A selective study of exports of manufactured goods from India: auto parts and pharmaceuticals.

INTRODUCTION

"The world is too much with us", said the famous English poet Wordsworth. Perhaps very few words match the inevitability of globalization in the world. The history of mankind bears to the continuous search for improvement in his economic lot. With economics, comes trade i.e., two-way movement of goods and services. Trade has long since been recognized as the best and the most endurable way to growth and prosperity (Terpstra and Sarathy, 2004).

India is among the top 10 industrialized nations in the world having approximately 16% of the world's population. But its contribution to the world trade has just touched the 1% mark (Nath 2006). However, recently India has made significant strides in increasing its contribution to world trade and currently contributes over 7% to the increase in world trade. The external environment remains conducive to growth for the past few years; however global macro economic imbalances, protracted WTO (World Trade Organization) negotiations, volatile international crude oil prices and creeping inflationary trends signify a challenging phase especially for India (Banerji 2008). In the fiscal year ending 2009, contribution of merchandise trade was 1.3 percent of global merchandise trade (Economic Survey of India 2010-11).

India has come a long way from the Balance of Payment crisis of 1991 and till December 2010, the foreign exchange reserves had reached US$ 297 billion (Economic Survey of India, 2010-11). This has happened because of opening of the Indian economy in 1991 which resulted in generation of the entrepreneurial spirit of the people. The mindset of the Indian Government has shifted from Import substitution in pre 1991 era to that of integration with the World, post1991. The country is now trying to catch up with the rest of the world especially the East Asian Tigers. It is a strange but true fact that all these East Asian Tiger countries faced protracted strife (causes being internal or external) for a long period of time during and after second world war, yet their strategy of export led growth had given them growth rates of over 6 per cent on a 30-year period ranging from 1960 to 1990. This single-minded pursuit has enabled the citizens of these countries to raise their incomes by 72 to 638 percent between 1960 and 1990 (Michael S, 1996).

India too has been pursuing Export Led Growth for the past twenty years and has achieved considerable success in it. As per the Economic Survey Report for Financial Year (FY) 2010-11, exports reached US$ 183 billion and in the first half year (April-September 2010) of FY 10-11, with US$ 111 billion in the corresponding previous period (April-September 2009).

Classifying Manufacturing Goods on the Technological Scale

Classification of Low, Medium, Medium--Low, Medium--High and High Technology has been given by OECD (Table 1) in Science, Technology and Industry Scorecard 2003 for the manufacturing sector. Technology intensive exports are exports of such products/plants/equipments wherein the value of technology input, R & D, knowledge, design, drawings, and expert technical services is much higher than the value of capital inputs and raw materials (Aggarwal et al 2004 and Roessner 1999).

As per the World Investment Report 2002 (UNCTAD), India has been ranked 17th in Medium Technology Export performance (for the period 1985-2000) and 9th in Low Technology performance respectively. Overall ranking was 14th in a list of twenty countries. In 2003, India's contribution to high technology exports was a miniscule 0.22 percent (Technology Exports 2007).

In India's export basket, the share of technology intensive component had shown an eight fold growth from FY 1994-95 to FY 2002 -03 in absolute Indian Rupee terms and the subsequent percentage increase was from 8.38 to 18.73 in the corresponding period of the export of manufactured goods. It is noteworthy that the corresponding figures (technology intensive goods) for Brazil and China were 18 and 20 percent of the manufactured goods export (Aggarwal et al 2004). As per Economic Survey of India 2010-11, among global exports of engineering goods, India's contribution was 0.80 percent placing it at thirtieth rank among engineering goods exporters. Between 2001 and 2007, engineering exports grew at a CAGR of over 25 percent, though due to recession, its rate came down to 19 percent in the last FY (Economic Survey of India 2011).

Among merchandise exports, largest value addition comes in engineering goods and among them, technology intensive exports tend to have the highest value addition. There is therefore an urgent need to increase rapidly the contribution of manufactured goods, especially technology intensive products so as to increase India's exports.

Technological Intensive Exports

Some of the areas in technology intensive exports, where India is making impact are computer software, automobiles and auto components and pharmaceuticals. India is increasingly being viewed as a global destination for high end R & D, prototype development, manufacturing hub for high end products (Aggarwal et al 2004). In recent years R & D investments have increased especially in pharmaceuticals, automobiles and auto parts manufacturers.

According to a study done by Georgia Technical School, USA (Porter et al 1999); India's present high tech production capability on a scale of 10 to 50 is 30 (10 being none and 50 implying capable of producing state of art products) and by 2015 should reach 44. For this to achieve, there should be high degree of Public--Private partnership supported by conducive government policies. The trend shown in 1999 is being maintained as per the latest report released in 2008.

In the next few pages, a brief description on exports of the two identified Technology sectors (manufacturing) are mentioned. They are:

1. Auto components (Hi-Medium)

2. Pharmaceuticals (Hi-Tech)

Auto Components Industry

The Indian auto sector has been experiencing high growth for quite some time. By 2020, passenger car sales in India are set to touch nine million, with auto component industry set to grow to US$ 113 billion (IBEF 2011).

The industry has shown a growth rate with CAGR of over 16 percent in the six year period mentioned in table 2, which is commendable taking in to account economic recession post subprime crises of 2007, which put a dampener on the automobile sector in advanced countries. In the corresponding period, exports also showed approximately the same CAGR. It is anticipated that India's share of global auto parts' business would rise from 0.9 percent (2008-09) to 2.5 percent by 2015. Investments too have kept their pace, showing a healthy CAGR of approximately 18 percent (Indian Auto Component Industry an Overview 2011, ACMA). It is observed that overall growth, investments and exports are moving in tandem.

Exports of auto parts are expected to touch US$ 40-45 Billion by 2020 (more than a third of output in revenue terms). Major destinations are Europe and USA. More than 70 percent of auto component exports from India are directed to famous names like General Motors, Daimler and Ford Motor among others (Dun and Bradstreet 2006). The said report listed 22 auto component manufacturers among the top 500 companies in India with combined turnover exceeding US$ 3 billion. The industry is geared to meet the entire needs of the automobile industry like body and chassis parts, suspension and braking parts, engine parts, drive transmission parts and electrical parts. Some of the leading manufacturers of auto components in India are Bosch Industries, Motor Industry Company of India, Bharat Forge, Sundaram Fasteners, Wheels India, Amtek Auto, Motherson Sumi, Rico Auto and Subros.

The auto component industry has established sophisticated engineering skills, production lines, a thriving domestic sector and a competitive cost structure. Due to these developments, in the export sector, the ratio of OEM (original equipment manufacturer) to aftermarket has changed from 35:65 in 1990s to 75:25 by 2006 and 80:20 by 2010 (Indian Auto Component Industry an Overview, 2011, ACMA). Globally the auto parts industry is expected to shift towards Asia (Frost and Sullivan 2010), with Asia contributing the largest by 2015. Table 3 illustrates the expect shift.

The direction of exports is an important indicator of the quality acceptance of a product, with reference to country of origin (of export). In FY 2008, two-thirds of exports were to the demanding markets of North America and Europe (Indian Auto Component Industry an Overview 2010). The product portfolio of auto parts' exports is also expected to change by 2020 (table 4).

