Integrated Scheme on Agriculture Cooperation

8/20/2019 Integrated Scheme on Agriculture Cooperation

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CHAPTER-IV

Integrated Scheme on Agriculture Cooperation

12.1 The cooperatives play an important role in the National economy. There are about 6 lakhs

cooperative societies in the country. About 100% villages and 71% rural households are

attempted to be covered by these cooperative societies. Around 16% agricultural credit & 35%fertilizer is distributed by cooperatives and 26.5% fertilizer is produced by the cooperatives.

Further, 45% of total sugar production in the country comes from cooperative sugar mills. In

the areas of milk production, oil seeds, cotton, handloom, fisheries, cooperatives are making

significant contribution.

12.2 The cooperatives, however, are beset with a number of problems, viz., financial un-

viability, poor governance and management, lack of professionalization, operational

inefficiency and obsolete infrastructure. With the present scenario of economic liberalization

and globalization, cooperatives have to compete with other private enterprises. The capacity

building, marketing infrastructure and information, storage and agro processing are the crucial

elements of development of cooperatives in the present context. The basic objective of the

Cooperation Division is to design long-term and short-term strategies for reducing economic

disparities between the downtrodden rural people and the rural rich as well as regional

imbalances including rural and urban differences.

12.3 The Central Sector Integrated Scheme on Agricultural Cooperation which is a result of

merger of two erstwhile schemes of 11th Five Year Plan, namely, Restructured Central Sector

Scheme for Assistance to NCDC Programmes for Cooperative Development and Central

Sector Scheme for Cooperative Education and Training is being implemented during 12th Five

Year Plan. The scheme seeks to achieve the objectives of Agriculture Policy relating to the role

of Cooperative in support of agriculture. The Agriculture Policy, as a measure of institutionalstructure, envisages that the government will provide active support for promotion of

cooperative form of enterprises and ensure greater autonomy and operational freedom to

improve their functioning. During the year 2013-14 against the Budget Estimate (BE) of Rs.110

crore which was reduced to Rs. 90.25 crores at RE Stage, an amount of Rs.87.34 crore was

released to these institutions. A provision of Rs.84.50 crore which was reduced to Rs. 46.00

crore at RE Stage, made under the head of Non Plan for implementing Market Intervention

Scheme/ Price Support Scheme through NAFED against which Rs.45.99 crore was released

during the year to concerned agency.

12.4 Assistance for the Scheme of Cooperative Education and Training: The Government of

India has been implementing a Central Sector Scheme for Cooperative Education and Training

through the National Cooperative Union of India (NCUI) and the National Council for

Cooperative Training (NCCT) since the 3rd Five year plan. It is a continuing scheme. However

from the 12th Five Year Plan all the schemes of Cooperation Division have been merged in a

single scheme namely “Central Sector Integrated Scheme on Agricultural Cooperation’. The

National Cooperative Union of India has been implementing the Central Sector Scheme for

Cooperative Education in cooperatively under developed States/under developed areas of

Developed States. The Government of India had been providing 100% grants-in-aid to NCUI

for implementing the Special Scheme of intensification of Cooperative Education in

cooperatively under Developed States. From 12th five year Plan it has been proposed that

Department of Agriculture & Cooperation (DAC) will provide expenditure upto 50% to NCUI


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and rest of the expenditure will be met from Cooperative Education fund. At present NCUI is

running 44 projects spread over 22 States/UTs. During the year 2012-13, an amount of Rs.

358.50 lakhs was released as grants-in-aid to NCUI including Rs. 30 lakh for the NE regions.

The NCUI organized 27,698 events and imparted education to 4.63 lakh persons, including 66

training programmes for 1998 persons.

12.5 The Cooperative Training Programmes are being conducted by the National Council for

Cooperative Training (NCCT) through its 5 Regional Institutes of Cooperative Management,

14 Institutes of Cooperative Management, located in different States and the Vaikunth Mehta

National Institute of Cooperative Management, Pune. The NCCT had also been receiving 100

percent financial assistance for conducting cooperative training programmes up to 11th Five

Year Plan. However, from 12th five year plan onwards it has been proposed that NCCT will

meet its requirement by utilizing interest earnings of corpus funds created during the 10th Plan

by equal contribution of Rs.100 crores by the GOI and cooperative movement. The Council

provides academic support to Junior Cooperative Training Centers (JCTC) in the country

which is run by State Cooperative Unions/States Governments. There is no change in patternof financial assistance as far as JCTC and VAMNICOM is concerned. During the year 2012-

13, DAC released Rs. 570.00 lakhs to NCCT for the VAMNICOM component.

12.6 Cooperative Education and Training Activities in the North Eastern Region: The

Government of India is implementing a special scheme for Intensification of cooperative

education in cooperatively under-developed States including the North-Eastern Region through

NCUI. NCUI has established 8 field projects, namely, Aizwal (Mizoram), Thobal & Imphal

(Manipur), Mangalwaria (Sikkim), Shillong (Meghalaya), Kohima (Nagaland), Morigaon and

Jorhat (Assam) in the North-Eastern Region.

12.7 Women Development Activities: With the overall objective of bringing women in thecooperative fold from grass root levels by informal approach and to revitalize and develop

women participation in group activities and to improve the socio-economic conditions of

women of selected blocks, NCUI is now running 4 exclusive women development projects

located at Shimoga (Karnataka), Berhampur (Odisha), Imphal (Manipur) and Bhopal (MP)

under the Special Scheme of intensification of Cooperative Education in the cooperatively

under-developed states. Besides, each field project has got a special women development

component. Under this, women are organized into self-help groups and help them to develop

thrift habits. Women are also given training to undertake income-generating activities with the

help of their own resources or by borrowing from cooperatives.

