by Rakesh Mohan
Had MRTP continued, Tata could not have implemented its TBEM or the Code of Conduct. The adherence of Tata companies to both the TBEM process and the Tata Code of Conduct was permanently enshrined in the Brand Equity and Business Promotion Agreement. Each Tata company subscribed to this agreement in order to secure the right to use the Tata brand. This played an immense role in presenting to the world Tata products and services that stand for performance and trust. Alongside key initiatives in governance, brand promotion and business excellence, the Tata group quickly developed an understanding of the critical importance of innovation in order to successfully compete in the global economy.
This eventually led to the formation of the Tata Group Innovation Forum in 2007, and the celebration of the group’s pioneering instincts through the annual Tata Innovista Awards. The group’s recent disclosure of having crossed a milestone of 7000 patent applications, a number that has doubled in just the last two years, reflects the rapid progress that the group is making.
Beginning with Tata Tea’s acquisition of Tetley in 2000, the group made several significant overseas acquisitions, including Corus by Tata Steel, Jaguar and Land Rover by Tata Motors, and Brunner Mond by Tata Chemicals; all in the UK—Daewoo Commercial Vehicles by Tata Motors in South Korea; NatSteel in Singapore and Millennium Steel in Thailand by Tata Steel; General Chemical Industrial Products by Tata Chemicals; Eight O’Clock Coffee by Tata Tea; Tyco Global Network by Tata Communications in the US.
The unshackling of the Indian economy led to dramatic changes within the group, though its core ethos and emphasis on ethical business practices and its commitment to the communities in which it operates have not changed. The journey since the reforms process began has been exciting for the Tata group, which has rejuvenated existing businesses, entered new ones, aggressively expanded in the overseas markets, and launched breakthrough products.
Twenty-five years ago, the Tata group had a turnover of just $6 billion. In 2014–15, group revenues topped $108 billion. Back then, Tata had little by way of overseas operations; today, it operates in more than 100 countries across the globe. In 2014–15, the group had international revenues of $73 billion, accounting for 67 per cent of total revenues. The twenty-nine publicly listed Tata enterprises had a combined market capitalization of $116 billion as of 31 March 2016. The companies in the Tata group are now building Brand India all across the globe. The lofty and refreshed vision for the Tata group is that by 2025, 25 per cent of the world’s population should experience the Tata commitment to improving the quality of life of customers and communities.
Start-ups
I should mention very briefly another phenomenon, which too is a derivative of liberalization in India. There arrived a bunch of new messiahs, born and nurtured in the post-liberalization atmosphere. These were IT-driven start-up businesses, helped along by the development of a supporting ecosystem. These ventures were based on disintermediating traditional business models and became possible because institutions such as venture funding and entrepreneurship-mentoring also entered the business space.
It is noteworthy that a non-technology-based start-up called Patanjali also took birth and is reported to have grown rapidly. In 1993, a twenty-five-year-old youth named Ram Krishna Yadav established a flourishing yoga practice and soon became famous as Baba Ramdev. Nobody could have imagined that this rustic youth would build a commercially competitive FMCG entity within ten years to the same size that HLL took a century to do. He owns three or four yoga and spirituality television channels, which is reported to have developed a viewership about 200 million! Prior to liberalization, a private party could not have owned a television channel!
His story gains some importance in the context of this essay because even as century-old companies such as HLL and Tata were adapting to modernity and open markets, Baba Ramdev began a process of modernizing a 3000-year-old tradition of yoga. Charak, Zandu, Dabur, Vicco Vajradanti, Kesh King, Chandrika, Himalaya and many more had been around for decades. The newest wellness brand, Patanjali, attracted consumer interest and franchise to a far stronger degree than any of the predecessor brands. The views and reasons for its apparently instantaneous success range from good brand stewardship, supply chain/marketing savvy and intuitive play on a latent consumer longing for the ‘natural’ on the one extreme to a less complimentary view that it is a form of politically inspired crony capitalism. It all depends on who you speak to! The fact is that such an operation could not have happened without liberalization. Prior to liberalization, every new entrepreneur would have had to get his unit classified as a ‘small-scale unit’ or, if it’s a large industrial undertaking, obtain an industrial licence to set up his unit. The access to foreign exchange for import of process or packing machines was painful. The entrepreneur would have to spend considerable time ‘cultivating’ the numerous inspectors and authorities to keep his unit functioning. No dramatic market impact could be planned until many years of painstaking effort had been expended. None of these are necessary any longer.
