Chapter-IV

Impact Assessment of TRIPs on

Indian Pharmaceutical Industry

154
 Chapter-IV

Impact Assessment of TRIPs on Indian

Pharmaceutical Industry

4.1. Introduction
In the preceding chapter an endeavour was made to discuss the

concept of Intellectual Property Rights. It particularly dealt with the

overview of TRIPs and Indian Patent Act, 1970 with special reference to

pharmaceutical's Patents. The present chapter is devoted to study the

pattern and trends in pharmaceutical production, export, import and

R&D expenditure of Indian pharmaceutical industry. It also asses the

impact of TRIPs on Indian pharmaceutical industry. The study has been

made since economic liberalization in India i.e. from 1991-92 to 2005-06.

For the purpose of analysis and testing of the hypothesis, the above

period of Indian pharmaceutical industry has been bifurcated into two

periods i.e. Pre TRIPs Period and Post TRIPs Period. The Pre TRIPs

Period (1991-92 to 1998-99) of Indian pharmaceutical industry starts

immediately after the liberalisation of Indian economy and ends in

1998-99, when India started amendments in its Patent Act, 1970 towards

TRIPs compliance. During this period the Indian pharmaceutical

industry was governed by the Indian Patent Act, 1970 which recognized

process patent only, and term of patent was 7 years from date of
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

application of patent and 5 years from date of grant of patent. The Post

TRIPs Period (1999-00 to 2005-06) of Indian pharmaceutical industry

begins from 1999-00 onwards with implementation of TRIPs provisions

in pharmaceutical sector. Government of India amended Patent Act,

1970 in 1999, 2002 and finally in 2005 towards TRIPs compliance.

During this period the Indian Government fully implemented the TRIPs

provisions in pharmaceutical sector, which recognised product patent

only and term of patent is 20 years.^

4.2. Impact of TRIPs on Pharmaceutical Production

In order to cater to the testing requirements and to find out clear

trend in pharmaceutical production (Bulk and formulation) the

Researcher has done trend analysis in general and period wise in

particular. Further, Researcher has tested the hypothesis at 1 percent

level of significance using the Interrupted Time Series model.

4.2.1. Pattern and Trend in Production of Indian Pharmaceutical

Industry: Analysis and Interpretations

This analysis consists of tables and graphs which highlight the

pattern and trend of pharmaceutical production in general and period

wise trends in particular. In order to cater to the testing requirements

and to find out clear trends in total pharmaceutical production, the

156
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

tables contain total amount, index number, (1991-92 as base year) and

growth rate.

Graphs also have been prepared to determine the pattern and

trends in pharmaceutical production during 1991-92 to 2005-06. The

data presented in table 4.1 shows continuous increase in pharmaceutical

production. The index number (1991-92 as base year) which was 100 in

1991-92 reached u p to 946.91 points in 2005-06, it shows that

pharmaceutical production grew approximately 10 times during 1991-

92 to 2005-06. Figure 4.1 shows that production of Indian

pharmaceutical industry has an upward increasing trend. The

Combined Annual Growth Rate (CAGR) 16.39 percent is showing a

moderate growth during the same period.

From table 4.1 and figure 4.1, it becomes crystal clear that the

total pharmaceutical production during the period under review has

been wavering. Pharmaceutical production registered a phenomenal

increase during 1992-93 with a growth rate of 25.44 percent and reached

a level of Rs. 71,500 million. Index number has also turn up at 125.44

percent corresponding to increase in growth rate during the same year.

From 1993-94 to 2001-02 the growth rate of pharma production has been

gradually increased. During this period growth rate has been increased

from 14.96 to 15.97 percent. From 2002-03 to 2003-04 growth rate shows

a decreasing trend, the growth rate which was 15.97 percent in 2001-02
157
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 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

declined to 15.71 in 2002-03 and 15.32 percent in 2003-04. This

decreasing trend in growth rate during this period may be due to the

second amendment in Indian Patent Act, 1970 which increased term of

patent to 20 years. In 2004-05 growth rate of pharma production again

increased and reached at 15.69 percent. During 2005-06, the

pharmaceutical production shows extraordinary growth of 31.71

percent, during this year production reached at Rs. 550,000 million. The

index number also touched the highest of 946.91 in the year 2005-06.

The major cause for this extraordinary growth was an increase in

production of off-patented drugs by Indian companies to setoff the

losses from drugs patented elsewhere due to product patent regime

from January 2005.

From the table 4.1, it is discernible that during the period 1991-92 to

2005-06, the average production was amounts to Rs. 211,432.7 million

with an Average Annual Growth Rate (AAGR) 17.5 percent, the

maximum production amounts to Rs. 550,000 million was in 2005-06

with maximum growth rate of 31.71 percent for the referred period.

Further, the other statistic such as Standard Deviation (SD) and

Coefficient of Variance (CV) of pharmaceutical production were

142466.9 and 67.38 respectively whereas SD and CV of growth rate

were 4.86 and 27.76 respectively during the period under review.

162
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

Table 4.2 and figure 4.2 present the Pre TRIPs period details with

regard to pharmaceutical production. This period contains eight years

starting from 1991-92 to 1998-99. The data presented in table 4.2 shows

continuous increase in pharmaceutical production during this period.

The index number (1991-92 as base year) which was 100 in 1991-92

reached up to 298.7 points in 1998-99, it shows that pharmaceutical

production grew approximately 3 times during 1991-92 to 1998-99 and

reached a level of Rs. 170,260 million. Figure 4.2 shows that

pharmaceutical production has an upward increasing trend. The

Combined Annual Growth Rate (CAGR) 16.33 percent is showing a

moderate growth during the same period.

From table 4.2 and figure 4.2, it is clear that total pharmaceutical

production during the period under review has been increased with a

increasing growth rate. Pharmaceutical production registered a

phenomenal increase during 1992-93 with a growth rate of 25.44 percent

and reached a level of Rs. 71,500 million. Index number has also turn up

at 125.44 percent corresponding to increase in growth rate during the

same year. This may be outcome of economic reforms done by Indian

Government. From 1993-94 to 1998-99 the growth rate of pharma

production has been gradually increased. During this period growth

rate has been increased from 14.96 to 15.89 percent.

163
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

It is clear from the table 4.2, that average production during Pre

TRIPs Period was amounts to Rs. 107,333.8 million with a 16.97 percent

Average Annual Growth Rate (AAGR). Minimum Growth rate of

production was in 1993-94. The maximum production amounts to Rs.

170,260 million was in 1998-99 and maximum growth rate 25.44 percent

was recorded in 1992-93. Further, the other statistic such as Standard

Deviation (SD) and Coefficient of Variance (CV) of pharmaceutical

production were 38771.63 and 36.12 percent respectively whereas SD

and CV of growth rate were 3.76 and 22.15 percent respectively during

the period under review.

