Boosting pharma research

Govt should not solely depend on monetary incentives

As reported by this newspaper, the government is in the process of introducing a research-linked incentive (RLI) scheme for the pharmaceutical sector on the lines of the production-linked incentive (PLI) system that has been put into place for several other high-tech or economically important sectors. Details are not publicly available about what this scheme will look like. However, what is known is that the private sector has been consulted on the proposed RLI, and that specific areas within the pharma sector — including antibiotics and biosimilars — will be targets for the scheme.

In broad terms, this scheme is welcome as a mechanism to incentivise India’s pharmaceutical sector to spend more on research. To reflect India’s growing complexity as an economy, its increasing levels of human capital, and its greater integration with the world markets, it is vital that the pharmaceutical industry move itself up the value chain. As it stands, research and development (R&D) spending in the sector is too low. This is a consequence of clear choices by Indian manufacturers. Indeed, in many past years, the proportion of domestic revenue spent locally on R&D has been higher for multinational pharma companies operating in India than for Indian companies. The government’s intention is obviously that incentives for research may boost activity in this space. As with the PLI system, it is likely also hoped that moving up the value chain will allow for greater export earnings.

Yet, as with PLIs, incentive mechanisms cannot become a crutch or a replacement for deeper systemic changes. If RLIs are linked to individual projects, then it is an open question as to whether higher R&D will be entrenched over time without unsustainable expenditure by the government. Collaboration with laboratories in academia may also be another focus on the RLI scheme. But this needs better interfaces and structures as well as — and, eventually, instead of — monetary incentives. A separate vertical for incentives for micro, small, and medium enterprises to invest in R&D is welcome, but it is no replacement for the access to basic science and to cheap financing and human capital that allows such start-ups to flourish. Nor is there any reason to suppose that government bureaucrats would be able to correctly identify the particular sub-sectors within the pharma business that would be the most productive recipients of RLI largesse. Thus, the RLI schemes, like the PLI schemes, must be seen as a temporary measure meant to enable catch-up in specific strategic sectors, not as a quasi-permanent solution to India’s relative under-performance in those sectors.

India has not under-performed in pharma, but it is clear that its movement up the value chain in the sector is delayed. Yet a failure to invest in R&D may not be the root cause of this delay. There is a reason that R&D is not considered profitable, and it is that companies do not yet have clear visibility on the returns on any successful innovation in India. Once India moves to a more modern view on intellectual property rights and patents, which prioritises returns on R&D, incentives for R&D — and thus productivity and growth in the sector — will take care of themselves. Therefore, along with incentives, the government must focus on other bottlenecks that are not allowing the Indian pharma sector to move up the value chain.