Start-ups promise to be the new poster boys of growth; though the outlook is ambiguous and is constantly debated, start-ups, digital or otherwise, are also the children of liberalization.
Before Liberalization and after Liberalization
We can consider the fitness and business performance of Indian companies in the BL and AL eras, standing for ‘before liberalization’ and ‘after liberalization’. Evolution teaches us that the longest-surviving species are not the biggest, the fastest or the strongest, but the most adaptive ones. HLL–AL is still India’s top FMCG company, but the company is very different from the HLL–BL, so too with Tata. Yet, both companies have many more tasks ahead.
I have access to five data points from the last seventy-five years when the top business groups were published by public authorities. In 1939, the Indian Business and Nationalist Politics published that TATA was India’s number one group; it was so again in 1951 (R.K. Hazari Report on the Corporate Private Sector), and it continued to be so in 1969 (Licensing Policy Enquiry Committee), 1990 (Gita Piramal, Big Business and Entrepreneurship) and in 2016 (Capitaline Database).
To become number one is not easy. To stay number one for seventy-five years is incredibly tough. This is a small measure of corporate adaptiveness, especially when during the same period the half-life of Fortune 500 companies had rapidly declined.
The years of protection and consequent lack of competitiveness of Indian industry in 1991 is emotively captured by a Paulo Coelho blog from 10 November 2010, ‘The Bird and the Cage’. A woman loved a bird so much that she caged the bird. In captivity, the bird gradually withered away and died. The woman felt miserable and she herself started to wither. One day, she had a visitation from Death. ‘Why have you come?’ she asked Death. ‘So that you can fly once more with the bird across the sky,’ Death replied. At the risk of dramatizing the situation, Indian companies were the caged bird and the Indian economy was the woman. Thankfully, India averted such a conversation with Death.
31
25 Years of Reforms that Led India’s Pharmaceutical and Biotech Industry towards Global Leadership
Kiran Mazumdar-Shaw
The last twenty-five years have been transformational for Biocon: our global competitive edge is being built on a strategy of leveraging India’s lower-cost base to deliver high-value but affordable products and services. We aim to be an innovator from the developing world, addressing unmet medical needs through research and manufacturing excellence that will build global leadership in time.
Introduction
The colonial ‘hangover’ of being an over-regulated economy started receding twenty-five years ago for India. This brought our nation back from the brink of defaulting on international payments in 1991 to make it the emerging global economic hotspot that it is today.
This economic transformation is the outcome of systemic and wide-ranging economic reforms that were introduced in 1991 and implemented gradually with sustained politi
cal will. It is often a crisis that forces reforms. That is exactly what happened twenty-five years ago when India successfully converted serious fiscal challenges into economic opportunities by bringing in a slew of progressive measures. Economic reforms led to the decontrol of private investment, opening up of the economy to foreign trade and foreign investment, and changes in industrial policy, patent protection rules and price controls. The banking sector and capital markets also witnessed sweeping reforms. Taken together, these reforms released the pent-up economic energy of the country, triggering an acceleration in gross domestic product (GDP) growth, which almost touched double digits during 2005–07.
This growth trajectory was further bolstered by the meteoric rise of India’s software services and, to some extent, the pharmaceutical sector. These trends had a visible impact on the proverbial brain drain, which seemed to reverse. Whilst software engineers built India up to make it ‘the back office of the world’, scientists enabled the Indian pharmaceutical industry to earn the label of being the ‘pharmacy of the world’ by catering to the global demand for safe, effective and affordable generic drugs. This was in stark contrast to the situation at the time of Independence in 1947, when India’s pharmaceutical market was dominated by Western multinational companies (MNCs) that controlled 80–90 per cent of the market, primarily through imports. Approximately 99 per cent of all pharmaceutical products were patented, and domestic Indian drug prices were among the highest in the world.1
India’s biopharmaceutical industry added further value to ‘the pharmacy of the world’ label through vaccines and biologics. Today, one in three children in the world are immunized with a ‘Made in India’ vaccine2 and it will not be long before one in five insulin users around the world will manage diabetes with an insulin product manufactured in India. It is also prudent to note that the pharmaceutical industry has attracted over $13 billion in foreign direct investment (FDI) between 2000 and 20153 and has provided employment to about 10 million people.