India enjoys a cost advantage to the tune of 25 to 30 percent as compared to the Western companies even though the productivity is lower by 50 to 75 percent. The competitive advantage does not come from cost alone, but from its full service capability. The quality standards of the Indian auto ancillary companies have improved significantly. Large numbers of companies have obtained quality certifications and recognition as seen from table 5.

Global major General Motors (before being taken over by USA government) had decided to source OEM parts worth US$ 1 billion by 2010. Likewise Ford Motors has also decided to scale up imports from India for its global operations. In this industry also with globalization has come consolidation. Indian auto component companies have started setting up bases in emerging/developed economies by buying up small to medium sized specialized firms. In the recent few years India has emerged as the global R & D hub for General Motors, Daimler, and Bosch etc (Dun and Bradstreet 2006). Perhaps the most important factor in the development of auto part sector is the growth of car sales in India and the successes achieved by foreign companies (Suzuki, Hyundai, Ford, and Volkswagen etc.). This led to growth as well as quality improvements in auto parts. Table 6 shows the growth in exports of auto parts and annual car sales in India since 1997-98. Correlation coefficient between annual car sales (independent variable X) and exports of auto parts (dependent variable Y) is calculated by the equation Y = MX + C, where M is the slope, which gives per unit change in X with Y and C is the intercept. The result is

Y = 2.88 [+ or -] 0.13 X -953807 {[R.sup.2] = 0.9770, SD = 230959, n = 13}

Thus almost 98% of exports of auto parts can be explained by the growth of overall car sales only. India has progressively started becoming an export base of automobiles (Society of Indian Automobile Manufacturers, www.siam.com), which has necessitated a commensurate improvement in quality and hence acceptability at the global level. It must be understood that car manufacturing signifies a high level of technology absorption and technical maturity (Mayer et al 2003). In India the growth of automobile sector was due to greater freedom given to MNCs, which led to an endogenous growth of the sector. Diffusion of technology from automobile sector to parts and also between the various Indian conglomerates involved in automobile sector (Tata group, Mahindra & Mahindra) has helped in growth of auto parts sector. The low base of domestic automobile demand forced the auto parts sector to look aggressively for exports. (Richet and Ruet 2008) Table 7 gives an idea about the concomitant growth in exports of auto parts and automobiles (including passenger vehicles, commercial vehicles, three wheelers and two wheelers). Correlation between automobile exports (including all types of vehicles) and exports of auto parts produces the following result.

Y = 422080 + 2.2752X {[R.sup.2] = 0.9756, n = 7}

Thus almost 98 percent of exports of auto parts in the period FY 2003-04 and 2009-10 can be explained by export figures of automobile sales only.

To present a clear picture of relationship between automobile exports and auto parts exports, multiple correlation analysis has been done between individual categories viz., passenger vehicles, commercial vehicles, three wheelers (a public transport vehicle, meant for three passengers and quite common in South Asia and in some African countries) and two wheelers and auto parts exports (taken as y in the equation). Table 8 presents exports of each vehicle category.

Result of multiple correlation with four independent variables with auto parts exports (in thousand US$) comes out to be

Y = 137311 + (0.113 +/- 1.56) x1 + (19.9 +/- 6.56) x2 - (0.217 +/- 2.25) x3 + (2.81+/- 0.68) x4

[R.sup.2=] 0.9980, SD = 86813, constant = 137311, Y = export of auto parts in thousand US$ and x1, x2, x3 and x4 are exports of passenger vehicles, commercial vehicles, three wheelers and two wheelers respectively.

With reference to the above mentioned few factors need to be considered.

1. Data set is too small for any significant correlation analysis. Ideally there should be 5 data points for every independent variable i.e., there should be 20 data points for 4 independent variables.

2. X1 and x3 seem to be insignificant as the error in the values of m1 and m3 are more than 10 times of the value of the coefficient. The values of m2 and m4 seem to be significant.

3. The results of correlation in terms of 2 parameter equation involving x2 and x4 are given below:

[R.sup.2] = 0.9980, SD = 61589 and constant = 144444

M2 = 19.40 +/- 2.51 and m4 = 2.85 +/- 0.10

The values of coefficients are almost constant but errors in them have reduced drastically. This indicates that the other two parameters are redundant. Again it seems that there is significant collinearity between the independent variables. Reduction in the values of m2 and m4 shows that.

Collinearity of Independent Variables

X1 vs. x2--[r.sup.2] = 0.16 (no collinearity)

X1 vs. x4--[r.sup.2] = 0.87 (totally not acceptable)

X1 vs. x3--[r.sup.2] = 0.67 (not acceptable collinearity)

X2 vs. x3--[r.sup.2] = 0.54 (marginal collinearity, may be accepted)

X2 vs. x4--[r.sup.2] = 0.45 (acceptable collinearity)

X3 vs. x4--[r.sup.2] = 0.85 (totally not acceptable)

From the above, it can be inferred that,

X1 can be used with x2 only. X2 can be used with x1, x2 and x4. X 3 can be used with x2 only. X4 can be used with x2 only.

Two Parameter Equations

1. Y = (6.57 +/- 0.78) x1 + (43.4 +/- 6.49)x2 - 470559 {[R.sup.2] = 0.9797, SD = 195985}

2. Y = (18.10 +/- 20.30)x1 + (19.50 +/- 6.12)x2 - 150217 {[R.sup.2] = 0.8921, SD = 452298} 2

3. Y = (19.4 +/- 2.51)x2 + (2.84+/- 0.10)x4 + 144444 {[R.sup.2] = 0.9980, SD = 61589}

Single Parameter Equations

4. Y = (8.69 +/- 2.22)x1 + 787582 {R2 = 0.7528, SD = 612279}

5. Y = (65.90+/- 23.0)x2 + 197877 {R2 = 0.6194, SD = 759769}

6. Y = (23.50+/- 4.05)x3 + 113500 {r2 = 0.8705, SD = 113500}

7. Y = (3.39+/- 0.28)x4 + 568973 {R2 = 0.9681, SD = 219977}

As stated earlier the correlation with x2 and x4 (eq.3) is excellent. However, x4 seems to be most important factor. It alone explains ca. 97% of data (eq. 7). Correlation with x1 and x2 is good, explains 98% of the data. Correlation with x2 and x3 is also satisfactory, explains ca. 90% of the data.

The negative value of m3 indicates an inverse relationship between three wheeler exports and exports of auto parts (y). To get an insight in to this unusual result, one needs to look closely in the performance of Bajaj Auto Ltd, one of the oldest automobile companies in India. It happens to be the largest producer of two wheelers (scooters and motorcycles) and also of three wheelers (IBEF September 2009). Table 9 provides details of exports of two and three wheelers of Bajaj Auto Ltd between FY 2003-04 and 2009-10.

The multiple regression equation comes out to be

y = -40494 + 0.35371x1 + -0.26019x2

If x1 and x2 = 0, then y = -40494, i.e., net outgo of foreign exchange, which can perhaps be explained by the fact that the company had invested significant amount in last five years in gaining IP assets to compete against Honda group in motorcycles (two wheelers), a product category, which Bajaj Auto dominated for decades (Annual Statements, Bajaj Auto Ltd, 2003-04 to 2008-09).

It is evident that even though Bajaj Auto has almost 100% share of India's three wheeler exports, yet it moves in opposite direction to its foreign exchange earnings, which means that in the overall export performance of auto parts exports, three wheeler exports act as drag. Why? It is mentioned in the company's Annual Report of 2004-05 that a significant shift in favor of production motorcycles and away from three-wheelers increases raw material and components cost as a percentage of sales. Moreover from the technological point of view, two wheelers (basically motorcycles, since Bajaj Auto Ltd has discontinued production of scooters) require technologically more complex and more expensive auto parts.

