A study of disaggregated r&d expenditure on Indian pharmaceutical exports

Research and development is the key to the fuure of Indian pharmaceutical industry. R&D spends of Indian firms have been increasing during year 2000 to 2013 as pharmaceutical firms kept building their product pipelines for regulated markets likeUS and Europe. Pharmaceutical industry in India is becoming more and more export intensive with top ten companies deriving more than sixty percent of their sales from exports. At the same time, R&D intensity of Indian pharmaceutical firms have been consistently increasing with six percent of sales being spent on R&D. It was found that the firms leading in terms of exports intensity were also found to be the leaders in terms of R&D expenses. It is therefore important to study the two way causal relationship amongst R&D expenses and exports. The data set used in this empirical investigation consists of a sample of Indian Pharmaceutical firms covered by the Center for Monitoring of Indian Economy (CMIE), Prowess Database. The data presented are for the period 2000-01 to 2012-13. This study attempts at having a model fit for the parameters (variables) of exports of Indian pharmaceutical industry. The paper aims at understanding the relationships amongst the variables namely; R&D expenditure bifurcated in to current and capital expenditure, pharmaceutical exports and total sales. It brings out the causal relationships amongst the variables which reveals unique characteristic of Indian pharmaceutical industry in terms of a significant but short-lived impact of R&D investment on exports. Also, the vector autoregressive (VAR) model suggests that R&D capital expenditure alone is not sufficient to induce exports; rather R&D current expenditure together with R&D capital expenditure alone is not sufficient to induce exports. It shows that although Indian pharmaceutical industry has leveraged the benefits of a globalized economy but, it still lags much behind the MNCs (Multinational Corporations) in terms of investment in R&D (Research and Development) which is the main deterrent to the industry to reach the next level of internationalization. Results of the study provides empirical evidence that a majority of R&D investment from Indian firms is aimed at developing low cost generics for exports in to the regulated markets like US and Europe; and little investment is made on funding new product development. The study recommends adoption of innovative partnership modelsto fund R&D activities aimed at developing new products which would strengthen product portfolio required to sustain growth in international markets and to reduce dependency of Indian firms on supply of plain generics to regulated markets.