The projects personnel help them in marketing their produce in the local market by organizing

fair/exhibitions. During the year 2012-13, a total number of 31,358 women were benefited by

the education programmes organized by the cooperative education field projects in NE states.

12.8 Assistance to NCDC Programmmes for Development of Cooperatives: The

Government of India implements its cooperative development programmes through National

Cooperative Development Corporation (NCDC). The programmes/schemes being

implemented through NCDC are (i) Integrated Cooperative Development Projects in selected

districts, (ii) assistance to cooperative marketing, processing and storage etc., programmes in

cooperatively under-developed/least developed States/Union Territories and (iii) share capital

participation in growers’/weavers’ cooperative spinning mills under the restructured centralsector scheme. It has been decided that under this scheme, subsidy component will be provided


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by Government of India and the loan component will be arranged by NCDC through its own

sources.

12.9 NCDC is a non-equity based development financing institution created exclusively for the

cooperative sector with the objective of planning and promoting programmes for production,

processing, marketing, storage, export and import of agricultural produce, food stuff and

certain notified commodities and services on cooperative principles. With amendment of

NCDC Act in 2002, scope of activities of the Corporation has been widened to cover livestock,

cottage and village industries, handicrafts, rural crafts and certain notified services besides

enabling NCDC to lend directly to cooperative societies on furnishing security to the

satisfaction of the Corporation. With notification of additional services like tourism,

hospitality, transport, electricity & power, rural housing, healthcare, hospitals and education

cooperatives, the scope of NCDC funding has been further broadened. The Central

Government has however prescribed an overall ceiling of twenty five percent (25%) of annual

budget of NCDC for financing all activities under notified services so that focus of NCDC

continues on financing of cooperatives in agriculture & allied sector. The rates of interest on

NCDC loans ranged between 10.40% and 13.00% during the year. In 2013-14, an assistance

of Rs 5,267.04 crore has been disbursed by the NCDC against approved outlay of Rs. 4,500.00

crore.

12.10 Cooperative Spinning Mills: In order to improve economic condition of the cotton

growers as well as handloom & power loom weavers and to consolidate the gains achieved so

far, the Department, through NCDC, continued to provide financial assistance to the spinning

mills & ginning and pressing units in the cooperative sector. During the year 2013-14, NCDC

released an overall amount of Rs. 83.23 crore, including Rs 64.39 crore under Restructured

Central Sector Scheme. NCDC is implementing Restructured Central Sector Scheme of DAC

for share capital participation in Growers’/Weavers’ Cooperative Spinning Mills. Term loansare met out of funds of the Corporation and subsidy is provided by DAC under this scheme.

12.11 Cooperative Storage and Cold Storage: The Department of Agriculture and

Cooperation (DAC), through NCDC, has been making systematic and sustained efforts to assist

cooperatives in creating additional storage capacity aimed at facilitating expanded operations

of cooperative marketing of agriculture produce, distribution of inputs and sale of consumer

articles. Storage capacity assisted by NCDC has increased from 11 lakh MT to 159.96 lakh MT

as on 31.3.2014. During the year 2013-14, financial assistance of Rs. 46.66 crore (Rs 33.80

crore loan + Rs. 12.86 crore subsidy) has been released and Rs 98.48 crore (Rs 67.29 crore

loan + Rs 31.19 crore subsidy) has been sanctioned for the storage programme under Central

Sector Scheme of DAC.

12.12 NCDC provides financial assistance to the extent of 90% of the block cost to the State

Governments for setting up / modernization / expansion / rehabilitation of cold storages and

Ice plants by cooperatives. In case of direct funding, assistance to the extent of 75% is provided.

NCDC has also dovetailed its cold storage programme with National Horticulture Board

(NHB). In such cases quantum of assistance provided by NCDC is reduced by the subsidy

available under the Capital Investment Scheme (CIS) of NHB. The scheme provides enhanced

back-ended subsidy @ 40% of the project cost for general category and 55% in case of hilly

and scheduled areas for maximum storage capacity upto 5,000 MT per project at normative

cost @ Rs 6000 / 7000 / 8000 per MT as per prescribed standards under the scheme. Duringthe financial year 2013-14, assistance of Rs 2.30 crore has been sanctioned to one cold storage


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project at Mahua, Bihar and Rs 3.89 crore has been released to such projects including spillover

assistance.

12.13 Integrated Cooperative Development Projects: NCDC is implementing Integrated

Cooperative Development Projects (ICDP) Scheme in selected districts in the rural areas.

During the year 2013-14, 19 projects in the States of Jharkhand (3), Arunanchal Pradesh (1),

Haryana (1) Kerala (1), Himachal Pradesh(3), Madhya Pradesh (2) and Uttar Pradesh (8) worth

Rs 421.99 crore have been sanctioned involving NCDC’s share of assistance of Rs 405.70 crore

(Rs 321.20 crore as loan and Rs 84.50 crore as subsidy). During the same period, NCDC has

released loan assistance of Rs. 262.64 crore and Subsidy of Rs 39.54 crore totaling to Rs 302.18

crore for ICDP. The subsidy of Rs 39.54 crore includes Rs 12.16 crore towards expenditure on

Project Implementation Team.