But can all the above relational analysis lead to any significant conclusion. They need to be seen in conjunction with the composition and trend of auto parts exports as mentioned in table 10 and depicted graphically in figure 1.

Exports of motor vehicle parts have grown with CAGR of 15.24% between 1996 and 2010, whereas exports of parts of two wheelers have shown a much lower CAGR of 4.44% between 1996 and 2010.It is apparent that exports of two wheeler parts have stagnated. This is contrary to what can be inferred from correlation analysis done.

[FIGURE 1 OMITTED]

To understand the divergence, clarity can be obtained by observing the direction of exports of automobiles and auto parts.

However the export breakup of various vehicle categories presents a clearer picture in understanding the relationship between automobile exports and auto parts exports.

Major Export Destinations for Indian Automobile Industry

Table 12 depicts the top five export destinations of Indian automobiles in FY 2009-10

In fact passenger vehicles constituted 72% of total automobile exports from India (in value terms) in FY 2009-10. Most of the passenger vehicles were exported to European countries, with U.K. registering maximum imports of passenger vehicles from India (FICCI 2010). Table 13 gives the top five export destinations of passenger vehicles in FY 2009-10.

In contrast, exports of two wheelers have primarily been to developing countries. Table 14 gives the major destinations of exports of two wheelers in FY 2009-10.

In commercial vehicles (excluding tractors), Singapore emerged as the top most destinations during FY 2009-10 as mentioned in table 15.

With regard to parts used in commercial vehicles including tractors, in a previous study (BIRD International IMRB 2009), undertaken, it was observed that parts manufacturer of commercial vehicles in India can be categorized in to following two segments.

(a) A niche player focusing only on parts for commercial vehicles and tractors.

(b) A large player operating across all segments--two wheelers, passenger vehicles and commercial vehicles & tractors.

Analysis of tables 11, 13 and 14 show that exports of auto parts and respective automobile categories mirror each other to a large extent--

1. Exports of two wheelers and auto parts of two wheelers are mainly directed towards developing and under developed countries.

2. Exports of motor vehicles (passenger and commercial) and their auto parts are mainly directed towards the developed countries.

Therefore taking in to account following indications

1. Significant correlation ([r.sup.2] = 0.9884) between annual car sales and auto parts exports (table 6).

2. Significant correlation ([r.sup.2] = 0.9756) between automobile exports and exports of auto parts (table 7).

3. Mirroring of export destinations of two wheelers and motor vehicles with their respective destinations in auto parts exports.

4. Incongruence of correlation analysis of categories of vehicles with auto parts with respect to individual parts exports (table 10 and fig. 1), thus reducing the various statistical results to statistical artifacts.

It can be stated with reasonable certainty that continuous expansion in automobile industry in India will lead to growth of exports of auto parts. The drivers for growth in auto parts exports are going to be

1. Growth of automobile sector as a whole.

2. Growth in passenger cars in India and their exports. This particular reasoning is important because a matured and diversified car manufacturing ability signifies a high level of technology absorption (Mayer et al 2003).

3. Increased indigenization (local content) in automobile sector, which will ensure quality compliance in auto parts sectors (CMIE March 2011).

Pharmaceuticals

Indian pharmaceutical industry had reached a size of US$ 24 billion, with exports touching US$ 8.30 billion by 2009 (Economic Times 8 July 2010). Globally Pharmaceutical industry touched US$ 776 billion in 2009 and is expected to maintain growth rate of 15 percent for the next five years (Global Pharmaceutical Industry 10 November 2010). The pharmaceutical industry in India meets more than two-thirds of the country's requirement. India now ranks third in volume of production and fourteenth in terms of value (Economic Survey of India 2010-11). Table 16 depicts the growth in production of bulk drugs and formulations over the last few decades.

Today, India is a net exporter of bulk drugs and exports almost 60 percent of its production output. Looking into the industry structure, over the last almost forty years the dominance of multinational companies has declined to such an extent that by March 2005 there was only one MNC in the list of top ten companies (Cygnus 2006). This was perhaps the first industry in the High Technological Intensity classification (Porter et al 1999), where the Indian companies could surpass the MNCs in both the domestic and the export sectors. From being a heavy importer of pharmaceutical products less than four decades back, India is now considered to be threat to the various global giants in this industrial sector. Table 17 gives an indicator about the progress in pharmaceutical exports made in the last forty years in this area.

Table 17 is an indicator of how the Indian pharmaceutical industry adapted to the impetus provided by national and international trends. The figures for 1965-66 indicate the period when India was largely import dependent in this sector for domestic consumption, so obviously exports were not possible in a larger context. Pharmaceutical industry was dominated by Pharma MNCs. However it must be mentioned that the impetus was provided by Indian Patent Act 1972, which prohibited Product Patent in pharmaceuticals and allowed only Process Patent (Banerji 2009)

Till the year 1992, pharmaceutical exports (mainly formulations) were directed towards the erstwhile Union of Soviet Socialist Republic (Ganguly 2006, CII 1998), where India had the facility of doing Indian Rupee exports so as to conserve foreign exchange. The disintegration of the system of governance there did affect the industry but it showed resilience as evident from Table 11. This can perhaps be explained by the fact, that by then the Indian Pharma industry had mastered the process of reverse engineering and started exporting on cost competitive basis to unregulated markets of CIS (Commonwealth of Independent States--ex-USSR countries other than Russia), Africa (other than South Africa), Vietnam, Cambodia, Indonesia and some South American countries (Joshi 2003).

Apart from growth coming through organic means, Indian pharmaceutical companies have been very active in mergers and acquisitions, both at national and international levels. Some of the possible key reasons for these activities are:--

* Acquiring competitiveness

* Desire to move up the value chain

* Explore new markets

* Expanding the product portfolio

* Acquire specialized firms to complement their business

* Market share strategies

* To counter high competition in the domestic market.

India, as of today, has the largest number of USFDA (United States Food and Drug Authority) approved plants for the manufacture of APIs (active pharmaceutical ingredients, i.e. bulk drugs) and formulations (consumable product e.g., tablets, injections, syrup etc) outside of USA (Greene 2007); it has already crossed 100 (Business Standard 27 April 2010). The cost of manufacturing in India is less than half of what it is in USA. The cost of conducting clinical trials and contract R & D varies from one-eighth to one-tenth of American costs. Incidentally Indian pharmaceutical industry provides the highest per capita intellectual per dollar of value addition globally. In no other country and in no other industrial sector in India, the broad basing of exports of a technically complex commodity has been observed. In the times to come, it is estimated that significant share of growth for the Indian pharmaceutical companies is most likely to come through off shoring (CII 1998). Off shoring in the global pharmaceutical business will comprise mainly of:--

1. Contract manufacturing

2. Contract research (combinatorial chemistry and high-throughput screening)

3. Global generics business

4. Clinical trials

Some of the reasons for the possible growth of off-shoring among the domestic pharmaceutical companies are:--

1. Low cost but highly skilled human resource base.

2. WHO cGMP and GLP compliant manufacturing units.

3. Already well known in generics business.

4. Strong financial positions for scaling up operations.

5. Sound technological base.

6. Well versed in regulatory aspects of major trading countries.

7. Recognition of product patents since January 2005.

Today, India produces more than 20 percent of global generic medicines (pharmaceuticals, which have come out of patent protection). Having built huge capacities in bulk drugs/APIs, it is obvious that Indian companies would be the ideal partners for Contract Manufacturing for the MNCs, with a potential of US$ 50 billion by 2020, showing a CAGR of around 10% in recent years (Express Pharma May 2010).