The trend analysis of Post TRIPs Period (1999-00 to 2005-06) with

the help of table 4.3 and figure 4.3, shows that pharmaceutical

production during this period has an upward increasing trend. The

data presented in Table 5.3 shows continuous increase in

pharmaceutical production. The index number (1991-92 as base year)

which was 346.26 in 1999-00 reached up to 946.91 points in 2005-06, it

shows that pharmaceuticals production grew approximately 2.7 times

during 1999-00 to 2005-06 and reached a level of Rs. 550,000 million.

The Combined Annual Growth Rate (CAGR) 17.55 percent is showing a

moderate growth during the same period.

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 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

From table 4.3 and figure 4.3, it is clear that growth rate of

pharmaceutical production during the period under review has been

wavering. Growth rate shows an increasing trend during 1999-00 to

2001-02 and decreasing trend during 2002-03 to 2003-04. Growth rate of

pharmaceutical production which was 15.92 percent in 1999-00

gradually increased year by year and reached at 15.97 percent in 2001-

02. During 2002-03 to 2003-04 growth rate of production declined and

turn down a level of 15.32 percent. This decreasing trend in growth rate

during this period may be due to the second amendment in Indian

Patent Act, 1970 which increased term of patent to 20 years. In 2005-06

the pharmaceutical production shows surprising growth of 31.71

percent, during this year production reached at Rs. 550,000 million. The

index number also touched the highest of 946.91 in the year 2005-06.

The major cause for this surprising growth was increase in production

of off-patented drugs by Indian companies to setoff the losses from

drugs patented elsewhere due to product patent regime from January

2005.

It is clear from the Table 4.3 that average production during Post

TRIPs Period was amounts to Rs. 330,402.9 million with an Average

Annual Growth Rate (AAGR) of 17.5528 percent. Minimum Growth

rate of production was recorded in 2003-04 and maximum growth rate

167
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

was in 2005-06. Further, the other statistic such as Standard Deviation

(SD) and Coefficient of Variance (CV) of pharmaceutical production

were 121,011.6 and 36.62 percent respectively whereas SD and CV of

growth rate were 6.03 and 33.44 percent respectively during the period

under review.

A comparative analysis of Pre TRIPs period and Post TRIPs

period shows that Post TRIPs period has Average, Combined Annual

Growth Rate (CAGR) and AAGR higher than of the Pre TRIPs period. It

means production of pharmaceutical has been increased with a higher

growth rate in Post TRIPs period compare to the Pre TRIPs period.

Coefficient of Variance (CV) of growth rate 22.15 percent in Pre TRIPs

period is less than to 33.44 percent in Post TRIPs period shows that Pre

TRIPs has stable growth rate in comparison to Post TRIPs period.

4.2.2. Testing of Hypothesis

The following paragraphs are devoted to test the first hypothesis

of the study:

"The Null Hypothesis of the study (Ho)^ assumes that there is no

significant impact of TRIPs regime on production of Indian

pharmaceutical industry whereas the alternative Hypothesis of the

study (Hi) assumes that there is a significant impact of TRIPs regime

on production of Indian pharmaceutical industry."

168
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

The Researcher has prepared dummy variable to find out the

impact of the TRIPs Agreement on pharmaceutical production for the

period from 1991-92 to 2005-06. The dummy variable is assumed

keeping in view that there are two periods, i.e. Pre TRIPs (Pre-

Intervention) Period and the Post TRIPs (Post-Intervention) period. To

test the hypothesis the Researcher assumed Production as dependent

variables whereas Time, Dummy and Post-Intervention variables as

independent variables. Further, the Researcher used a mathematical

linear function that lends itself to statistical analysis by means of a

general linear regression model (or ordinary least squares (OLS)

multiple regression methods) to assess the impact of the invention

variables (TRIPs regime) on the dependent variable (Production). The

interrupted time series design can be represented by the following

general regression model:

Y = d + PiXi + P2X2 + P3X3+ E

Where Y is the dependent variable, measured annually; Xi is a

time counter (continuous) variable indicating time in years from the

beginning of the observation period. The value of this variable is coded

1 for the first year in the series, 2 for the second year, 3 for the third

year, and so forth until the last year in the series. X2 (intervention) is a

dummy predictor variable indicating for time before policy intervention

169
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

and after time intervention (coded 0 for all observations before

intervention, and coded 1 for all observations after intervention.

Table 4.4

Application of Time, Dummy and Post-Intervention Variable in

Pharmaceutical Production (1991-92 to 2005-06)

Production in Post
Time Dummy
Years Million Intervention
Xi
Indian Rs. X3

1991-92 57,000 1 0 0
1992-93 71,500 2 0 0
1993-94 82,200 3 0 0
1994-95 94,530 4 0 0
1995-96 109,470 5 0 0
1996-97 126,800 6 0 0
1997-98 146,910 7 0 0
1998-99 170,260 8 0 0
1999-00 197,370 9 1 1
2000-01 228,870 10 1 2
2001-02 265,430 11 1 3
2002-03 307,140 12 1 4
2003-04 354,210 13 1 5
2004-05 409,800 14 1 6
2005-06 550,000 15 1 7
Source: Same as table 4.1

Xs (post-policy intervention) indicates a continuous predictor

variable representing the years after intervention (coded 0 during the

170
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

pre-intervention period, and 1, 2, 3, and so on until all the post-policy

intervention observations are accounted. Last, E denotes the error of the

model i.e., residuals unexplained by the model.

This interrupted time series model contains a constant a, and

three coefficients — pi, ^2 and ^3. The constant a, estimates the intercept

at time zero; Pi, estimates the annual change in pharmaceutical

production before TRIPs; Pi, measures any immediate or short-term

effects of TRIPs regime; and P3 estimates the trend or slope of the

observations during the Post-Intervention period, i.e. it measures any

long-term effects of TRIPs regime on production of Indian

pharmaceutical industry.

Table 4.4 provides a critical analysis regarding the model. By

applying the multiple regressions on the Production, Time, Dummy

and Post-Intervention variables (Table 4.4) the following summary of

table emerges:

Table 4.5

Model Summary
Standard
Adjusted R
R R Square Error of the
Square
Estimate

.988 .976 .970 24794.2359

Source: Table 4.4

171
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

It has been seen that from the model summary ( Table 4.5) the

Coefficient of Determination i.e. R-square stood at 97.6 percent which

means that whatever changes have happened in the total

pharmaceutical production during the period under review the time

and invention variables (TRIPs regime) are responsible up to 97.6

percent. This implies that there are a few other micro and macro

economic factors which have indirectly affected the production of

Indian pharmaceutical industry.

Table 4.6

Coefficients
Standardized
Unstandardized
Coefficients
Coefficients t Sig.
P
B Std. Error Beta
a
36693.929 19319.513 - 1.899 .084
(Constant)
Xi
15697.738 3825.834 .493 4.103 .002
(Time)

-47377.3 26367.739 -.172 -1.797 .100

(Dummy)
X3

(Post 38178.333 6049.174 .671 6.311 .000

Intervention)

Source: Table 4.4

172
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

The t- static of the time i.e. 4.103, is significant at 0.2 percent level

of significance and the t-static of dummy variable X2 i.e. for immediate

impact of TRIPs regime is -1.797, which is insignificant up to 10 percent

level of significance; i.e. far beyond the level of significance. But in case

of Post-Intervention variable X3 i.e. for impact of TRIPs regime in long

run the t-static is 6.311, which is significant at any percent level of

significance. Therefore, Null Hypothesis of the study (Ho) is rejected

and alternative hypothesis is accepted. Hence, TRIPs Agreement has

significant impact on production of Indian pharmaceutical industry in

the long run.