12.14 Cooperatives in under developed States: The process of economic development in the

country brought to light certain regional disparities and imbalances in some parts due to

inherent factors like topography, agro-climatic conditions and poor infrastructure. During

formulation of the Fifth Five Year Plan, limitation of this approach came to force and as aconsequence, the concept of cooperatively under-developed States evolved to ensure balanced

regional development. The categorization of States for funding by NCDC was reviewed by the

Planning Commission in November, 2004. Accordingly, Andhra Pradesh, Uttar Pradesh,

Madhya Pradesh and Goa were also placed under the category of cooperatively under

developed states. Similarly Jharkhand, Bihar and Jammu & Kashmir were classified as

cooperatively least developed States, in addition to the existing States. Now ten States and two

UTs., have been categorized as cooperatively under-developed and 11 States as least-

developed. During the year 2012-13, financial assistance of Rs 2461.14 crore has been

disbursed by the NCDC to cooperatives in cooperatively least/under-developed states/UTs.,

under its various schemes. During the year 2013-14, an amount of Rs.3,126.23 crore has been provided for cooperatives in cooperatively least/under-developed states/UTs., under its various

schemes.

12.15 Strengthening of National-level Cooperative Federations and Multi State Cooperative

Societies (MSCS): The objective of the scheme is to assist the National Level Federations and

Multi State Cooperative Societies which are undertaking promotional and research activities,

bringing about improvement in infrastructural facilities and also to assist in building up their

equity base for betterment of the cooperative movement and improving the cooperative

activities in the rural areas of country.

12.16 Development of Women Cooperatives: NCDC encourages women cooperatives toavail assistance under its various schemes. A large number of women members are engaged &

involved in cooperatives dealing with fruits & vegetables, ICDP, sugarcane processing,

consumer stores, handloom, power loom, spinning and services etc. activities. Upton

31.03.2014 the NCDC has cumulatively sanctioned and released financial assistance of Rs.

182.58 Crore and Rs 89.93 crore respectively for the development of cooperative societies

exclusively organized by women. This included foodgrain processing, plantation crops, oilseed

processing, fisheries, Integrated Cooperative Development Projects (ICDPs), spinning mills

handloom and powerloom weaving etc. During 2013-14, NCDC has sanctioned Rs 42.07 crore

for women cooperatives under ICDP Rs.12.40 crore), fisheries (Rs 4.42 crore), and power loom

(Rs 25.25 crore), programmes.


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12.17 Revitalization of Cooperatives: With phenomenal expansion of cooperatives in almost

all the sectors, signs of structural weakness and regional imbalances have also become

apparent. The reason for such weakness could be attributed to the large percentage of dormant

membership, heavy dependence on Government assistance, poor deposit mobilization, lack of

professional management, mounting overdues, etc. Concrete steps have now been initiated to

revitalize the cooperatives to make them vibrant democratic organizations with economicviability and active participation of members. The steps taken for revitalization of cooperatives

include enunciation of a National Policy on Cooperatives, revamping of cooperative credit

structure and reforms in cooperative legislation for providing an appropriate legislative frame-

work for sound and healthy growth of cooperatives.

12.18 Amendment to the Constitution in respect of Cooperatives: Pursuant to the Common

Minimum Programme of the UPA Government to ensure the democratic, autonomous and

professional functioning of cooperatives, it was decided to initiate a proposal for amendment

to the Constitution for the purpose. Accordingly, the Constitution Amendment Bill was

introduced in 14th Lok Sabha, However, the same could not be discussed for passing. The Bill

lapsed upon dissolution of the 14th Lok Sabha. Thereafter, The Constitution (One Hundred and

Eleventh Amendment) Bill, 2009 was introduced in Lok Sabha on 20.11.2009. The Bill was

passed in Lok Sabha on 21.12.2011 and in Rajya Sabha on 28.12.2011 as “ The Constitution

(Ninety Seventh Amendment) Act, 2011” and Hon’ble President of India has given her assent

to the aforesaid Act on 12.01.2012. The Act came into force w.e.f. 15.02.2012 vide Gazette

Notification dated 08.02.2012.

12.19 The object of The Constitution (Ninety Seventh Amendment) Act, 2011 is to ensure that

the cooperative societies in the country function in a democratic, professional, autonomous and

economically sound manner. The amendment in the Constitution, inter alia, seeks to empower

the Parliament in respect of multi-State Cooperative Societies and the State Legislatures in caseof other cooperative societies to make appropriate law, laying down the following matters,

namely:-

Right to form cooperative societies as a Fundamental Right by insertion of the words

“cooperative societies” in sub clause (c) of clause (1) of Article 19.l Provisions for

incorporation, regulation and winding up of co-operative societies based on the

principles of democratic member-control, member-economic participation and

autonomous functioning.

Insertion of Article 43B in part IV of the constitution as Directive Principle of State

Policy for Voluntary formation of cooperative societies. Specifying the maximum number of director of a co-operative society to be not

exceeding twenty-one members.

Providing for a fixed term of five years from the date of election in respect of the elected

members of the board and its office bearers; and an authority or body for the conduct

of elections to a cooperative society.

Providing for a maximum time limit of six months during which a board of directors of

co-operative society could be kept under supersession or suspension.

Providing for independent professional audit.

Providing for right of information to the members of the co-operative societies.

Empowering the State Governments to obtain periodic reports of activities and accountsof co-operative societies.


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Providing the reservation of one seat for the Scheduled Castes or the Scheduled Tribes

and two seats for women on the board of every cooperative society, which have

individuals as members from such categories.

Providing for offences relating to-operative societies and penalties in respect of such

offences.