Currently the investments required in developing a new drug is around US$ 1.50 billion, with an average time of 11 years for successful commercial launch, which needs to be done within twenty years of the patent period (Shika and Sangal 2009). Globally the pharmaceutical industry is under tremendous pressures from regulators, governments and non-governmental agencies to rein in costs along with stringent new regulations in clinical phase trials. One of the major reasons for hectic activity in mergers and acquisitions at the global level is the issue of declining numbers of new drugs in the pipeline and rising costs in drug development. Between 2004 and 2009, in USA alone drugs worth US$ 50 billion came off patent leading to a rise in generics share to almost 70 percent. Another US$ 70 billion worth are expected to go off patent by 2013-14 (Times of India 4 May 2009)

India, with its strength in numbers of scientists with background chemical science R & D (about 1,500 PhDs are generated in this area per annum) and proven expertise in R & D associated with scaling up to plant scale in process chemistry, is an ideal candidate for contract R & D (Ganguly 2006 and Joshi 2003). Globally big Pharma MNCs have started trimming their R & D budget. US based Pharma companies spent more than US$ 65 billion but the number of new drug approvals (NDA) has fallen by 44 percent since 1997 (Economic Times 17 June 2010). Compounding this decrease are two other problems, which are mentioned below.

* Out of 30 approved drugs, only one of them has a chance of being a blockbuster i.e., generating global annual sales of more than US$ 1 billion (Ahmed 2004).

* Existence of price controls and regulations in forty two countries including those in Western Europe and Canada (Kyle 2007)

The changed scenario has led to reduction in P/E ratios of most big Pharma companies from 30 to 10 in the last one decade (Economic Times 17 June 2010). So with falling number of new products, declining P/E ratios, generics competition from India and China and increasing cost of new drug launches (from basic R & D right up to successful clinical trials), big Pharma companies have increasingly taken the route of merger & acquisitions (corporate restructuring) to stay competitive. Table 18 gives an idea about the corporate restructuring in pharmaceutical sector in the last few years. In the decade 2000--December 2009, a total of 1345 mergers took place globally in the pharmaceutical industry. Global ranking of pharmaceutical companies in terms of annual sales turnover as on March 2009 is mentioned in Table 19.

The development of new drugs is a highly resource intensive activity and the R & D expenditure of the giant MNCs exceeds the annual sales turnovers of even the largest Indian origin firms in the pharmaceutical sector. However, leading Indian Pharma firms have increased their R & D intensity and table 20 gives the comparative figures in percentage terms of the leading and well-known Indian pharmaceutical companies. The leading companies of Indian origin in this industrial sector are Dr. Reddy's Laboratory, Ranbaxy Laboratory, Nicholas Piramal and Zydus Cadila among others. Among the reasons for the growing interest/investment in R & D in the pharmaceutical sector (biotechnology as well) are (Bowler and Sulej 2005):--

1. Increasing public awareness of the importance of R & D.

2. Pressure from industry associations.

3. Return of highly skilled Indian immigrants mainly from USA.

4. Spiraling costs of R & D in advanced countries along with fierce competition.

5. Intellectual Property protections through grant of Product patent vide the amended Indian Patent Act, 2005.

A contrast with the Indian companies is that the R & D expenditure of big Pharma MNCs (as given in table 19) exceeds the turnover of the largest Indian firm, which indicates the scale of intensity of innovation already existing in these MNCs.

As the Patent Laws of most countries are in compliance with TRIPs (of World Trade Organization), the patent protection is up to 20 years. After that, most often it is the lower cost suppliers selling unbranded drugs (called as generics), which dominate the market. The growth in generics is much faster than the patented drugs, which is growing at about 8%. Generic sales in countries like Germany, Spain, France, Japan and Italy have shown growth rates between 10 to 20% per annum (Economic Times 19 December 2008). Once the molecule loses the patent protection, the price of the drug falls rapidly to anywhere between forty to twenty percent in a period of six to twelve months. In fact most of the cross-border mergers and acquisitions, which many of the Indian firms have indulged, are in the generic space of pharmaceutical business. It is in this area that most MNCs will collaborate with Indian Pharma companies to contract manufacture their proprietary molecules (Banerji 2008). Generics are important for developed, developing and underdeveloped countries, but for different underlying reasons. An ageing population, which require prolonged medical care in developed countries coupled with high state involvement in universal medical care leads to pressures of cost containment; in case of developing countries, increasing disposable incomes leads to greater accessibility to medicines leading to greater demand of generic medicines (patented medicines in the same therapeutic category are costly) and in case of underdeveloped countries, low incomes force greater consumption of generics (Sheppard 2010)

Human Clinical trials are next in line for out-sourcing from MNCs. The incentives for the MNCs are the availability of a large heterogeneous (due to a wider genetic pool as compared to Western countries) but treatment protocol naive population and relative cost advantages. There has been a rush in this particular area both by existing players (Indian as well as MNCs) as well as many small and medium enterprises that wish to exploit this new area of Business Process Outsourcing. In fact, as per a research report by Frost and Sullivan (Financial Express 2006), India and China are expected to attract 20 to 30 percent of outsourced clinical trial business by 2015. The value in 2006 of this business in India was US$ 100 million.

A previous study undertaken by the author (Banerji 2008) on analysis of Indian pharmaceutical exports with the following methodology came up with some findings, which are mentioned in this paper.

Research Methodology of the Study Conducted

1. Indian owned Pharma firms having an export turnover of Rs. 250 million or more in FY 2004-05 were taken. The cut off was kept as March 2005, because from January 2005 Indian Patent Act was aligned with TRIPS (of WTO) and Rs 250 million was considered to be a medium level export turnover. With this benchmark, fifteen Pharma firms were short listed. The figure of Rs. 250 millions was chosen as a medium level turnover and it maintained a reasonable size of the sample. Lowering the limit would have increased the sample size and it would have become too unwieldy for a meaningful study. Increasing the limit would have decreased the sample size substantially.

2. MNC Pharma firms were not considered because their contribution to exports was negligible.

3. The time period of study was taken to be between FY 2001-02 and FY 2006-07. The choice of time period of the study to be between FY 2001-02 to FY 2006-07 was purposely chosen in view of liberalization, privatization and globalization process started in India since 1991, so that changes in firm's behavior and global performances could be studied with a decade's lag time. The fifteen Indian Pharma firms taken for the study were:--

(i) Ranbaxy

(ii) Cipla

(iii) Dr Reddy's Lab

(iv) Nicholas Piramal

(v) Lupin Labs.

(vi) Zydus Cadila

(vii) Aurobindo

(viii) Sun Pharma

(ix) Wockhardt

(x) Ipca

(xi) Biocon

(xii) Orchid Chemicals

(xiii) Matrix

(xiv) Alembic

(xv) Torrent

It is to be noted that some of the above firms have undergone corporate restructuring between 2008 and 2010, which have been widely reported in financial dailies and periodicals. Some of them like Ranbaxy, Nicholas Piramal and Matrix Lab are now owned by Pharma MNCs. Wockhardt is undergoing significant corporate debt restructuring, with some of the creditors having filed winding up / liquidation suits on account of loan defaults, especially on foreign currency borrowings (Economic Times 24 March 2011).