In essence, TRIPs Agreement has no immediate significant impact

on the production of Indian pharmaceutical industry. But, in the long

run TRIPs Agreement has significant impact on the production of

Indian pharmaceutical industry. From the Table 4.6, Positive value of

Coefficient of Post-Intervention variable (X3) suggests that under the

TRIPs regime the production of Indian pharmaceutical industry has

grown more compare to the Pre TRIPs regime growth.

4.3. Impact of TRIPs on Pharmaceutical Export

In order to cater to the testing requirements and to find out clear

trend in pharmaceutical Export (Bulk and formulation) the Researcher

has done trend analysis in general and period wise in particular.

173
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

Further, Researcher has tested the hypothesis at 1 percent level of

significance using the Interrupted Time Series model.

4.3.1. Pattern and Trend in Export of Indian Pharmaceutical Industry:

Analysis and Interpretations

Tables and graphs have been prepared to determine the pattern

and trend in total pharmaceutical export during 1991-92 to 2005-06. In

order to cater to the testing requirements and to find out clear trends in

total pharmaceutical export, the tables contain total amount, index

number, (1991-92 as base year) and growth rate.

The data presented in table 4.7 shows continuous increase in

pharmaceutical export. The index number (1991-92 as base year) which

was 100 in 1991-92 reached up to 1684.41 points in 2005-06, it shows that

pharmaceutical export grew approximately 17 times during 1991-92 to

2005-06. Figure 4.4 shows an upward increasing trend in total

pharmaceutical export. The Combined Annual Growth Rate (CAGR)

22.54 percent is showing a high growth during the same period.

From table 4.7 and figure 4.4, it becomes crystal clear that growth

rate of pharmaceutical export during the period under review has been

wavering. Pharmaceutical export registered an extraordinary increase

during 1995-96 with a growth rate of 45.46 percent and reached a level

of Rs. 31,777 million. Index number has also turn at 248.05 point

174
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

corresponding to increase in growth rate during the same year. During

1996-97 to 1999-00, the growth rate of pharma export declined and

reached at 14.74 percent. This may be due to the implementation of

TRIPs Agreement by developed world which prevent the import of

generic version of patented drugs from other countries like India. From

2000-01 to 2001-02 growth rate of export has been increased, growth

rate which was 14.74 percent in 1999-00 reached at 20.99 percent in

2001-02. During 2002-03 to 2004-05, growth rate of pharmaceutical

export again declined, growth rate which was 20.99 in 2001-02 declined

to 19.99 in 2003-04 and 16.42 percent in 2004-05. In 2005-06 growth rate

of pharmaceutical export has been increased and reached at 29.36

percent. Pharmaceutical export touched a level of Rs. 215,789.6 million

during the same year. The major cause for this high growth of

pharmaceutical export in 2005-06 was the outcome of high production

of pharmaceutical during this year.

Further analysis of table 4.7 presents that during the 1991-92 to

2005-06, average export of pharmaceutical was Rs. 76,381.57 million

with an Average Annual Growth Rate (AAGR) of 22.61 percent. Other

statistic such as Standard Deviation (SD) and Coefficient of Variance

(CV) of pharmaceutical export were 61,552.16 and 80.58 respectively

175
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

whereas SD and CV of pharmaceutical export growth rate were 8.54

and 37.78 respectively.

Table 4.8 with figure 4.5 present the Pre TRIPs period details with

regard to pharmaceutical export. This period contains eight years

starting from 1991-92 to 1998-99. The data presented in table 4.8 shows

continuous increase in pharmaceutical export. The index number (1991-

92 as base year) which was 100 in 1991-92 reached up to 466.15 points in

1998-99, it shows that pharmaceuticals export grew approximately 4.6

times during 1991-92 to 1998-99 and reached a level of Rs. 59,718

million. Figure 4.5 shows that export of pharmaceutical has an upward

increasing trend. The Combined Annual Growth Rate (CAGR) 27.04

percent is showing a high growth during the same period.

From table 4.8 and figure 4.5, it is clear that the pharmaceutical

export during the period under review has been increased with an

unsteady growth rate. Pharmaceutical export registered an

extraordinary increase during 1995-96 with a growth rate of 45.46

percent and reached a level of Rs. 31,777 million. Index number has also

turn up at 248.5 point corresponding to increase in growth rate during

the same year. This may be due to the implementation of TRIPs

Agreement by developed world which prevent the import of generic

version of patented drugs from other countries like India.

176
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 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

From 1996-97 to 1998-99, the growth rate of pharmaceutical export

declined from 28.37 to a level of 16.15 percent.

Table 4.8 presents that in Pre TRIPs period average export was

amounts to Rs. 31,284.88 million with an Average Annual Growth Rate

(AAGR) of 25 percent. Further, other statistic such as Standard

Deviation (SD) and Coefficient of Variance (CV) of pharmaceutical

export were 17,773.94 and 56.81 percent respectively whereas SD and

CV of pharmaceutical export growth rate were 11.10 and 44.39 percent

respectively.

The trend analysis of Post TRIPs Period (1999-00 to 2005-06) with

the help of table 4.9 and figure 4.6, shows that pharmaceutical export

during this period has an upward increasing trend. The data presented

in Table 5.9 shows continuous increase in pharmaceutical export. The

index number (1991-92 as base year) which was 534.85 in 1999-00

reached up to 1684.41 points in 2005-06, it shows that pharmaceutical

export grew more than 3 times during 1999-00 to 2005-06 and reached a

level of Rs. 215,789.6 million.. The Combined Annual Growth Rate

(CAGR) 20.50 percent is showing a high growth in pharmaceutical

export during the same period.

From table 4.9 and figure 4.6, it is clear that growth rate of

pharmaceutical production during the period under review has an

181
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

unsteadiness. Growth rate shows an increasing trend during 1999-00 to

2001-02 and decreasing trend during 2002-03 to 2004-05, growth rate

which was 14.74 percent in 1999-00 has been gradually increased year

by year and reached at 20.99 percent in 2001-02. During 2002-03 to 2004-

05 growth rate of pharmaceutical export declined and turn down a level

of 16.62 percent. This decreasing trend in pharmaceutical export growth

rate during this period may be due to the decline in pharmaceutical

production during the same period. In 2005-06 the pharmaceutical

export shows surprising growth of 20.36 percent, during this year

export reached at Rs. 215,789.6 million. The index number also touched

the highest of 1684.41 in year 2005-06. This surprising growth was due

to increase in production of off-patented drugs by Indian companies to

setoff the losses from drugs patented elsewhere due to product patent

regime from January 2005.