12.20 Amending the State Cooperative Societies Acts in tune with the provisions of the above

amendments in the Constitution will not only ensure autonomous and democratic functioning

of the cooperatives, but also ensure accountability of management to the members & other

stakeholders and also enhance public faith in these institutions. The Constitutional amendment

provides for a maximum period of one year from the date of its commencement to amend the

state laws relating to cooperative societies, if required, to make them consistent with the

provisions of the amendment. So far 15 States, viz. Arunachal Pradesh, Assam, Bihar,

Chhattisgarh, Gujarat, Haryana, Karnataka, Kerala , Madhya Pradesh, Mizoram, Odisha,

Rajasthan, Tripura, Uttar Pradesh and West Bengal have amended their State Cooperative

Societies Acts in consonance with the constitution(97th Amendment) Act, 2011 through the

legislative process; while two States viz. Maharashtra and Tamil Nadu have done so by issuing

ordinances. However, in the meantime certain provisions of the Constitution (97th

Amendment) Act, 2011 have been struck down by the Hon’ble High Court of Gujarat at

Ahmedabad vide order dated 22.4.2013 in WP (PIL) No.166 of 2012. The union of India has

filed SLP No. 25266-25267 on 12.7.2013 before the Hon’ble Supreme Court against the

aforesaid order.

12.21 Amendment to the Multi-State Co-operative Societies Act, 2002: The MSCS

(Amendment) Bill, 2010 was introduced in Lok Sabha on 15.11.2010. The proposed

amendment intends to strengthen the Cooperatives by making them more member-driven and

professional. Bill was referred to Standing Committee on Agriculture for examination andreport. The report of Standing Committee on Agriculture was presented on 20.12.2012 and the

same is under consideration of the Department.

12.22 Helping farmers in getting remunerative price for their produce through NAFED:

The Department of Agriculture & Cooperation is implementing Price Support Scheme (PSS)

for procurement of oilseeds and pulses through NAFED, NCCF, CWC and SFAC at the

Minimum Support Price (MSP) declared by the Govt. The Department is also implementing

Market Intervention Scheme (MIS) for horticultural and agricultural commodities generally

perishable in nature and not covered under Price Support Scheme, thus, helping the farmers in

getting remunerative price for their produce.12.23 Price Support Scheme (PSS): The Department of Agriculture & Cooperation

implements the PSS for procurement of oil seeds and pulses through National Agricultural

Cooperative Marketing Federation of India Ltd. (NAFED) and Small Farmers’ Agri-Business

Consortium (SFAC) which are Central nodal agencies, at the Minimum Support Price (MSP)

declared by the government. NAFED is the central nodal agency for procurement of cotton

also under PSS. Central agencies undertake procurement of oil seeds, pulses and cotton under

the PSS as and when prices fall below the MSP. Procurement under PSS is continued till prices

stabilize at or above the MSP. Losses, if any, incurred by central agency in undertaking PSS

operations are reimbursed by the central government. Profit, if any, earned in undertaking PSS

operations is credited to the Central Government.


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12.24 Achievement under Price Support Scheme (PSS): During the Milling Copra 2013, the

prices of Milling Copra ruled below respective MSP fixed for the relevant marketing season.

NAFED procured Milling Copra during the Milling Copra 2013 as per the details given below:-

S. No. State Quantity in MTs Ex-godown value (Rs. in lakhs)

1.0 A & N Islands 3,300 1,732.502.0 Andhra Pradesh 1 0.53

3.0 Kerala 41 21.53

4.0 Lakshadweep 538 282.45

5.0 Tamil Nadu 551 289.28

12.25 Further, a quantity of 29,535 MTs of Ball Copra at the MSP of Rs. 5,500 per quintal

valuing Rs. 16,244.25 lakhs were also procured. A quantity of 4,384 MTs of sunflower seed

valuing Rs. 1,622.08 lakhs in Odisha, Karnataka and Andhra Pradesh were procured. Further,

groundnuts under PSS were also procured as per the details given below:S. No. State Quantity in MTs Ex-go down value (Rs. in lakhs)

1.0 Odisha 830 307.10

2.0 Gujarat 1,07,203 42,881.20

3.0 Rajasthan 1,89,767 75,906.80

4.0 UttarPradesh

7,347 2,938.80

5.0 Karnataka 8,819 3,527.60

6.0 Maharashtra 61 24.40

7.0 AndhraPradesh 30,190 12,076.00

12.26 During Kharif 2012-13 and 2013-14, urad, tur and gram were also procured as per the

details given below: - Urad

S. No. State Quantity in MTs Ex-go down value (Rs. in lakhs)

1. Maharashtra 35,462.00 15,273.58

2. Andhra Pradesh 7,963.54 3,424.32

3. Uttar Pradesh 16,930.25 7,280.00

4. Rajasthan 8,409.47 3,616.075. Madhya Pradesh 3,285.89 1,412.93

6. Karnataka 9,871.90 4,244.91

7. Gujarat 442.74 190.37

8. West Bengal 2,022.64 868.32

9. Jharkhand 103.57 44.53

Tur

S. No. State Quantity in MTs Ex-go down value (Rs. in lakhs) 1. Maharashtra 32,536.00 13,585.92


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2. Andhra Pradesh 28,911.83 12,119.48

3. Madhya Pradesh 66.00 25.41

Gram

S. No. State Quantity in MTs Ex-go down value (Rs. in lakhs)

1. Maharashtra 4,932 1,528.92 2. Andhra Pradesh 24,388 7,560.28

3. Karnataka 5,430 1,683.30

12.27 NAFED also procured cotton under PSS as per the details given below:-

S. No.

State Variety Quantity in MTs

Ex-go down Value (Rs. in lakhs)

1.0 Maharashtra Bunny 1,203.20 469.25

H-4/H-6 16.20 6.16

2.0 AndhraPradesh

Bunny 1,80,290.95 70,273.96H-4/H-6 - -

12.28 Market Intervention Scheme (MIS): The Department of Agriculture & Cooperation

implements the Market Intervention Scheme (MIS) for procurement of horticultural

commodities which are perishable in nature and are not covered under the Price Support