1991: Towards a More Liberal Economic Regime
The new industrial policy announced in July 1991 and the subsequent amendments brought far-reaching changes in the policy regime and a much more liberal attitude towards FDI than ever before in post-Independence India.
Foreign ownership of up to 51 per cent was allowed through an automatic approval route for the manufacture of bulk drugs and formulations. This ceiling was gradually raised to 74 per cent in 2000 and to 100 per cent in 2001, thus permitting full foreign ownership of Indian pharmaceutical companies. This resulted in several mergers and acquisitions, the most notable being the acquisitions of Ranbaxy by Japan’s Daiichi Sankyo in 2008 for a hefty sum of $4.6 billion and of Piramal Healthcare by Abbott in 2010 for $3.7 billion.
In addition to easing limits on foreign-equity holdings in the pharmaceutical sector, the government abolished industrial licensing requirements for a majority of drugs, lifted restrictions on the import of bulk drugs, removed technology-transfer clauses and limited the scope of drug-price controls.
When the drug-price control orders were revised for the first time, way back in 1979, the prices of 347 drugs were fixed. In the second revision, in 1987, the number of drugs under price control was brought down to 142. In 1995, the number got further reduced to seventy-four. In this way, the 1990s witnessed a substantial dilution in the scope of price controls in the industry. (Unfortunately, this trend is now being reversed: in 2016 the government, in its ill-informed wisdom, placed nearly 700 drugs under price control, with an intention to extend this further.)
The economic liberalization of 1991 also, for the first time, saw the devaluation of the Indian rupee. This marked a major departure from the relatively protectionist trade policies pursued in earlier years that had imposed extensive controls on domestic manufacturing and artificially overvalued the Indian currency. Consequently, the economy transitioned to a market-based exchange-rate regime. This was soon followed by the announcement of the export–import (Exim) policy in 1992 to remove a large number of controls and restrictions, liberalize imports and boost exports with the ultimate aim of leveraging foreign trade as an engine of growth.
Under the new Exim policy, initiatives like the Export Promotion Capital Goods (EPCG) scheme allowed duty-free import of capital goods, access to foreign technology and tax benefits that would give a competitive edge to Indian manufacturers in the export markets. The policy soon evolved to include export of services. This multipronged export-promotion strategy led to a rise in exports that helped usher in a phase of stable and accelerated growth for the Indian economy.
Liberalization moved the economy from being a closed-market entity characterized by extensive regulation, protectionism and public ownership, towards an open-market system that relied on fair competition and the private sector to create dynamics that reduced trade controls and resulted in greater efficiency.
This brought a sea change in the Indian pharmaceutical industry. Exponential investments were made by leading pharmaceutical companies so that they became global players through a combination of rapid indigenous expansion and overseas acquisitions. This process was further augmented in 2005 when India initiated a system of aligning its product patents regime with global standards to implement commitments undertaken under the World Trade Organization (WTO). This helped renew the interest of pharmaceutical MNCs in the Indian pharmaceutical sector.
The Initial Years
My own entrepreneurial journey started more than a decade before the liberalization of the Indian economy. I ventured to create my biotechnology enterprise in 1978 in a hostile environment characterized by bureaucratic red tape and a draconian licence raj, which was unwelcoming towards foreign investment as well as intellectual capital. It was a time when multinational holdings in Indian companies were capped at 40 per cent.