It is clear from the Table 4.9 that average production during Post

TRIPs period was amounts to Rs. 127,920.7 million with an Average

Annual Growth Rate (AAGR) of 20.21 percent. Minimum Growth rate

of pharmaceutical export 14.74 was recorded in 1999-00 and maximum

growth rate 29.36 was recorded in 2005-06. Further, other statistic such

as Standard Deviation (SD) and Coefficient of Variance (CV) of

pharmaceutical export were 51,585.41 and 40.33 percent

182
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 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

respectively whereas SD and CV of pharmaceutical export growth rate

were 4.63 and 22.92 percent respectively.

A comparative analysis of Pre TRIPs period and Post TRIPs

period shows that Post TRIPs period has an Average export more than

to Pre TRIPs period. Combined Annual Growth Rate (CAGR) and

AAGR are higher in Pre TRIPs period compare to Post TRIPs period. It

means growth rate of pharmaceutical export declined in Post TRIPs

period. Coefficient of Variance (CV) of growth rate 22.92 percent in Post

TRIPs period is less than to 44.39 percent in Pre TRIPs period shows

that Post TRIPs has stable growth rate in comparison to Pre TRIPs

period.

4.3.2. Testing of Hypothesis

The following paragraphs are devoted to test the second

hypothesis of the study:

"The Null Hypothesis of the study (Ho) assumes that there is

no significant impact of the TRIPs regime on export of Indian

pharmaceuticals industry whereas the alternative Hypothesis of the

study (H2) assumes that there is a significant impact of TRIPs regime

on export of Indian pharmaceuticals industry."

The Researcher has prepared dummy variable to find out the

impact of the TRIPs Agreement on the total Export of Indian

185
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

pharmaceutical industry for the period from 1991-92 to 2005-06. The

dummy variable is assumed keeping in view that there are two periods,

i.e. Pre TRIPs (Pre-Intervention) Period and the Post TRIPs (Post-

Intervention) period. To test the hypothesis the Researcher assumed

Export as dependent variables whereas Time, Dummy and Post-

Intervention variables as independent variables. Further, the

Researcher used a mathematical linear function that lends itself to

statistical analysis by means of a general linear regression model (or

ordinary least squares (OLS) multiple regression methods) to assess the

impact of the invention variables (TRIPs regime) on the dependent

variable (Export). The interrupted time series design can be represented

by the following general regression model:

Y = d + PiXi + P2X2 + P3X3+ E

Where Y is the dependent variable measured annually; Xi is a

time counter (continuous) variable indicating time in years from the

beginning of the observation period. The value of this variable is coded

1 for the first year in the series, 2 for the second year, 3 for the third

year, and so forth until the last year in the series. X2 (intervention) is a

dummy predictor variable indicating for time before policy intervention

and after time intervention (coded 0 for all observations before

intervention, and coded 1 for all observations after intervention. X3

186
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

(post-policy intervention) indicates a continuous predictor variable

representing the years after intervention (coded 0 during the pre-

intervention period, and 1, 2, 3, and so on until all the post-policy

intervention observations are accounted. Last, E denotes the error of the

model i.e., residuals unexplained by the model.

Table 4.10

Application of Time, Dummy and Post-Intervention Variables in

Pharmaceutical Export (1991-92 to 2005-06)
Export in Post
Time Dummy
Years Million Indian Intervention
Xi X2
Rs. X3

1991-92 12,811 1 0 0
1992-93 14,103 2 0 0
1993-94 17,814 3 0 0
1994-95 21,847 4 0 0
1995-96 31,777 5 0 0
1996-97 40,793 6 0 0
1997-98 51,416 7 0 0
1998-99 59,718 8 0 0
1999-00 68,520 9 1 1
2000-01 82,224 10 1 2
2001-02 99,485 11 1 3
2002-03 119,374 12 1 4
2003-04 143,242 13 1 5
2004-05 166,810 14 1 6
2005-06 215,789.6 15 1 7
Source: Same as table 4.7

187
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

This interrupted time series model contains a constant a, and

three coefficients — ^i, P2 and P3. The constant a , estimates the intercept

at time zero; Pi, estimates the annual change in Export before TRIPs

Agreement; Pi, measures any immediate or short-term effects of TRIPs

regime; and P3 estimates the trend or slope of the observations during

the Post TRIPs (Post-Intervention) period, i.e. it measures any long-term

effects of TRIPs regime on Export of Indian pharmaceutical industry.

Table 4.10 provides a critical analysis regarding the model. By

applying the multiple regressions on the Export, Time, Dummy and

Post-Intervention variables the following summary of table emerges:

Table 4.11

Model Summary
Standard
Adjusted R
R R Square Error of the
Square
Estimate
.993 .986 .982 8361.1537
Source: Table 4.10

It has been seen that from the model summary (Table 4.11) the

coefficient of determination i.e. R-square stood at 98.2 percent which

means that whatever changes have happened in the total Export during

the period under review the time and invention variables (TRIPs

regime) are responsible up to 98.2 percent. This implies that there are a

very few other micro and macro economic factors which have indirectly

188
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

affected the Export of Indian pharmaceutical industry. The high value

of Coefficient of Determination (R Square) .982 indicates that 98.2

percent of the variations are explained by this model.

From the table 4.12, the t- static of the time i.e. -.081, is significant

at any percent level of significance and the t-static of dummy variable

X2 i.e. for immediate impact of TRIPs regime is -2.434, which is

insignificant at 1 percent level of significance. But in case of Post-

Intervention variable X3 i.e. for impact of TRIPs regime in long run the

t-static is 7.998, which is significant at any percent level of significance.

Table 4.12

Cofficients
Unstandardized Standardized
Cofficients Cofficients
t Sig.
Std. Beta
B
Error P
a
-524.821 6514.958 - -.081 .937
(Constant)
Xi
7068.821 1290.154 .514 5.479 .000
(Time)
X2
-21639.1 8891.773 -.182 -2.434 .033
(Dummy)
X3

(Post 16314.671 2039.913 .664 7.998 .000

Intervention)
Source: Table 4.10

189
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

Therefore, Null Hypothesis of the study (Ho) is rejected and alternative

hypothesis is accepted. TRIPs has significant impact on export of Indian

pharmaceutical industry in the long run.

In essence, TRIPs Agreement has no immediate significant impact

on the export of Indian pharmaceutical industry. But, in the long run

TRIPs Agreement has significant impact on the export of Indian

pharmaceutical industry. From Table 4.12, positive value of Coefficient

of Post-Intervention variable (X3) suggests that TRIPs Agreement has

increased the export of Indian pharmaceutical industry in the long run.

On the other hand, under the TRIPs regime the export of Indian

pharmaceutical industry has grown more compare to the Pre TRIPs

regime growth.

4.4. Impact of TRIPs on Pharmaceutical Import

In order to cater to the testing requirements and to find out clear

trend in pharmaceutical import (Bulk and formulation) the Researcher

has done trend analysis in general and period wise in particular.