Scheme. The objective of intervention is to protect the growers of these commodities from

making distress sale in the event of a bumper crop during the peak arrival period when the

prices tend to fall below economic levels and cost of production. The condition is that there

should be either at least a 10 percent increase in production or a 10 percent decrease in the

ruling market prices over the previous normal year. The Market Intervention Scheme (MIS) isimplemented at the request of a state / UT government which is ready to bear 50 percent of the

loss (25 percent in case of North-Eastern States), if any, incurred on its implementation. The

extent of total amount of loss to be shared on a 50:50 basis between the central government

and the state government is restricted to 25 percent of the total procurement value which

includes cost of the commodity procured plus permitted overhead expenses. Under the Scheme,

in accordance with MIS guidelines, a pre-determined quantity at the fixed Market Intervention

Price (MIP) is procured by NAFED as the Central agency and the agencies designated by the

state government for a fixed period or till the prices are stabilized above the MIP whichever is

earlier. The area of operation is restricted to the concerned state only. The details of MIS

implemented during the year 2012-13 and 2013-14 as on 31.03.2014 are as below:


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S. No.

Year Commodity MIP (Rs. Per MTs)

State Sanctioned Qty.(in MTs.)

1) 2) 3) 4) 5) 6)

1 2012-1320.03.2012 to 20.05.2012

Turmeric 40,000/- AndhraPradesh

54,000

2 2012-1325.05.2012 to 25.06.2012

Chilly 41,000 AndhraPradesh

52,000

3 2012-1301.06.2012 to 30.06.2012

Turmeric 40,000/- Tamil Nadu 35,000

4 2012-1301.12.2012 to 31.12.2012

Iskut(Choyate)

5,600 Mizoram 4,000

5 2012-1301.01.2013 to 31.03.2013

Oil PalmFFB

5,720/- AndhraPradesh

90,000

6 2012-1307.03.2013 to 07.04.2013

Potato 3,580/- UttarPradesh

1,00,000

7 2013-14

01.08.2013 to 21.10.2013

C-grade

Apple

6,500/- Himachal

Pradesh

27,000

8 2013-1401.08.2013 to 31.08.2013

Pineapple 8,500/- Nagaland 12,675

9 2013-1420.02.2014 to 20.03.2014

Potato 3,750/- UttarPradesh

1,00,000


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PROBLEMS OF INDIAN SUGAR INDUSTRY:

1) The Problems of high price of sugar:

The efficiency and uneconomic nature of production in sugar mills low yield and short crushing

season the high price of sugar cane the heavy excise duties, leaved, by the government these

are responsible for the high cost of production of sugar in India. The price of Indian sugar inconsiderably higher than the world price of sugar. A part from the manipulations of stocks by

sugar factories, hoarding, Speculation. And black marketing of sugar by wholesale dealers are

rampant in India.

2) Gur Price:

The output of sugar is also greatly influenced by the relationship between cane prices and Gur

price. From the production side sugarcane can be used for the price manufacturing of sugar or

Gur from the consumption side the substitutions of sugar in place of Gur Arises. When the

price of sugar full in relation to Gur Price

3) Shift in locational Pattern:

The sugar industry was initially located in Uttarpradesh and Bihar which together accounted

for about 60 Percent of sugar production in 1960. Analytical studies about production cost.

Revealed the irrational nature of the regional pattern of production. Since the sucrose content

of sugar cane begins to deteriorate sun after the stalks have been cut it is essential that mills

must be located in close proximity to the sources of raw material. Consequently attempts were

made to locate to new unit in the can producing states. As a result of these the share Of U.P.

and Bihar declined from 60% in 1960 – 61 to 28% in 1980-81 while that of Maharashtra,

Andhra-Pradesh, Karnataka, and Tamilnadu. Taken together rose from 31% to about 60% in

that year, if this trained is counted; there may be a further shift in the locational pattern. Thedeclined in the importance of UP and Bihar is mainly due to server competition faced from

other state.

4) Roll of Co-Operative sector:

During recent year’s Co-Operative sectors has been increasing in importance in sugar industry

there know 211 Co-Operative Sugar Factories producing over 60% of the total output of sugar

Co-Operative Sugar mills have to positive advantages in their favour. First they get the

maximum supply of sugar cane as almost all the sugar cane farmers are members of the Co-

Operative Sugar mills secondly the profits of the cooperative unit are distributed among

member – farmers instead of going into the hands of a few “Sugar Barons

5.) Need for can development

The factor which is of crucial importance in the growth of sugar industries the yield of sugar

cane there is a steady increase yield of sugar cane per hectare from 33 tons. In 1950-51 to the

70 tons on 2000-07 and 80 tons in 2007 it may be maintained here that average sugar cane

productivity in other countries range between 134tones per hectare (subtropical regions) to one

88tons per hectare (Tropical regions) percentage recovery of sources is the second factor which

determines production in India both the yield of sugar cane per acre and percentage recovery

of sources is low point. There is possibility of doubling or even trebling the yield the sugar

cane.


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6.) Competition from Gur Production:

10 tons of sugar is obtained from 100 tons cane but in case of Khandsari only 7 tonnes of sugar

are derived. Thus there is a net loss to the country by the use of cane from Khandsari and Gur

the recovery content of Gur is only 5%. But since it is a food of higher nutritive value, the

demand for Gur is not only motivated by its use as a sweetening agent but also as an article

with specificity in its demand. But the Gur Factories deprive the community by 25 to 40% of

source when they divert the cane required by sugar mills. While the government fixes the price

of sugar cane supplied to the factories there is no price fixation for sugarcane used for Gur. The

obvious result is that production of Gur often increases at the cost of sugar. As a result of the

policy of price fixation alone, the distribution of sugarcane among the producers of sugar Gur

and Khandsari is not done on a fair basis. It is therefore necessary that price competition

between sugar Gur and Khandsari be avoided. It would be much more desirable to chalk out a

combined allocation of sugarcane for these three close substitutes at the same price.

