administration puts the finishing touches to its five-year drug policy for 2000-2005, it must grapple with a critical issue: whether to continue pricing control on 73-odd life-saving drugs in the interest of consumers or to free them up so that the drug industry, which is bracing up for the product patent regime beginning 2005, can rake in enough money to plough back some into R&D and marketing. Critical as the issue is, it is unlikely to be settled in the industry's favour. Says a ministry official: ''We are aware of the need to protect the industry's interests, but we cannot sacrifice the interests of poorer consumers.'' The government's dilemma is further compounded by the fact that public sector units-like Indian Drugs and Pharmaceuticals Ltd, and Hindustan Antibiotics Ltd-that make life-saving drugs such as penicillin, tetracycline and aspirin, are either already sick or on the verge of turning sick. The argument for not freeing up prices, therefore, is that in the event of an epidemic, the lack of access to high-cost drugs could kill a large number of India's poor. The industry believes that the fear is misplaced. Drug companies contend that controlling prices of the 73 drugs is not just eating into their profits, but also jeopardising their future competitiveness. The reason? The 73 drugs fetch nearly 70 per cent of the industry's revenue. Therefore, the industry argues, all pricing control does is deny funds to critical areas such as R&D and marketing. In any case, the industry says, R&D is a time-consuming and expensive business. Consider: of the 10,000 compounds that typically are screened for discovering new chemical entities (NCE), less than 4,000 show any promise at the pre-clinical stage. Of these, less than 250 make it to clinical trials and only five are accepted for further tests. Eventually, only one in five has any chance of seeing the light of day. The process of development could take seven years and cost a staggering $1.6 billion, although few Indian companies go beyond the NCE discovery stage. It's hard to shrug off the industry's argument, especially in view of the new patent regime due to begin in 2005. At the moment, patent laws prohibit copying of drug-making processes. Therefore, a drug like Viagra cannot be manufactured using the same process as employed by its developer Pfizer. But there's no bar on an imitator tweaking the drug-making process to come up with the same drug. The Indian industry has used this loophole in patent laws to roll out cheap international bestsellers. That allowed it to scale up production facilities and master drug chemistry, so much so that it is ranked No. 17 globally in terms of production. Product patents will bar the launch of imitators while the patent is extant, even if they've been manufactured using a different process. Any new drug launched after 2005 will only be available from the original manufacturer-and, potentially, at international prices. The most that Indian drug makers can do is to tie up with the innovator for marketing the product in India. Ironically, Indian companies have no such patent protection locally. The existing intellectual property rights (IPR) law is not compatible with the World Trade Organisation (WTO) agreement and Trade-Related Intellectual Property Rights (TRIPS). Therefore, drug makers are unwilling to invest in new drugs, fearing easy imitation by rivals. In his recent report 'Transforming India Into A Knowledge Power', R.A. Mashelkar, Chairman of the Pharmaceutical Research and Development Committee, states: ''The expectation of the Indian pharmaceutical industry can only be realised when the rights of the innovators are not only protected, but also seen to be protected through legislation and effective enforcement.'' Awaiting such assurances, the industry wants to be able to operate in a free market like in the US. For starters, the industry wants 24 of the 73 drugs to be taken off price control. BT learns that a compromise figure of 14 may be reached, leaving 59 under control. It's a bitter pill the industry may have to chew on for at least another five years. -Ashish Gupta C
A P I T A L M A R K E T S
The Securities and Exchange Board of India's (SEBI) new recommendations on initial public offerings (IPOs) should gladden the hearts of non-tech companies. The new draft norms allow such companies to offer just 10 per cent of their equity to the public. Until now, the privilege was granted only to companies from the software, media, and infrastructure sectors. All others had to offer at least a quarter of their equity at the time of IPO. The proposed concession will allow companies more flexibility in structuring their public issue. Specifically, the unsubscribed part of the fixed-price section of a book-built issue can now be sold to institutional investors. However, there's a big catch. Companies offering just 10 per cent of their equity to the public must have a minimum IPO size of Rs 250 crore. While this will help companies with high market capitalisation (they can tap institutional investors), smaller companies just won't be able use the new concession. Says a top executive in Enam Financial: ''How many companies in India can come out with IPOs bigger than Rs 250 crore?'' But as Prithvi Haldea of Prime Database points out: ''the new guidelines have not yet been approved by the SEBI board.'' He adds: ''they will not help revive the market in the long term.'' According to P.V.R. Murthy, Managing Director, Aryaman Financial Services, the new norms not only favour the big companies, but also don't help technocrats-turned-entrepreneurs. ''It will be very difficult for a first-generation entrepreneur to retain 90 per cent of his company's equity,'' says he. And what happens to companies that want to offer, say, 15 per cent of their equity? SEBI has also ruled that companies will have to maintain the minimum public shareholding as a continuous listing requirement. How this is to be enforced will be decided in SEBI's next meeting. Watch this space. -Shilpa Nayak T