Further, Researcher has tested the hypothesis at 1 percent level of

significance using the Interrupted Time Series model.

4.4.1. Pattern and Trend in Import of Indian Pharmaceutical Industry:

Analysis and Interpretations

190
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

Tables and graphs have been prepared to determine the pattern

and trend in total pharmaceutical import during 1991-92 to 2005-06. In

order to cater to the testing requirements and to find out clear trends in

total pharmaceutical import, the tables contain total amount, index

number, (1991-92 as base year) and growth rate.

The data presented in table 4.13 shows continuous increase in

pharmaceutical import during 1991-92 to 1998-99 and sudden downfall

in 1999-00. The index number (1991-92 as base year) which was 100 in

1991-92 reached up to 559.24 points in 2005-06, it shows that

pharmaceutical import grew approximately 5.5 times during 1991-92 to

2005-06 and reached from a level of Rs. 8,073.8 to a level of Rs. 45,152.2

during the same period. Figure 4.7 shows upward increasing trend in

pharmaceutical import. The Combined Annual Growth Rate (CAGR)

8.88 percent is showing a law growth during the same period.

From table 5.13 and figure 4.7, it becomes crystal clear that the

pharmaceutical import during the period under review has been

wavering. From the initial study years of 1991-92 to 1998-99, the

phenomenal increase has been registered with a growth rate of 40.87

percent in 1992-93 and 86.73 percent in 1995-96. The maximum increase

in pharmaceutical import was registered just after establishment of

WTO. In the year 1999-00 the pharmaceutical import plummeted to Rs.

191
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

16,162.1 million registering a negative growth of 48.33 percent. Index

number has also declined to 200.18 percent corresponding to the

decrease in growth rate. There are many reasons for this slump in

pharmaceutical import. However, the noticeable reasons are attributed

to first amendment in Indian Patent Act, 1970, political upheavals and

instability at the centre and also the financial crisis in the Newly

Industrialized Economies which covertly affected Indian economy too.

From 2000-01, the recovery period in pharmaceutical import is

discernible. Pharmaceutical import has been increased from a level of

Rs. 16,162.1 million in 1999-00 to a level of Rs. 17,014.6 million in 2000-

01, registering an increase of 5.27 percent over the year. The succeeding

years starting from 2001-02 to 2002-03 went into positive growth in the

range of 17.61 percent to 43.18 percent. The major cause for this high

growth of pharmaceutical import may be ascribed to the passing of

Indian Patent Amendment Act, 2002 by Indian Government which

increased term of patent to 20 years. 2003-04 to 2004-05, the span of two

years has shown a very law growth in pharmaceutical import. In 2005-

06 pharmaceutical import shows a remarkable growth and reached a

level of Rs. 45,152.2 with a growth rate of 42.46 percent. The index

number also peaked at this year to the tune of 559.24. Remarkable

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 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

growth in pharmaceutical import in 2005-06 is an outcome of passing

Indian Patent Amendment Act, 2005 which introduced product patent

in pharmaceutical sector.

Further analysis of table 4.13 presents that during 1991-92 to

2005-06 average import of pharmaceutical was Rs. 22,874.45 million

with an Average Annual Growth Rate (AAGR) of 17.04 percent.

Further, other statistic such as Standard Deviation (SD) and Coefficient

of Variance (CV) of pharmaceutical import were 10,060.74 and 43.98

percent respectively whereas SD and CV of pharmaceutical import

growth rate were 30.25 and 177.5 percent respectively during the period

under review.

Table 4.14 with figure 4.8 present the Pre TRIPs period (from

1991-92 to 1998-99) details with regard to pharmaceutical import. This

period contains eight years starting from 1991-92 to 1998-99. The data

presented in table 4.14 shows continuous increase in pharmaceutical

import. The index number (1991-92 as base year) which was 100 in 1991-

92 reached up to 387.42 points in 1998-99, it shows that pharmaceutical

export grew approximately 4 times during 1991-92 to 1998-99 and

reached from a level of Rs. 8,073.8 million to a level of Rs. 31,280

million. Figure 4.8 show that pharmaceutical import has an upward

197
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

increasing trend. The Combined Annual Growth Rate (CAGR) is 22.55

percent showing a high growth during the same period.

From table 4.14 and figure 4.8, it is clear that pharmaceutical

import during the period under review has been increased with an

unsteady growth rate. Pharmaceutical import has registered a

remarkable growth during 1992-93 with a growth rate of 40.87 percent

and reached a level of Rs. 11,373.8 million. Index number has also turn

up to a level of 140.87 point corresponding to increase in growth rate

during the same year. This remarkable growth in pharmaceutical

import may be result of liberalisation of Indian economy in 1991.

During 1993-94 to 1994-95, pharmaceutical import confirms a very low

growth. In 1995-96 phenomenal increase in growth of pharmaceutical

import was registered. Pharmaceutical import reached a level of Rs.

24,050 million with 86.73 percent growth rate in 1995-96 due to

establishment of WTO. Succeeding three year 1996-97 to 1998-99

recorded a pharmaceutical import growth between 8.36 to 10.07

percent.

Table 4.14 presents that in Pre TRIPs period average import was

amounts to Rs. 19,358.14 million with an Average Annual Growth Rate

(AAGR) of 24 percent. Further, other statistic such as Standard

Deviation (SD) and Coefficient of Variance (CV) of pharmaceutical

198
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

import were 9,089.35 and 46.95 percent respectively whereas SD and CV

of pharmaceutical import growth rate were 30.35 and 126.44 percent

respectively during the period under review.

The trend analysis of Post TRIPs Period (1999-00 to 2005-06) with

the help of table 4.15 and figure 4.9, show that pharmaceutical import

during this period has an upward increasing trend. The data presented

in Table 5.15 shows continuous increase in pharmaceutical import. The

index number (1991-92 as base year) which was 200.18 in 1999-00

reached up to 559.24 points in 2005-06, it shows that pharmaceutical

import grew more than 2.5 times during 1999-00 to 2005-06 and reached

from a level of Rs. 16,162.1 million to a level of Rs. 45,152.2 million. The

Combined Armual Growth Rate (CAGR) 18.34 percent is showing a

moderate growth during the same period.

From the table 4.15 and figure 4.9, it is clear that growth rate of

pharmaceutical import during the period under review has been

wavering. Pharmaceutical import shows a negative growth of 48.33

percent in 1999-00 due to first amendment in Indian Patent Act, 1970

toward TRIPs compliance. During 2000-01 to 2002-03 growth of

pharmaceutical import shows an upward increasing trend, growth rate

which was 5.27 percent in 2002-01 reached at 43.8 percent in 2002-03.

Remarkable growth in import of pharmaceutical in 2002-03 may be due

199
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

to the passing of Patent Amendment Act, 2002 by Indian Government

according to TRIPs compliance, which increased term of patent to 20

years. In the succeeding year 2003-04 and 2004-05 growth of

pharmaceutical import was recorded between 3.19 to 7.19 percent. In

2005-06 the pharmaceutical import again shows surprising growth of

42.46 percent, during this year import reached at Rs. 45,152.2 million.