7) Problems of Production of Sugar:

The Low yield of sugarcane, short crushing season, unsatisfactory location of industry in U.P

and Bihar and inadequate supply of cane all these create problems of production of sugar

factories have low milling efficiency and recovery of sugar from sugarcane is very low. One

reason for that is the uneconomic character of many of the sugar mills. Further Indian sugar

mills do not have sugar plantations of their own (as in the case of west of west India’s) and

hence do not have control over the quantity and quality of sugarcane. Supplied by the

innumerable cane growers.

8.) The problems of by products:

An important problem of sugar of sugar industry is the fuller utilization of by-products

specially bagasse and molasses. At one time, bagasse was used as fuel. While sugar factories

did not know what to do with the accumulating molasses a health hazard. At present small

paper plants are coming up to make paper and paper board, packing paper etc. Through using

bagasse. Molasses is now being used for the manufacture of power alcohol fertilizers cattle

feed etc. A number of sugar mills located in close proximity to each other are joining together

to utilize by products fully and effectively in this they help to bring dower the cost of production

of sugar.

9) Problems of faulty Government policy:

The sugar economy is highly controlled sugar factories were under compulsory licensing tillrecent years. There is a statutory minimum price (SMP) for sugarcane fixed by the central

government and state advised prices (SMP) fixed by each state over and above the SMP. There

is a levy- normally 40% of the output on the sugar mills, which have to supply the levy quota

at prices, fixed much lower than the market prices. The levy sugar is allotted to the state / UT

Government for distribution through the public distribution system (PDS). Prices of levy sugar

are fixed zone wise on the basic of SMP of sugar cane plus conversion costs as recommended

by the bureau of industrial cost and prices. There is no price control on the sale of free sugar

however the market suppliers of free sale sugar are regulated by government by fixing monthly

release quota so as to maintain price stability.

There are price and distribution controls on molasses the major by – product of sugar factories.The government fixed export quotas and sugar exports have to be handling by designated


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export agency. This whole scheme of sugar controls is not in the interest of the industry or the

economy. The government has announced its intention to review this policy regime with the

objective of making sugar industry globally competitive and generating export surplus while

insuring adequate supplies for domestic consumption as a part of restricting sugar industry

beginning was made when price and distribution controls on molasses were abolished in Jane

1993 the government has also announced number of incentives to encourage sugar mills tomaximize sugar production.

10) The Questions of minimum economic size:

The minimum economics size as it exists in India is 2500 tons of came crushed per day (tpcd)

this is much less than the minimum economic size in other countries for instance in Thailand

the average plant size is of 10000 tpcd against the average of 1400 tpcd in these country

according to some experts the sheer size makes us loss out in the economics of scale also the

small MES makes efficient use of by-products impossible.

11) Old Machinery:

Like jute and cotton textiles some sugar factory also requires replacement of old machinery

and modernization of production technique. The need is particularly great for the sugar

factories located in U.P and Bihar.

12) Competition From cheaper Imports:

Stiff competition from cheap imports is causing problem for the sugar industry sugar import in

recent years have been due to ample global availability and heavy export subsidies in several

countries including Pakistan, Brazil, and the European union. The international sugar prices

tumbled down so imported sugar is cheaper than domestic sugar.

13) Low sugar Recovery:

The Sugar recovery from the canes as also the yield of cane crop has been stagnant for a long

time for want of any major breakthrough in reading better verities of sugar cane. The average

recovery (Extraction rate for the Indian sugar mills is just 9.5 to 10 percent against 13 to 14

percent in some other producing countries

14) Overall observation:

The main reason for sickness in the sugar industry as many as 70 mills are lying closed are: the

practice of state advise price (SAP) for sugar cane low realization from the sale of molasses

fluctuations in sugar production non availability of adequate cane and the uneconomic size ofthe mills and their out date machinery and mismanagement. This implies that adequate relief

and concessions would be required from state government banks and financial instructions for

the revival of sick and closed sugar mills.

15. Cane Price:

A High level Committee to be appointed by the Government for determining cane price which

should be linked to sugar price through some transparent formula based methodology. The

price so decided should also take into consideration inter-crop parity to avoid cyclicality in

sugarcane production.

16. Release Mechanism:


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Sugar is sold by sugar factories on the basis of release orders issued monthly by the Sugar

Directorate, Government of India. Release mechanism should be discontinued in order to have

better cash management and timely payment to the farmers. Price discovery should be done

through a transparent Forwards and Futures market.

17. Levy Sugar Obligation:

The Government declares a certain proportion of sugar production as Levy sugar (at present

10% of total production) to be sold under Public Distribution System at pre-determined prices

(which is way below the cost of production of the mills). This causes a huge financial burden

on the mills. Levy sugar obligation should be totally abolished and if the Central Government

wants to provide any sugar under the Public Distribution System it should buy such sugar from

the open market and subsidies it from its own resources.

18. Import/Export Policy:

The Government should have a Pro-active Import/Export Policy in order to ensure reasonable

sugar prices so that sustainable cane prices can be paid to the farmers.

19. De-reservation of Cane Area:

Reservation of cane area should be removed. This will help in efficient use of resources, better

farmer-miller relationship and will provide a level playing field. Farmers will also have the

option of supplying their cane to which ever miller he wants.

20. Packing Material:

The Ministry of Textile has been prescribing the minimum percentages from time to time for

compulsory packaging of sugar in jute bags. The packing cost of sugar in jute bags is very high

compared to the other packaging material. The sugar industry is subsidizing jute industries.The Government should fully exempt the sugar industries from compulsory packaging in jute

bags.