The research examined the following hypotheses:

1. Research and Development contributes directly to the increase in export earnings.

2. Indian pharmaceutical companies have gradually increased export to the regulated markets of North America and Europe,

3. Indian pharmaceutical companies have gradually moved away from export of bulk drugs to the more value-added exports of formulations.

RESULT AND ANALYSIS

Hypothesis 1

1. The leading Indian firms progressively increased their investments in R&D. The expenditure under this increased from 2.5-times to 55-times. The most striking increase in R&D expenditure was observed in Matrix, Zydus Cadila, Aurobindo and Biocon. Firms like Wockhardt, Sun Pharma, Ipca, Nicholas and Torrent have shown 5 to 6-fold increase in R&D expenditure. Though, firms like Ranbaxy and DRL (Dr. Reddy's Lab) invested huge amounts in R&D, the relative increase is small due to high base. The growth in R&D expenditure is reflected in the research output also. Till 2006-07, the fifteen firms, in all, had filed 636 ANDAs, 679 DMFs and had been issued 224 patents in USA alone. Ranbaxy and DRL were issued 79 and 73 patents respectively in USA alone. {Explanatory note--Abbreviated New Drug Application (ANDA) is filed in USFDA for getting post patent marketing approvals of formulations. Drug Master Files (DMF) are filed in case of getting marketing of APIs post patent in USA}

2. A correlation of the export earnings of the fifteen firms with their R&D expenditure of the respective year was attempted. Though the value of [r.sup.2] suggests that the correlation is just satisfactory, considering of the number of data points (ninety data sets), the correlation is good. This is also reflected in the relatively small error in the value of the regression coefficient (ca. 10%). The equation, given below, indicates these firms earned by export, on an average, between Rs. 4 and 5 on every Indian rupee spent on R&D.

Export = 4.55[+ or -]0.52 + 1379 [r.sup.2] = 0.7965, %sd = 13.5, n = 90

3. Individual firms show diametrically opposite results in correlation analysis. The values of 100[r.sup.2] (representing percentage of data explained by the correlation) varied from 10 to more than 99%. The export earnings of Cipla, Lupin, Zydus Cadila, Aurobindo, Ipca, Biocon, Orchid, Matrix and Torrent showed a correlation of 80% or better with R&D expenditure. In case of Sun Pharma, the export data of the five years 2001-02 to 2005-06 showed an excellent correlation (94%). The R&D expenditure of the rest of the firms does not explain their export earnings to a significant extent.

4. Ipca, Cipla and Biocon have managed excellent returns from the R&D expenditure, in terms of export. In their case, an expenditure of Re.1/- in R&D brought a return of Rs. 11 [+ or -] 2, Rs 10 [+ or -] 1 and Rs. 9 [+ or -] 2 respectively in exports. The returns earned by Aurobindo, Lupin and Sun Pharma are moderate (5-8 times of the R&D expenditure).

5. To conclude, it must be mentioned that companies like Ranbaxy and DRL have obtained between them over 150 patents in USA by 2007, meaning thereby that their R & D expenditure gets reflected in their international patenting activities.

Thus hypothesis 1 was validated.

Hypothesis 2

An analysis of the geographical distribution of the exports showed that the Indian pharmaceutical companies were making strong efforts to enter the lucrative but highly regulated market of North America and Europe. They have tested success in this venture. Most of the sample units have established subsidiaries or have acquired companies in these two trading block to further their business in these sectors. In absolute terms, the exports to semi- or un-regulated markets have not diminished but their share in total exports has gone down. The exports to semi-regulated and unregulated markets like CIS, Russia, Africa and South-East Asia have not diminished in real terms but their overall share in exports has gone down. Countries like Nigeria, Myanmar and Uganda constitute important market for Indian pharmaceuticals.

Thus this hypothesis 2 was validated.

Hypothesis 3

An analysis of commodity-wise break up of exports showed that overall this hypothesis stood validated. Gradually but surely, the formulation-component of the exports was observed to be increasing. Indian formulations are attractive in semi- or un-regulated markets for cost-competitiveness. Ranbaxy had a 2.4% share of generic formulation of USA by 2007. Cipla had shown a CAGR of 58% in formulation exports between 2001 and 2006. The formulation export by Lupin to the regulated markets had increased to 2.5 times that of APIs. For Sun Pharma, the rate of growth of formulation export had doubled than that of API. Ipca's export of formulations constituted 52-58% of its total exports during the period of study. Orchid started with nil export of formulation but in the six year study period, the share had gone up to 45%. The contribution of formulations in the export by Alembic had increased from 33% to 45%. Certain firms like Nicholas, DRL and Matrix were, however, mainly in API export. By the second quarter of 2007, 701 ANDAs were filed in USA. The approval rate of Indian ANDAs had gone up from 7 to 21%. This showed that export of formulations increased with potential to contribute more substantially to the export efforts.

Thus hypothesis 3 was validated.

GENERAL EXPORT TREND AND COMPARISON WITH CHINA

Merchandise exports account for 15% of India's GDP. Under current account of the BoP (balance of payment), transactions are classified into merchandise (exports and imports) and invisibles. Invisible transactions are further classified into three categories, namely (a) Services-travel, transportation, insurance, Government not included elsewhere (GNIE) and miscellaneous, which latter encompasses communication, construction, financial, software, news agency, royalties, management and business services, (b) Income, and (c) Transfers (grants, gifts, remittances, etc.) which do not have any quid pro quo (Economic Survey of India 09-10). The negative growth in 2009-10 of exports (goods and services) was on account of recession. Software exports in 2008-09 accounted for US$ 43.50 billion (Economic Survey of India 200910) and account for a significant part of India's export basket. Table 21 presents a snapshot of external trade of India in recent years.

The current account status, relative to GDP of a country is a better measure of a country's competitiveness in international trade. India's current account deficit has been persistently hovering between 2-3% of GDP (Economic Survey of India, 2008-09 and 2009-10), crossed 3%.level in December 2010, which is taken as the tolerance limit by Indian economic planners (Economic Times 1 April 2011). So far the balance has been maintained by capital inflows {Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) etc.}. However dependence on capital account transactions to balance the shortfall in balance of trade is fraught with danger, particularly with respect FPI. Table 22 presents the importance of foreign investment in capital account.

It is evident that capital account transactions are quite fickle and in India's case, FPI seems to play a significant role in it.

There are few major points, which need to be looked in to:

1. Importance of international trade in India's economic basket has increased quite significantly. In 2005 it contributed 28.3% of GDP at current market price, which had risen to 48% by 2009. India's growth in international trade shows a strong correlation with the growth in global trade (Economic Survey of India 2009-10)

2. Contribution of merchandise exports to India's export basket is slowly decreasing and that of service sector contribution is increasing. Within the export composition, the contributions of manufactured goods' exports have steadily come down from over 81.3% in 1999 to 67.40% in 2007-08 (Banerji 2008).

3. The contribution of service exports is going to rise in consonance with the pattern of growth seen in India's GDP. Contribution of manufacturing sector in India's GDP is 16% whereas that of service sector is over 60%. Unlike other East Asian countries, which in their initial phase of growth period had major part of their respective GDP contribution from manufacturing, India leapfrogged from agriculture based economy to service sector dominance in GDP (Economic Times 7 March 2011).