The index number also touched the highest of 559.24 during 2005-06.

This surprising growth in pharmaceutical import was due to the

product patent regime from January 2005 which prevents

manufacturing generic version of patented drugs.

It is clear from the Table 4.15 that average import of

pharmaceutical during Post TRIPs Period was amounts to Rs. 26,893.1

million with an Average Annual Growth Rate (AAGR) of 10.08 percent.

Minimum Growth rate of pharmaceutical import -48.33 was recorded in

1999-00 and maximum growth rate 43.18 was in 2002-03. Further, other

statistic such as Standard Deviation (SD) and Coefficient of Variance

(CV) of pharmaceutical import were 10220.74 and 38 percent

respectively whereas SD and CV of pharmaceutical import growth rate

were 30.80 and 305.5 percent respectively during the period under

review.

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 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

A comparative analysis of Pre TRIPs period and Post TRIPs

period shows that Post TRIPs period has Average import more than to

Pre TRIPs period. Combined Annual Growth Rate (CAGR) and AAGR

are higher in Pre TRIPs period compare to Post TRIPs period. It means

growth of pharmaceutical import has been decreased in Post TRIPs.

Coefficient of Variance (CV) of pharmaceutical import growth rate in

Post TRIPs period is more than to Pre TRIPs period, it shows that Post

TRIPs period has instable growth rate in comparison to Pre TRIPs

period.

4.4.2. Testing of Hypothesis

The following paragraphs are devoted to test the third hypothesis

of the study:

"The Null Hypothesis of the study (Ho) assumes that there is

no significant impact of the TRIPs regime on import of the Indian

pharmaceutical industry whereas the alternative Hypothesis of the

study (H2) assumes that there is a significant impact of the TRIPs

regime on import of the Indian pharmaceutical industry."

The Researcher has prepared dummy variable to find out the

impact of the TRIPs Agreement on the total pharmaceutical import for

the period from 1991-92 to 2005-06. The dummy variable is assumed

keeping in view that there are two periods, i.e. Pre TRIPs (Pre-

Intervention) Period and the Post TRIPs (Post-Intervention) period. To

203
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

test the hypothesis the Researcher assumed Import as dependent

variables whereas Time, Dummy and Post-Intervention variables as

independent variables. Further, the Researcher used a mathematical

linear function that lends itself to statistical analysis by means of a

general linear regression model (or ordinary least squares (OLS)

multiple regression methods) to assess the impact of the invention

variables (TRIPs regime) on the dependent variable (Import). The

interrupted time series design can be represented by the following

general regression model:

Y = d + piXi + P2X2 + P3X3+ E

Where Y is the dependent variable measured annually; Xi is a time

counter (continuous) variable indicating time in years from the

beginning of the observation period. The value of this variable is coded

1 for the first year in the series, 2 for the second year, 3 for the third

year, and so forth until the last year in the series. X2 (intervention) is a

dummy predictor variable indicating for time before policy intervention

and after time intervention (coded 0 for all observations before

intervention, and coded 1 for all observations after intervention. X3

(post-policy intervention) indicates a continuous predictor variable

representing the years after intervention (coded 0 during the pre-

intervention period, and 1, 2, 3, and so on until all the post-policy

204
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

intervention observations are accounted. Last, E denotes the error of the

model i.e., residuals unexplained by the model.

Table 4.16

Application of Time, Dummy and Post-Intervention Variables in

Pharmaceutical Import (1991-92 to 2005-06)
Post
Import in
Time Dummy Intervention
Years Million
Xi X2 Variable
Indian Rs.
X3

1991-92 8,073.8 1 0 0
1992-93 11,373.8 2 0 0
1993-94 11,665.3 3 0 0
1994-95 13,687.2 4 0 0
1995-96 24,050 5 0 0
1996-97 26,055 6 0 0
1997-98 28,680 7 0 0
1998-99 31,280 8 0 0
1999-00 16,162.1 9 1 1
2000-01 17,014.6 10 1 2
2001-02 20,011 11 1 3
2002-03 28,652 12 1 4
2003-04 29,566.3 13 1 5
2004-05 31,693.5 14 1 6
2005-06 45,152.2 15 1 7
Source: Same as table 4.13
This interrupted time series model contains a constant a, and

three coefficients - pi, p2 and p3. The constant a , estimates the intercept

205
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

at time zero; (3i, estimates the annual change in Pharmaceutical Import

before TRIPs; Pi, measures any immediate or short-term effects of TRIPs

regime; and P3 estimates the trend or slope of the observations during

the Post-Intervention period, i.e. it measures any long-term effects of

TRIPs regime on Import of Indian pharmaceutical industry.

Table 4.16 provides a critical analysis regarding the model. By

applying the multiple regressions on the Production, Time, Dummy

and Post-Intervention variables the following summary of table

emerges:

Table 4.17

Model Summary
Standard
Adjusted R
R R Square Error of the
Square
Estimate

.966 .933 .915 2930.1188

Source: Table 4.16

It has been seen that from the model summary (Table 4.17) the

Coefficient of Determination i.e. R-square stood at 91.5 percent which

means that whatever changes have happened in the total

pharmaceutical import during the period under review the time and

invention variables (TRIPs regime) are responsible up to 91.5 percent.

This implies that there are a few other micro and macro economic

206
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

factors which have indirectly affected the Import of Indian

pharmaceutical industry. The high value of Coefficient of

Determination (R Square) .912 indicates that 91.2 percent of the

variations are explained by this model.

Table 4.18

Cofficients
Unstandardized Standardized
Cofficients Cofficients
t Sig.
Std. Beta
6
Error P
a
3152.443 2283.130 - 1.381 .195
(Constant)

3601.265 452.127 1.601 7.965 .000

(Time)
X2
-23052.8 3116.071 -1.183 -7.398 .000
(Dummy)
X3

(Post 894.570 714.876 .223 1.251 .237

Intervention)

Source: Table 4.16

The t- static of the time i.e. 4.103, is significant at any percent level

of significance and the t-static of dummy variable X2 i.e. for immediate

impact of TRIPs regime is -7.398, which is significant at any percent

level of significance. But in case of Post-Intervention variable X3 i.e. for

impact of TRIPs regime in long run the t-static is .223 insignificant at 1

207
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

percent level of significance. Therefore, Null Hypothesis of the study

(Ho) is rejected and alternative hypothesis is accepted. In case of Post-

Intervention variable X3 i.e. for impact of TRIPs regime in long run the

t-static is 1.251, which is insignificant at 1 percent level of significance.

Hence TRIPs has affected the import of Indian pharmaceutical industry

in short term.

In essence, TRIPs Agreement has immediate significant impact on

import of Indian pharmaceutical Industry. From Table 4.18, negative

value of Coefficient of dummy (intervention) variable (X2) suggests that

TRIPs Agreement has decreased the import of Indian pharmaceutical

industry in the short run. But, in the long run TRIPs Agreement has no

significant impact on the import of Indian pharmaceutical industry.