21. Priority Sector:

Sugar industry has been cash striven for decades. Finance is not easily available from

institutions to new sugar factories and to existing factories for expansion as well as for working

capital requirements. Sugar sector being a very important sector in agronomy space should be

classified as a Priority Sector. Besides major issues as above, sugar industry is facing other

issues also as under:

• Underutilization of plants’ installed capacity due to low availability of Sugar Cane

• Utilization of sugar cane by Gur / Khandsari industry without any control

• Low Recovery

• Prices of Ethanol

• Sale of Cogen power in open market

REMEDIES ON THE PROBLEMS OF INDIAN SUGAR INDUSTRIES

Some recommendation for improvement of Indian sugar industries in other words this remedieson the problem of Indian sugar industries point of my view.


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1) To restart closed mills

Though Maharashtra has 163 sugar mills across the state 56 have been shut down. Permanently

and more than 50 have already reached their capacity of carousing this.

Situation has created panic among the growers that their crop is not for different in the joining

states of Karnataka, Tamilnadu, and Andhra-Pradesh. But the ultimate answer to theselivelihood issue remains unanswered as not a single policy has so for been drafted to solve this

issue

The authority should regulate the situation arising as of now in the sugar industry and solve the

problem at the earliest. Timely assistance is very essential in agriculture as “anything can waif

but not agriculture”. (Nehru)

2) To provide Minimum Supportive Price:

Formulations of sugar policies are very essential which should support the domestic sugar

industry and the sugar cane growers. Minimum supportive price should be announced before

the beginning of the sugar. This would avoid creation of glut in the sugar cane production.

3) To encourage exports:

To encourage the export of excess sugar produced government should provide export duty

exemptions and tax waivers. Proper market analysis and forecasting if the price is also essential

to avoid any harm growers Or to the sugar mills. The growers should be made aware of the

crop insurance scheme which will help them in adverse conditions from losing any returns.

4) Credit for sugar cane farmers:

Over 90% of the people dependent on the agriculture do not have access to bank credit howeverin the sugar came sector all the farmers sponsored by the sugar mills enjoy timely credit from

the banks with 100% recovery banks should advance more many to the sugar cane farmers

5) Issue of Gur and Khandsari units:

These units may be subjected to the some cane price obligations respective of weather it is a

normal year or not in terms of cane production this will avoid the efficiency losses of sucrose

by such unit. If the consumers have specials preference for their products they must be prepared

to pay higher price. A market best solution will thus avoid the insufficiencies associated with

anomalous treatment of such unit through bureaucratic loopholes.

6)

Issue of regulations on sale of sugar:

Ideally the government should relive the sugar mills of leavy sugar payment at unremunerative

price. This will also relive the factories of the unnecessary hustles and implied cost burdens.

They face due to delayed lifting of sugar and delayed payment on levy sugar by the food

corporation of India the public distribution system (PDS) together with its associated

inefficienes ought to be maintained at a minimum scale. What the poor in India needs is

meaning full jobs which alone can provide steady source of income and not and inefficient

system of subsidy and that too at somebody else’s cost. The government is of course free to

maintain PDS at any desirable scale through open market purchase of sugar as it is doing in

case of cereals. If the government cannot achieve this switch – over in the short run it should


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progressively reduce the levy sugar commitment of the sugar factories. Even the restrictions

on free sale of sugar can be dispensed with. The fear that the mills would raise the domestic

price through the creations of artificial scarcity is an immaterial one as long as the option of

sugar import with reasonable tariff duties is open to the country. The other fear is that the

industry in its eagerness to sell too much within too short period will push down the domestics

price level is an equally unrealistic one as this a common problem to any industry which it mustmanage itself the industry was earlier managing exports very well by spreading the loss across

all units so given an opportunity to manage their supply subject to some broad guild lines and

safeguards (for exp. A buffer stock requirement) which the government can prepared with

adequate homework and stipulate the industry should be in position to handle the matter the

artificial lowering of domestic price of sugar in merely serving the interest of downstream

industries which are bulk consumers of sugar in the free market. Ones these bureaucratic

barriers are removed the industry itself can take more interest in developing its own retails

distribution system. It will also make the management incentive schemes a redundant issue.

Ones again give the government usual apprehensions about switching gradually decreasing the

periodicity of release order Quota.

7) Issue of Industrial sickness:

Although the incidence of inefficient operations and resulting sickness is one average higher

for Co-Operative and public sector unit’s private sector too is not free such problem as the

present study demonstrates.

As the Mahajan Committee and an earlier RBI Committee have suggested either the provisions

BIFR for rehabilitation of stick mills should be intended or an alternative arrangement must be

made without further duly to take care of the problems of sick Co-Operatives however it

appears that there are chronically sick mills in all the three sectors which cannot be rehabilitated

they must be allowed natural death by switching over to a market based system in the

functioning of this industry.

8) Financial Restructuring and meeting credit needs

The sugar industry in India has been in great financial stress since year 2001. It is therefore

essential to understand the factors that have contributed to it.

9) Effect of drought / floods on sugar production Maharashtra is the largest producer of

sugar in the country the Tamilnadu Andhra-Pradesh and Karnataka are some of the other major

producer of sugar this states are of crucial importance to national production of sugar droughts

in 2002- 2003 and 2003-04 and woolly aphid infestation have seriously efficient sugar cane production in these states it is estimated that the availability of sugar cane was reduce from 165

lack tons in 2002-2003 to 121 lack tons in 2003-2004 in Tamilnadu from 120 lack tons in 2002-

2003 to 86 lack tons in 2003-2004 in Andhra-Pradesh 172 lack tons in 2002-2003 to 100lack

tons in 2003-2004 in Karnataka and from 535 lack tons in 2002-2003 to 290 lack tons in 2003-

2004 in Maharashtra on the other hand because of regular floods sugar cane production in Bihar

has been consistently falling. Since the last 4 years the sugar production in the country as a

result fell from 201 lacks M.T. in 2002-2003 to 140 lacks M.T. in 2003-2004.