4. As per recent UNIDO report, India's Manufacturing Value Added (MVA) per Capita in 2010 was US $ 107, compared to Brazil's US$ 648, China's US $ 842 and South Korea's US $ 4880 (all monetary figures at constant 2000 dollar). However in the decade 2000-10, India has shown the second fastest average growth rate in manufacturing of 7.10%, preceded by China's figure of 11.40%. Currently India's share of manufacturing globally is less than 2% (Economic Times 7 March 2011).

5. Along with the growth of Indian exports has come the widening of current account deficit (mainly on trade account), fueled primarily by the rise in imports of capital goods, intermediate goods and petroleum, oil & lubricants (IBEF 2005). In fact, there exists a positive correlation between growth in merchandise exports and growth in the current account deficit thus signifying that a significant amount of imports is fueling the exports in manufactured goods, primarily growth in import of crude oil and capital goods (Economic Survey of India, 2007-08). To obtain a surplus current account, it is necessary that exports must grow even faster.

In case of merchandise exports, both the composition of exports and the direction of exports need to be looked in to, since they have undergone significant changes in the last 20 years. Some of the salient observations are:--

(a) In 1990-91, the erstwhile USSR was the topmost destination. Followed by USA, Japan, Germany and U.K. By 1995-96, USA has become the most preferred destination. By 2005-06, United Arab Emirates, China, Singapore and Hong Kong had become other next preferred destinations for merchandise exports, overtaking Japan, Germany and United Kingdom. By end of 2010, China was India's largest trade partner. Table 22 gives the relative positions over the period mentioned in the table.

Increased exports to the Emirates with a small population base and with minimal requirement for Indian goods are perhaps explained by the fact that a majority of Indian merchandise exports to UAE end up in Pakistan (Mukhopadhaya & Bandhopadhaya 2007). Pakistan has so far not given to India on a reciprocal basis the Most Favored Nation Status under WTO regime, probably due to political relations between the two countries (Economic Times 14 April 2011). The emergence of China with its growing appetite for imports to fuel its exports along with the 'Look East' Policy of the Indian Government has made it the most preferred destination along with its appetite for commodities (Lum & Nanto 2007). The fall in relative position of Japan is perhaps explained by the fact for the better part of 16 years from 1990 to 2006; the Japanese economy was in recessionary or stagnant phase. Russia, Baltic countries and countries belonging to CIS bloc no longer constitute important destination in India's merchandise exports. Also in spite of policy initiatives like 'Focus Africa' merchandise exports to the African continent (except South Africa) have not picked up.

(b) The study of composition of exports along with their relative share constitutes an important point for study. It gives an idea about those industrial sectors in which a country is globally competitive. Table 23 gives the relative % of commodities of India's merchandise exports in this decade. The increasing share of petroleum and related products reflect the cost competitiveness of the huge refining capacities put up. Increasing contribution of engineering goods implies the success of heavy manufacturing industrial sector in producing quality products at competitive prices. Contribution from Chemicals & Allied products has remained constant in the entire decade, perhaps indicating presence of excess capacity globally.

Since India and China are often quoted in the same breath globally, it is necessary to briefly review the relative external trade performances of the two countries in selected years (Table 24).

It is evident that India has to go a long way to catch up with China. China has been consistently maintaining a favorable balance (Lum & Nanto 2005) of trade with the rest of the world since 1987, whereas India has been able to do it only for three years in the same period. The composition of China's exports has changed dramatically over the last decade and half. The merchandise trade now includes more of manufactured goods than primary goods like agricultural products, minerals etc. By 2006, China's exports had greater contribution from even a select list of few manufactured goods like, light engineering goods, electronics goods and transport equipments than primary goods (Lum & Nato 2007).

India's manufacturing sector as a whole has been affected by the global economy. Between 2006-07 and November 2009, the growth rate in manufacturing has fluctuated from 12.5% to 0.3% (in Q4 2008-09) and stabilized at 11.9% in November 2009. A large part of this fluctuation was due to global economic crises in the period and the tightening of bank credit.

Agriculture sector provides employment to 52% (2004-05) of the workforce but its contribution to GDP is barely 16%, with growth rate falling from 4.7% to 1.6% in 2008-09. Service sector contributes over 60% to GDP and has maintained a consistent growth rate of over 8% during 2007-08 and 2008-09 (Economic Survey of India 2010-11).

CONCLUSION

Growth in manufacturing has a multiplier effect on a nation's economy, especially in case of a country like India. Some of them are:--

1. Manufacturing sector provides an alternate channel for low skilled labor, which needs to shift from agriculture because of the decline in it, and also it offers higher income.

2. Manufacturing act as a job multiplier in the service sector.

To increase the contribution of manufacturing in the GDP and in exports, it is necessary that apart from the traditional and labor intensive like textiles, gems and jewels, emphasis on higher value added goods is required. Among the recognized higher value added manufacturing items, India has the potential to be a leading player in two categories--Auto Components and Pharmaceuticals.

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Table 1: Technological Classification of Manufacturing Industry
(Abridged Version)

Technology         Industry
Category

1. Low             Food, beverages & tobacco products; Textiles,
                   leather & footwear; Wood, paper & paper products;
                   Rubber & plastic products.

2. Medium--low     Other non metallic mineral products; Cement & glass;
                   Basic metal & metal products; Chemicals; Electrical
                   machinery.

3. Medium--high    Non electrical machinery; Transport equipments

4. High            Pharmaceuticals; Electronics

(Source: OECD 2003)

Table 2: Indian Auto Components Industry

Financial Year      Annual Sales           Exports
                 (in US$ Billions)    (in US$ Billions)

2004-05                 8.70                 1.70
2005-06                12.00                 2.47
2006-07                15.00                 2.68
2007-08                18.00                 3.52
2008-09                 19.0                 3.80
2009-10                22.00                 4.30
2010-2011        26.00 (estimated)     5.00 (estimated)

Financial Year      Investments
                 (in US$ Billions)

2004-05                 3.75
2005-06                 4.40
2006-07                 5.40
2007-08                 7.20
2008-09                 7.30
2009-10                 9.0
2010-2011        12.00 (estimated)

(Source: http://www/ibef/org/industry/autocomponents.aspx, retrieved on
7 March  2011 and "Indian Auto Component Industry an Overview", Auto
Component  Manufacturers Association of India (2011), www.acmainfo.com,
retrieved on 7  March 2011)

Table 3: Shifting Trends in Global Auto Parts Industry (Monetary
figures in US$ billions)

Trade Region      Size of the      Estimated size of
                 Market (2005)    the Market in 2015

North America         268                 327
Europe                300                 365
Asia                  294                 435

(Source:--Key Trends in Global Auto Component Industry and its
Implication on Regional Players." Whitepaper, Frost and Sullivan,
April 2010)

Table 4: Product Portfolio of Indian Auto Parts' Exports

Products                   Product Profile     Product Profile in
                             in 2009 in %     2020 in % (estimated)

Body & Structural                 40                   31
Transmission & steering           10                   16
Suspension & breaking             10                   11
Interiors                         10                    8
Engine & exhaust                  20                   18
Electronics & electrical          10                   16

(Source:--"Indian Auto Component Industry an Overview." Retrieved from
www.acmainfo.com on 9th March 2011)