4.5. Impact of TRIPs on Pharmaceutical R&D

Expenditure

In order to cater to the testing requirements and to find out clear

trend in pharmaceutical R&D expenditure the Researcher has done

trend analysis in general and period wise in particular. Further,

Researcher has tested the forth and last hypothesis regarding the R&D

expenditure at 1 percent level of significance using the Interrupted Time

Series model.

208
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

4.5.1. Pattern and Trend in R&D Expenditure of Indian

Pharmaceutical Industry: Analysis and Interpretations

This analysis consists of tables and graphs which highlight the

pattern and trend of R&D expenditure of Indian pharmaceutical

industry in general and period wise trends in particular. Graphs also

have been prepared to determine the pattern and trends in R&D

expenditure during 1991-92 to 2005-06. In order to cater to the testing

requirements and to find out clear trends in total pharmaceuticals R&D

expenditure, the tables contain total amount, index number, (1991-92 as

base year) and growth rate.

The data presented in table 4.19 shows continuous increase in

R&D expenditure of Indian pharmaceutical industry. The index number

(1991-92 as base year) which was 100 in 1991-92 reached up to 2740.5

points in 2005-06, it shows that R&D expenditure grew approximately

27.5 times during 1991-92 to 2005-06 and touched a level of Rs. 21,924

million. Figure 4.10 shows that R&D expenditure of pharmaceutical

industry has an upward increasing trend. The Combined Annual

Growth Rate (CAGR) 24.84 percent is showing a high growth in R&D

expenditure during the same period.

From table 4.19 and figure 4.10, it becomes crystal clear that the

R&D expenditure during the period under review has been increased

209
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

with an increasing growth rate. R&D expenditure registered a

phenomenal increase during 1993-94 with a growth rate of 32.08 percent

and reached a level of Rs. 125,071 million. Index number has also turn

up at 156.85 points corresponding to the increase in growth rate during

the same year. From 1994-95 to 2001-02 the growth rate of R&D

expenditure remained between 11.57 and 23.02 percent. Span of three

years 2002-03 to 2004-05 shows a remarkable increase in growth rate of

R&D expenditure, this period maintained a higher growth rate between

54.48 and 59.96 percent. In 2005-06 R&D expenditure touched a level of

Rs. 21,924 million with a growth rate of 30.04 percent. Remarkable

growth in R&D expenditure of Indian pharmaceutical industry from

2002-03 and onwards was the outcome of Indian Patent Amendment

Act, 2002 and Indian Patent Amendment Act, 2005 towards TRIPs

compliance. These amendments fully implemented the TRIPs

provisions in pharmaceutical sector. Therefore, Indian companies

increased their R&D budget to develop new drugs.

From table 4.19, it is discernible that during 1991-92 to 2005-06 the

average R&D expenditure was amounts to Rs. 5,329.6 million with an

Average Annual Growth Rate (AAGR) of 27.64 percent. The other

statistics such as Standard Deviation (SD) and Coefficient of Variance

(CV) of R&D expenditure were 6,327.95 and 118.73 percent respectively

210
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 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

whereas SD and CV of R&D expenditure growth rate were 16.95 and

61.34 percent respectively during the period under review.

Table 4.20 with figure 4.11 present the Pre TRIPs period details

with regard to R&D expenditure of Indian pharmaceutical industry.

This period contains eight years starting from 1991-92 to 1998-99. The

data presented in table 4.20 shows continuous increase in R&D

expenditure. The index number (1991-92 as base year) which was 100 in

1991-92 reached up to 325 points in 1998-99, it shows that R&D

expenditure has been increased more than 3 times during 1991-92 to

1998-99 and reached from a level of Rs. 800 million to a level of Rs. 2,600

million. Figure 4.11 shows that R&D expenditure of Indian

pharmaceutical industry has an upward increasing trend. The

Combined Annual Growth Rate (CAGR) 17.8 percent is showing a

moderate growth during the same period.

From table 4.20 and figure 4.11, it is clear that the total R&D

expenditure during the period under review has been increased with

growth rate between 11.57 and 32.08. R&D expenditure registered a

phenomenal increase during 1993-94 with a highest growth rate of 32.08

percent and reached a level of Rs. 1,250 million. Index number has also

turn up at 156.85 percent corresponding to increase in growth rate

during the same year. In the succeeding years 1994-95 to 1998-99, R&D

215
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

expenditure shows a moderate growth rate ranging between 11.57 and

18.18 percent.

It is clear from the table 4.20 that average R&D expenditure of

Indian pharmaceutical industry during Pre TRIPs Period was Rs.

1,581.25 million with an Average Annual Growth Rate (AAGR) of 18.48

percent. Maximum Growth rate of R&D expenditure was registered in

1993-94 and minimum growth rate was in 1998-99. The other statistics

such as Standard Deviation (SD) and Coefficient of Variance (CV) of

R&D expenditure were 614.66 and 38.87 percent respectively whereas

SD and CV of R&D expenditure's growth rate were 6.57 and 35.93

percent respectively during the Pre TRIPs period.

The trend analysis of Post TRIPs Period (1999-00 to 2005-06) with

the help of table 4.21 and figure 4.12 shows that R&D expenditure has

an upward increasing trend. The data presented in table 4.21 shows

continuous increase in R&D expenditure. The index number (1991-92 as

base year) which was 400 in 1999-00 reached up to 2740.5 points in

2005-06, it shows that R&D expenditure has been increased

approximately 7 times during 1999-00 to 2005-06 and reached from a

level of Rs. 3,200 million to a level of Rs. 21,924 million. The Combined

Annual Growth Rate (CAGR) 41.36 percent is showing a very high

growth during the same period.

216
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TifHBSIS
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

From Table 4.21 and figure 4.12, it is clear that growth rate of

R&D expenditure during the period under review has been wavering.

R&D expenditure of Indian pharmaceutical industry shows a moderate

growth during 1999-00 to 2001-02 ranging between 15.62 and 23.02

percent. During 2002-03 to 2005-05 growth rate of R&D expenditure

shows a remarkable increase, this period of three years maintained a

higher growth rate between 54.48 to 59.96 percent. In 2005-06 R&D

expenditure touched a level of Rs. 21,924 million with a growth rate of

30.04 percent. The major causes for this surprising growth in R&D

expenditure during 2002-03 to 2005-06 were the Indian Patent

Amendment Act, 2002 and Indian Patent Amendment Act, 2005. These

Patent Acts fully implemented the TRIPs provisions in pharmaceutical

sector. Therefore, Indian companies increased their R&D budget to

develop new drugs.