As a first-time entrepreneur who was attempting to set up a biotechnology-based joint venture with an Irish company, I began the process of applying for government approvals with the Directorate General of Trade and Development (DGTD) in September 1978. My company, Biocon India, was to be a 70:30 JV with Biocon Biochemicals, Ireland. The project proposal was for the production and export of food and industrial enzymes. I was advised by the head of the DGTD under the Ministry of Commerce—the ministry in charge of approving any foreign investment or JV—that the only way to get approval for starting my company would be to have either import substitution or the export element explicitly listed in the project proposal. If both could be listed, chances would be higher. As I went about preparing my project report, I was accosted by touts who offered to do the paperwork for me and get me an approval if I paid a bribe of Rs 10,000, a princely sum in those days. The irony was that I had only Rs 10,000 in my bank to start the company. Frustrated with the demands of the touts, I finally complained to the DGTD chief, who assured me of help with the application and told me that I would get the approval without having to pay any bribe to anyone. I finally submitted my application by the end of October. The listing of the elements of import substitution and export potential aided in expediting the process of getting an approval, and Biocon India was registered on 29 November 1978.
As a pioneer, I had the advantage of escaping the radar of regulatory scrutiny. Until 1986, biotechnology had no regulator. The fact of being a woman entrepreneur engaged in creating a research-led business added to the mystique. The only regulations that I had to comply with were statutory in nature, covering the Factories Act, labor laws and the prevailing export–import regulations.
By 1979, Biocon India had become the first Indian company to manufacture and export enzymes to the US and Europe. However, at that time, there were no controls either on importing or exporting biological products, like there are today.
Venture Funding: The Advent of New-age Companies
As an entrepreneur, I had to face funding challenges in the early years. In the 1970s and 1980s, venture capital was virtually non-existent and the only way an entrepreneur could source fu
nds was by raising debt from typically risk-averse lenders. What counted were collateral security, a demonstrated track record in business and a well-understood business model. I did not possess any of these elements: I was a twenty-five-year-old start-up entrepreneur, a woman at that, with no business experience, no collateral security to offer and, worse still, pursuing a high-risk, unknown business based on biotechnology. For the banks, my personal guarantee as the managing director of Biocon India was not enough. They suggested I get my father as a guarantor. I was not ready to accede to the banks’ ridiculous requirement of getting a male guarantor. In 1979, I had to knock on the doors of five banks before a brave banker at the state-owned Canara Bank decided to take the risk and back me by extending a credit line of Rs 3 lakh.
A year later, I approached the Karnataka State Financial Corporation (KSFC) for a loan to expand the manufacturing capacity. KSFC suggested that I apply under a quota for the disabled, scheduled castes and scheduled tribes and women entrepreneurs. I told them that I would not apply against any quota as a matter of principle. Eventually, KSFC gave me a term loan of Rs 14 lakh to set up a new manufacturing facility on a twenty-acre piece of land on the outskirts of Bangalore. At that time, interest rates were high and getting access to capital was challenging. I was grateful that KSFC provided me with the much-needed capital, albeit at an interest of 16 per cent per annum—which was considered a ‘concessional rate’.
Ten years later, despite building a successful track record of being able to run a profitable biotechnology business, I was back to square one when I tried to raise a loan to scale up a novel enzyme-fermentation technology based on solid-state fermentation. A decade-long research effort had led to the development of an exciting, home-grown solid-state fermentation technology for the production of fungal enzymes. We had validated the technology in a small pilot plant and were now confident of investing in the technology to take it to a commercial scale. The funding needs, as viewed in the 1980s, were by no means modest; we estimated a cost of Rs 1.15 crore. Conventional lending institutions like the KSFC and the Karnataka State Industrial Investment and Development Corporation (KSIIDC) were extremely reluctant to back such a high-risk venture, especially when most Indian companies relied on imported technologies. KSFC wanted me to obtain a letter from the Central Food Technological Research Institute (CFTRI) validating that I had a feasible technology as a prerequisite for the approval of funds. CFTRI, which had no clue about the technology we had developed, wanted access to the intellectual property (IP) in order to validate it. I obviously refused, as this was proprietary technology and the IP needed to be guarded closely. Both KSFC and KSIIDC refused funding, saying that they did not understand the proprietary technology that I was trying to scale up. I was even advised to license an imported technology in order to get the loan sanctioned. Nobody understood that the whole point of biotechnology was not about the licensing technology but about developing your own IP and innovation-led technology.