Table 5: Quality Certifications in Indian Auto Parts Sector

Quality certifications    Number of companies

ISO 9000                          552
TS 16949                          438
QS 9000                            33
ISO 14001                         204
OHSAS 18001                        95
JIPM                               3
Deming Award                       11
TPM Award                          15
Japan Quality Medal                1
Shingo Silver Medallion            1

(Source:--"Indian Auto Component Industry an Overview."
Retrieved from www.acmainfo.com on 9th March 2011)

Table 6: Annual car sales and auto parts exports

Financial year   Annual car sales (units)       Exports of auto
                                            parts (in US $ billions)

1997-98                  401,002                      0.33
1998-99                  390,355                      0.35
1999-2000                574,369                      0.46
2000-01                  517,907                      0.63
2001-02                  564,052                      0.58
2002-03                  608,851                      0.76
2003-04                  843,235                      1.27
2004-05                 1,027,858                     1.69
2005-06                 1,112,542                     2.47
2006-07                 1,322,728                     2.87
2007-08                 1,521,813                     3.62
2008-09                 1,516,967                     3.80
2009-10                 1,926,484                     4.30

(Source:--Industry Statistics of vehicle and auto components, "Indian
Auto Component Industry an Overview." Retrieved from www.acmainfo.com
on 9th March 2011)

Table 7: Exports of Auto Parts and Automobiles

2003-04     479,919     1.27
2004-05     629,544     1.69
2005-06     806,222     2.47
2006-07    1,011,529    2.87
2007-08    1,238,333    3.62
2008-09    1,530,594    3.80
2009-10    1,804,619    4.30

(Sources: http://www.siamindia.com/scripts/export-trend.aspx,
retrieved on 22 March 2011 and Industry Statistics of vehicle and auto
components, "Indian Auto Component Industry an Overview." Retrieved
from www.acmainfo.com on 9th March 2011)

Table 8: Individual Vehicle Category (numbers) Exports

Category              2003-04    2004-05    2005-06    2006-07

Passenger Vehicles    129,291    166,402    175,572    198,452
Commercial Vehicles    17,432     29,940     40,600     49,537
Three Wheelers         68,144     66,795     76,881    143,896
Two Wheelers          265,052    366,407    513,169    619,644

Category              2007-08     2008-09      2009-10

Passenger Vehicles    218,401     335,729      446,146
Commercial Vehicles    58,994      42,625       45,007
Three Wheelers        141,225     148,066      173,282
Two Wheelers          819,713    1,004,174    1,140,184

(Source: http://www.siamindia.com/scripts/export-trend.aspx, retrieved
on 22 March 2011)

Table 9: Figures of Bajaj Auto's two wheeler and three wheeler exports

   FY           Exports        Bajaj two    Overall          %
           (in million Rs.)     wheeler       two      contribution
                                exports     wheeler
                                  (x1)      exports

2003-04         5560.3           90210       265052        34.03
2004-05         6949.5           130945      366407        35.73
2005-06         8990.3           174907      513169        34.08
2006-07         16884.9          301766      619644        48.69
2007-08          20458           482026      819713        58.80
2008-09          26384           633463     1004174        63.09
2009-10         324575           726115     1140184        63.68

   FY      Bajaj three    Overall          %
             wheeler       three     contribution
             exports      wheeler
               (x2)       exports

2003-04       65797        68144         96.50
2004-05       65765        66795         98.46
2005-06       75297        76881         97.93
2006-07       140645       143896        97.74
2007-08       136315       141225        96.52
2008-09       139056       148066        93.91
2009-10       164887       173282        95.15

(Source: Annual statements of Bajaj Auto Ltd, www.bajajauto.com)

Table 10: Break Up of Exports of Auto Parts from India (in
US$ millions)

S. No.    Financial Year    Exports of Parts      Exports of
                           of Motor Vehicles     Parts of Two
                             (HS Code 8708)        Wheelers
                                                (HS Code 8714)

1            1996-97             176.17             111.67
2            1997-98             186.0               89.43
3            1998-99             173.79             125.42
4           1999-2000            197.26             156.59
5            2000-01             299.82             197.87
6            2001-02             301.88             176.22
7            2002-03             372.58             164.03
8            2003-04             481.74             165.34
9            2004-05             703.21             169.59
10           2005-06            1117.44             193.14
11           2006-07            1260.27             183.69
12           2007-08            1448.22             223.96
13           2008-09            1509.55             263.92
14           2009-10            1283.40             205.17

(Source: Export Import Databank, Ministry of Commerce and Industry,
Govt. of India) {Note: Each HS code figures have been taken up to 8
digit levels.}

Table 11: Top Five Destinations of Auto Parts' Exports (FY 2009-
10) in US $ millions

Country (HS Code 8708)               Country (HS code 8714)

USA                                  Bangladesh
Thailand                             Italy
Germany                              Egypt
U.K.                                 Sri Lanka
Italy                                Columbia

(Source: Export Import Databank, Ministry of Commerce
and Industry, Govt. of India)

Table 12: Top Five Export Destinations of Indian Automobiles

Countries                            Exports (US$ million)

U.K.                                 481.02
Italy                                433.77
Germany                              233.22
Netherland                           217.51
South Africa                         209.95

(Source: FICCI Study on India's Automobile Exports: Is India a
Significant Global Player? October 2010 and Export Import Databank,
Ministry of Commerce and Industry, Govt. of India)

Table 13: Top Five Export Destinations of Indian Passenger Vehicles

Countries                            Exports (US$ million)

U.K.                                 475.94
Italy                                406.88
Germany                              231.89
Netherland                           41.40
South Africa                         105.10

(Source: FICCI Study on India's Automobile Exports: Is India a
Significant Global Player? October 2010 and Export Import Databank,
Ministry of Commerce and Industry, Govt. of India)

Table 14: Top Five Export Destinations of Two Wheelers from India

Countries                            Exports (US$ million)

Nigeria                              103.54
Colombia                             80.30
Sri Lanka                            63.91
Bangladesh                           61.37
Philippines                          40.33

(Source: FICCI Study on India's Automobile Exports: Is India a
Significant Global Player? October 2010 and Export Import Databank,
Ministry of Commerce and Industry, Govt. of India)

Table 15: Top Five Export Destinations of Commercial Vehicles
(Excluding Tractors) from India

Countries                            Exports (US$ million)

Singapore                            85.66
Bangladesh                           37.21
Sri Lanka                            26.85
South Africa                         17.11
Tunisia                              15.20

(Source: FICCI Study on India's Automobile Exports: Is India a
Significant Global Player? October 2010 and Export Import Databank,
Ministry of Commerce and Industry, Govt. of India)

Table 16: Growth of Indian Pharmaceutical Industry (In Rs. millions)

Year                          Bulk Drug              Formulation

1950-51                          20                      80
1965-66                          180                    1,500
1975-76                         1,130                   5,440
1980-81                         2,400                  31,480
1991-92                         9,000                  48,000
1999-00                        37,770                 1, 58,600
2000-01                        43,440                 1, 78,430
2007-08                       1, 98,000               3, 28,000

(Source: Lalitha, N."Indian Pharmaceutical Industry in WTO regime: A
SWOT Analysis," Economic & Political Weekly, 24th August 2002, p.
3452/55 & www/http//: info.shine.com/Industry Information/
Pharmaceuticals/819 retrieved on 15 August 2009)

Table 17: Growth in Indian Pharmaceutical Exports (in million Rs.)