It is clear from the Table 4.21 that average R&D expenditure of

Indian pharmaceutical industry during Post TRIPs Period was amounts

to Rs. 9,613.429 million with an Average Annual Growth Rate (AAGR)

of 36.79 percent. Minimum Growth rate in R&D expenditure was

recorded in 2000-01 and maximum growth rate was in 2004-05. The

other statistics. Standard Deviation (SD) and Coefficient of Variance

(CV) of R&D expenditure were 7,269.77 and 75.62 percent respectively

219
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

whereas SD and CV of R&D expenditure's growth rate were 19.60 and

53.27 percent respectively.

A comparative analysis of Pre TRIPs period and Post TRIPs

period shows that Post TRIPs period has Average, Combined Annual

Growth Rate (CAGR) and AAGR higher than of the Pre TRIPs period. It

means R&D expenditure increased with a higher growth rate in Post

TRIPs period compare to the Pre TRIPs period. Coefficient of Variance

(CV) of growth rate 35.62 percent in Pre TRIPs period is less than to

53.27 percent in Post TRIPs period shows that Pre TRIPs period has

stable growth rate in comparison to the Post TRIPs period.

4.5.2. Testing of Hypothesis

The following paragraphs are devoted to test the hypothesis

"The Null Hypothesis of the study (Ho) assumes that there is

no significant impact of the TRIPs regime on Research and

Development (R&D) expenditure of Indian pharmaceuticals industry

whereas the alternative Hypothesis of the study (H4) assumes that

there is a significant impact of the TRIPs regime on Research and

Development (R&D) expenditure of Indian pharmaceuticals

industry."

The Researcher has prepared dummy variable to find out the

impact of the TRIPs Agreement on the total R&D Expenditure of Indian

pharmaceutical industry for the period from 1991-92 to 2005-06. The

220
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

dummy variable is assumed keeping in view that there are two periods,

i.e. Pre TRIPs (Pre-Intervention) Period and the Post TRIPs (Post-

Intervention) period. To test the hypothesis the Researcher assumed

R&D Expenditure as dependent variables whereas Time, Dummy and

Post-Intervention variables as independent variables. Further, the

Researcher used a mathematical linear function that lends itself to

statistical analysis by means of a general linear regression model (or

ordinary least squares (OLS) multiple regression methods) to assess the

impact of the invention variables (TRIPs regime) on the dependent

variable (R&D Expenditure). The interrupted time series design can be

represented by the following general regression model:

Y = d + piXi + P2X2 + P3X3+ E

Where Y is the dependent variable measured annually; Xi is a

time counter (continuous) variable indicating time in years from the

beginning of the observation period. The value of this variable is coded

1 for the first year in the series, 2 for the second year, 3 for the third

year, and so forth until the last year in the series. X2 (intervention) is a

dummy predictor variable indicating for time before policy intervention

and after time intervention (coded 0 for all observations before

intervention, and coded 1 for all observations after intervention. X3

(post-policy intervention) indicates a continuous predictor variable

221
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

representing the years after intervention (coded 0 during the pre-

intervention period, and 1, 2, 3, and so on until all the post-policy

intervention observations are accounted. Last, E denotes the error of the

model i.e., residuals unexplained by the model.

Table 4.22
Application of Time, Dummy and Post-Intervention Variables in
Total R&D Expenditure of (1991-92 to 2005-06)
R&D Post
Expenditure in Time Dummy Intervention
Years
Million Indian Xi X2 Variable
Rs. X3
1991-92 800 1 0 0
1992-93 950 2 0 0
1993-94 1,250 3 0 0
1994-95 1,400 4 0 0
1995-96 1,600 5 0 0
1996-97 1,850 6 0 0
1997-98 2,200 7 0 0
1998-99 2,600 8 0 0
1999-00 3,200 9 1 1
2000-01 3,700 10 1 2
2001-02 4,350 11 1 3
2002-03 6,720 12 1 4
2003-04 10,540 13 1 5
2004-05 16,860 14 1 6
2005-06 21,924 15 1 7

Source: Same as table 4.19

222
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

This interrupted time series model contains a constant a, and

three coefficients — {3i, p2and p3. The constant a, estimates the intercept

at time zero; Pi, estimates the annual change in R&D Expenditure before

TRIPs; Pi, measures any immediate or short-term effects of TRIPs

regime; and P3 estimates the trend or slope of the observations during

the Post-Intervention period, i.e. it measures any long-term effects oi

TRIPs regime on R&D Expenditure of Indian pharmaceutical industry.

Table 4.22 provides a critical analysis regarding the model. By

applying the multiple regressions on the R&D Expenditure, Time,

Dummy and Post-Intervention variables the following summary oJ

table emerges:

Table 4.23
Model Summary
Standard
Adjusted R
R R Square Error of the
Square
Estimate
.967 .935 .918 1816.0890
Source: Table 4.22

It has been seen that from the model summary (Table 4.23) the

Coefficient of Determination i.e. R-square stood at 91.8 percent which

means that whatever changes have happened in the tota'

pharmaceutical production during the period under review the time

and invention variables (TRIPs regime) are responsible up to 91.^

22-
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

percent. This implies that there are a few other micro and macro

economic factors which have indirectly affected the R&D Expenditure

of Indian pharmaceutical industry. The high value of Coefficient of

Determination (R Square) .918 indicates that 91.8 percent of the

variations are explained by this model.

Table 4.24
Cofficients
Unstandardized Standardized
Cofficients Cofficients
t Sig.
Std. Beta
B
Error P
a
466.286 1415.085 - .328 .749
(Constant)
Xi 248.214 280.229 .175 .886 .395
(Time)
X2 -5505.429 1931.342 -.449 -2.851 .016
(Dummy)
X3
(Post 2919.000 443.080 1.155 6.588 .000
Intervention)
Source: Table 4.22

From the table 4.24, the t- static of the time i.e. .886, is

insignificant at 1 percent level of significance and the t-static of dummy

variable X2 i.e. for immediate impact of TRIPs regime is -2.851, which is

insignificant at 1 percent level of significance. But in case of Post-

Intervention variable X;^ i.e. for impact of TRIPs regime in long run the

t-static is 6.588, which is significant at any percent level of significance.

224
 Impact Assessment of TRIPs on Indian Pharmaceutical Industry

Therefore, Null Hypothesis of the study (Ho) is rejected and alternative

hypothesis is accepted. Hence, TRIPs has significant impact on R&D

expenditure of Indian pharmaceutical industry in the long run.

In essence, TRIPs Agreement has no immediate significant impact

on R&D expenditure of Indian pharmaceutical industry. But, in the long

run TRIPs Agreement has significant impact on the R&D expenditure of

Indian pharmaceutical industry. From Table 4.24, positive value of

Coefficient of Post-Intervention variable (X3) suggests that TRIPs

Agreement has increased the R&D expenditure of Indian

pharmaceutical industry in the long run. On other words R&D

expenditure of Indian pharmaceutical industry under TRIPs regime has

grown more compare to the Pre TRIPs regime growth.

4.6. References:

1. Agreement on Trade-Related Aspects of Intellectual Property Rights

Annex IC, Art. 65 §2, retrieved from
http://www.wto.org/english/tratop e/trips e/t..agm2 e.htm on July
15, 2006.

225