E C H N O L O G Y Even as Europe hawked licences for third generation (3G) mobile telephony a few months ago, several thousand miles away in Bangalore in India, talks were underway for collaboration on a fourth-generation (4G) wireless broadband project. The collaborators: the California-based Charmed Technologies and the Software Technology Park of India (STPI). And the world's first city chosen for the project: Bangalore. The mission? To provide broadband internet access through multiple devices, including unconventional wearable devices like headgears, jewellery, and even glasses. Says Vivek Kulkarni, Secretary (Information Technology), Government of Karnataka: ''The idea is to develop a low-cost medium that will take technology to rural areas.'' But what's the big deal about the project? Here's some perspective: currently, India does not even have 2.5G technology. The first generation of cellular services were based on frequency modulation (fm) analog technology. At present, only 2G-which provides for digital wireless voice (rather than data) transmission-is available. 2.5G is a slight improvement over the existing technology, whose high-speed wireless data networks are based on general packet radio services (GPRS). And GPRS is considered a 2.5G technology, halfway between current voice mobile networks and third-generation wireless internet-capable services. The real problem with today's mobile phone standards, however, is that there are too many of them, hindering global roaming. Users cannot travel from one country to another without having multiple phones (or a dual-or tri-band phone). The new standard being developed will not only take us closer to the concept of global roaming, but also provide fatter pipes to speed up internet access by mobile devices. The emerging standard with which Bangalore is now experimenting is 4G. Once available, users in the city will have devices (courtesy Charmed) with download speeds of 2mbps, and they will have access to music, graphics and videos while on the move. Alex Lightman, CEO of Charmed Technologies-a spin-off from the MIT Lab-says that his company would have spent $20 million by the time the technology is perfected. And why Bangalore of all places? Apparently, the state government was very supportive. Besides, where else could he find so many geeks and so cheap? -Venkatesha Babu P O L
I C Y The new textile policy announced earlier this month brings a lot of good news to the beleaguered sector. By removing the stipulation about only the small-scale sector running garment manufacturing units, the government has paved the way for larger players to come in. It will now be possible for foreign companies to set up fully-owned subsidiaries, and Indian companies to invest in world-scale capacities. Says V. Dhananjay Kumar, Minister of State for Textiles: ''The basic thrust is to make the Indian textile industry globally competitive and raise export income from textiles and apparel from $11 billion today to $50 billion by 2010.'' The practice of reserving garment manufacturing for small units stunted economies of scale and prevented manufacturers from developing brand equities. Some exporters say that the investment ceiling of Rs 3 crore (besides a 24 per cent cap on foreign investment) compromised quality and profit realisations. Admits a senior ministry official: ''The policy rigidities had for long distorted relative prices, hampered output and generally kept the sector tied up in knots.'' Despite the concessions, the new policy is unlikely to benefit all segments of the industry. For instance, the hosiery and handloom sector continues to carry the SSI reservation, and so does the knitwear sector. Again, high input costs-be it due to Customs and Excise duties or sales tax-of synthetic fibre, yarn and fabric, make the export of these items highly uncompetitive. Thus, while three-quarters of the world trade in textiles is in synthetics and blends (which are high-value items), India derives nearly 80 per cent of its textile income from the cheaper cotton. That is just one part of the problem. Textile imports will be freed up by April 1, 2001. Worse, the multi-fibre agreement (MFA) is to go by 2005 making exports to the EU and US that much more difficult. And, unfortunately for the industry, the new policy has not proved the stitch in time it was expected to be. -Ashish Gupta C
L O T H I N G If you are an avid shopper, you've probably noticed it already. Ready-to-wear men's clothing has acquired a whole new feel-literally. In the past year, at least 15 different varieties of fabric have debuted in the market. The Chennai-based ColorPlus launched Lyoceall, a natural fabric made from wood pulp. Madura Garments, a subsidiary of Indian Rayon, introduced polynosics, which is a weave of polyester micro fibres and is supposed to 'breathe' better. Earlier, Louis Philippe had ushered in stain-resistant shirts; Allen Solly came up with its own uncrushables range, and Van Heusen followed suit with Durafresh and Durapress versions. All three, of course, are Madura Garments brands. Says Vasanth Kumar, Vice-President (Marketing), Madura Garments: ''Tencel (the polysonics range) has proved successful and we are increasing our range in this fabric, in addition to our '50-wash tested' wrinkle-free range.'' Even in the staid world of suitings, novelty is catching up. For instance, Grasim Industries has developed a new all-season polyester wool-blended fabric. Its USP? It absorbs moisture from the skin, keeping the body cool in summers and warm in winters. What's behind the rabid fabric-innovation
urge? ''Sustaining excitement and variety is the real key to retaining
consumer interest,'' says Rajendra Mudaliar, Managing Director, ColorPlus.
Indeed, with a new ready-to-wear brand hitting shop shelves almost every
day, the pressure on companies to stand apart is increasing. Also, it's
easier charging a premium for a new product than pushing sales of me-too
clothes. For instance, ColorPlus' Lyoceall, priced at That apart, today consumers are more receptive to bold sartorial statements. Says Nikhil Mohan, Managing Director, Blackberry: ''The fabric that we introduce has to match the kind of looks that are in vogue.'' Adds Rohit Gandhi, a Delhi-based designer: ''At work, the guiding principle is a neat look and which is why many wrinkle-free fabrics have caught on strong.'' A perfect fit, you say? -Shamni Pande
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