Financial Year                   Export figures

1965-66                                31
1980-81                               460
1993-94                              19,920
2000-01                              47,270
2006-07                            2, 49,420
2007-08                            31, 13,000
2008-09                            3, 84,000
2009-10                            3, 60,960

(Source: "Competitiveness of the Indian Pharmaceutical Industry in
the New Product Patent Regime", Report for the National
Manufacturing Competitiveness Council, FICCI, March 2005; Economic
Survey of India, 2007-08, "Pharma Exports Hit by 1%: IDMA" Business
Standard 4 May 2009 and "India Coming in to its Own as Global Pharma
Hub: Strong Patent Laws, Cost Pressures on Drug makers in West &
Wariness About Chinese Products Boost Growth." Economic Times, 8
July 2010.

Table 18
(Incidents of Corporate Restructuring in Global
Pharmaceutical Industry)
(All Monetary Terms In Billion US $)

                          Type of       Value
Companies Involved     Restructuring   of Deal       Type of Firms

Daichii Sankyo-         Acquisition      5.90     Big Pharma & generic
Ranbaxy                 by Daichii

Pfizer--Wyeth           Acquisition       68        Big Pharma & big
                                                         Pharma

Pfizer-Pharmacia        Acquisition       59        Big Pharma & big
                                                         Pharma

Pfizer-King             Acquisition      3.60         Big Pharma &
                                                    specialty Pharma

Merck-Schering            Merger          43        Big Pharma & big
Plough                                                   Pharma

Bayer AG--Schering      Acquisition     22.00       Big Pharma & big
AG                                                       Pharma

Abbot--Pfizer's         Acquisition       16        Big Pharma & OTC
consumer healthcare                                  product lines

Teva--Ivax              Acquisition      8.96       Generic Pharma &
                                                     generic Pharma

Sanofi Aventis--          Merger         2.90     Big Pharma & generic
Zentiva

Abbot Lab--Nicholas     Acquisition      3.70     Big Pharma & generic
Piramal

Companies Involved      Plausible Reasons

Daichii Sankyo-            For Daichii
Ranbaxy                controlling stake in
                       an important global
                         generics player

Pfizer--Wyeth               To acquire
                          complimentary
                          product lines

Pfizer-Pharmacia            To acquire
                          complimentary
                          product lines

Pfizer-King                 To acquire
                          complimentary
                          product lines

Merck-Schering              To acquire
Plough                    complimentary
                          product lines

Bayer AG--Schering          To acquire
AG                        complimentary
                          product lines

Abbot--Pfizer's        Pfizer divesting non
consumer healthcare     core product lines

Teva--Ivax               To gain entry in
                          generic market
                          segment in USA

Sanofi Aventis--        To acquire product
Zentiva                 lines in generics

Abbot Lab--Nicholas    To gain market share
Piramal                      in India

(Sources:http://www.thefreelibrary.com/Ten-Year+Data+on+
Pharmaceutical+Mergers+and+Acquisitions%2c+from...-
a0222033052 retrieved on 20 October 2010; "Pfizer buys
drug maker King for US$ 3.60 bn" Times of India, 13October
2010)

Table 19
(Ranking of Pharmaceutical Companies Based on March 2009 revenues)
(All monetary figures are in billion US $)

                                               Total       Net
Rank        Company             Country       Revenue     income

 1     Johnson & Johnson          USA          62.00      12.30
 2           Pfizer               USA            50        8.64
 3           Roche            Switzerland        49        8.50
 4      Glaxo SmithKline    United Kingdom     45.80       9.10
 5          Novartis          Switzerland      44.30       8.45

          R & D
Rank   expenditure

 1         7.0
 2         7.85
 3         9.87
 4         6.63
 5         7.47

(Annual Reports of companies, available at their respective websites)

Table 20: Firm Level Intensity in Research & Development
(% of sales, approximates)

    Company        2001-02    2004-05    2006-07    2008-09

Ranbaxy              3.8        9.0       10.50      10.90
Dr. Reddy's          6.13      18.30      13.40       6.30
Nicholas Piramal     1.06       7.81       6.70       3.70
Sunpharma            4.50      11.60      11.30      17.41
Torrent              5.08      14.30       13.0       16.0
Lupin                2.40       6.90       7.00      14.15

(Sources: Annual Reports of the organizations, available at
their websites)

Table 21: (Snapshot of India's External Trade)

FY        Merchandise   Merchandise   Invisibles   Current
          Export (in    Import (in      (net)        A/C
            US$ M)        US$ M)                   Balance

2004-05      85,206      1,18,908       31,232       -2470
2005-06    1,05,152      1,57,056       42,002      -9,902
2006-07    1,28,888      1,90,670       52,217      -9,565
2007-08    1,66,162      1,66,200       75,731     -15,737
2008-09    1,89,001       3,08,52       91,605     -27,915
2009-10    1,82,235      3,00,609       79,991     -38,383

(Sources: Economic Survey of India, 2009-10 and 2010-11)

Table 22: (Capital Account Balance and
Foreign Investments in India)

FY        Capital    FDI (net)    FPI (net)
          Account     in US$ M     in US M
          Balance
          in US$ M

2005-06    25,470      3,034        2,494
2006-07    45,203      7,693        7,060
2007-08   106,585     15,893       27,433
2008-09     6,768     19,816      -14,031
2009-10    53,397     18,771       32,396

(Source: Economic Survey of India 2010-11)

Table 22: (Important Destinations of India's Merchandise Export)

S. No.   1990-91   1995-96     2002-03     2003-04     2004-05

1        USSR      USA         USA         USA         USA
2        USA       Japan       UAE         UAE         UAE
3        Japan     UK          Hong Kong   Hong Kong   China
4        Germany   Germany     UK          UK          Singapore
5        U.K.      Hong Kong   Germany     China       Hong Kong

S. No.   2005-06     2010-11

1        USA         China
2        UAE         UAE
3        China       USA
4        Singapore   Saudi Arabia
5        UK          Germany

(Economic Survey of India 2009-10 and 2010-11)

Table 23: Commodity Composition of India's Major Merchandise Exports

Commodity Group                 2000-01   2005-06   2006-07   2008-09

(A) Primary Products              16.0     15.40     15.10     13.20
(Agriculture, minerals
& Ores)

(B) Manufactured Goods           78.90      72.0      69.0     64.80
(Major Constituents)
Textiles & apparels              23.60     14.50     12.50      9.20
Gems & jewellery                 16.60     15.10     12.60     15.90
Engineering goods                15.70     20.70     23.30     21.30
Chemicals                        10.40     11.60     11.20     11.50

(C) Petroleum & products          4.30     11.50      15.0     17.80
(including coal)
(Source--Economic Survey of
India, 2007-08 & 2010-11)

Table 24: Comparison of Select Parameters of
External Trade of India & China
(Monetary figures in billions US$)

Year          Exports    Global     Current A/C
                          Trade      Surplus/
                        Share (%)    deficit
                                    (%) of GDP
(For China)
2006            969        8.0         9.10
2008           1,429       8.0         9.80

(For India)
2006-07         126        1.0       (-) 2.20
2008            242       1.20       (-) 2.20

(Sources: Economic Survey of India 2007-08, 2009-10
& 2010-11 and Report of Central Statistics
Organization, Peoples' Republic of China,
External Trade, 20th March 2008)