Commodity Profile for Sugar

1.0 Sugar Estimates for India (Crop Year: October 2014 to September 2015)(Unit: Lakh Tonnes)


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Table 1: Sugar Production, Trade, Consumption and Availability

2013-14 2014-15 (Estimated) Particular March, 2015 Source

91.09# 72.13 Opening Stock - DoF & PD

245.54 250.46 Production 250.46^ DoF & PD

6.09 8.38 Total Imports 6.04* DoC

342.72 330.97 Availability -

27.03 25.16 Total Exports 10.05* DoC

243# 248.00# Consumption - DoF & PD

72.13 57.81 Ending Stock - DoF & PD

Source: Department of Food & Public Distribution (DoF&PD), Department of Commerce

(DoC)

For preparing estimate for 2014-15 total exports and total imports have been taken as last three

years’ average.

Production and consumption projected by DoF&PD.

Availability: opening stock in central pool plus production plus Total Imports; Total

Availability for Domestic

Consumption: Availability minus (total export plus ending stock in central pool).

*: The figure of export and import is for October,14 - March, 2015.

#: As per Department of Food figures

^: production projected by Department of Food & Public Distribution for year 2014-15.

2.0 Production, Area under cultivation and Yield of Sugarcane and Sugar

Table 2: Production, Area Under Cultivation and yield of sugarcane and Sugar

Crop/marking

Year

Area

(lakh Hectares)

Production (Lakh Tonnes) Sugarcane Yield

(Tonnes/Hectares)Sugarcane Sugar

2005-06 42.0 2811.7 193.2 66.92

2006-07 51.5 3555.2 282.0 69.02

2007-08 50.6 3481.9 263.0 68.88

2008-09 44.2 2850.3 146.8 64.55

2009-10 41.7 2923.0 188.0 70.02

2010-11 48.8 3423.8 243.5 70.092011-12 50.4 3610.4 263.4 71.67

2012-13 49.99 3412.0 258.5 68.25

2013-14 50.12 3521.4 245.5 69.84

2014-15 N.A. 3549.5# 250.46 N.A.

Source: Department of Food & Public Distribution (for Sugar Production) and AgriculturalStatistics (for production and area of Sugarcane).

#: As per 2nd Advance Estimate (2014-15) of DAC released on 18/2/2015

India’s sugar production has increased in last 10 years at CAGR of 6.04 percent.


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During the same period, India’s sugarcane production has increased at CAGR of 3.97 percent and area under cultivation at CAGR of 3.19 percent.

3.0 India’s Major Export Destinations and Imports Sources

Source: Department of Commerce

The major export destinations for India in 2013-14 were Sudan, Iran, Sri Lanka, andUAE.

The highest decrease in the growth of India’s sugar export was recoded for UAE in2013-14 compared to previous year.

Source: International Trade Centre (ITC)

Substantial part of India’s sugar imports came f rom Brazil in 2013. Germany, USA, Netherland, and Pakistan also exporting sugar to India.


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4.0 Trade Flow for India (Unit: Lakh Tonnes)

Table 3: Trade Flow for India during 2009-10 and 2014-15

Year Export Import

2009-10 0.42 25.51

2010-11 17.11 11.98

2011-12 27.38 0.992012-13 27.91 11.21

2013-14 24.60 8.81

2014-15 19.54 15.38

Source: Department of Commerce.

Trade figure shows, that India has been exporting sugar more than that of its import

since 2010-11.

5.0 Prices of Sugar in Bench Mark Domestic Market (Unit: Rs/ Quintal)

Table 7: Prices of Sugar in Bench Mark Domestic Market 6 May,

2015

Week Ago

(29 April,2015)

Month Ago

(5 April,2015)

Year Ago

(6 May, 2014)

% Change

over PreviousYear

Sugar: S grade

Erode 2523 2523 2498 3248 -22.32

Kolhapur 2412 2446 2360 3069 -21.41

Kolkata NA NA NA NA NA

Vashi 2563 2572 2480 3234 -20.75

Sugar: M Grade

Delhi 2735 2750 2635 3355 -18.48

Erode 2573 2573 2548 3298 -21.98

Kanpur 2814 2785 2674 3382 -16.79

Kolhapur 2542 2562 2452 3173 -19.89

Kolkata 2779 2840 2695 3395 -18.14

Muzaffar Nagar 2695 2719 2628 3308 -18.53

Source: National Commodity & Derivatives Exchange Limited (NCDEX)

Domestic prices of sugar in major markets in April, 2015 were lower compared tosame period in the previous year.


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Pharmaceutical Industry in India

The Indian pharmaceutical industry remained import dependent till 1972, deeming most of the

drugs unaffordable (Mohammad & Kamaiah, 2014). Political and policy developments in the

early 1970‟s such as the new patent acts of 1972 and Drug Price Control Order (DPCO), 1970

laid the foundation for a strong pharmaceutical industry in India. Public sector focus on

pharmaceutical industry and policies that curbed control of multinationals added to this

conducive policy environment that led to the growth of domestic firms and establishment of

India as a dominant supplier of pharmaceutical drugs across the world (Basant, 2007). In the

pre-TRIPs regime, the absence of product patents allowed local production of patented drugs

at a fraction of the original cost while process patents encouraged generic companies to reduce

the production costs of drugs. India‟s compliance with the TRIPS regime that became complete

in 2005 has changed strategic options of Indian pharmaceutical firms.

In the year 2013, the Indian pharmaceutical industry was the “third largest in the world in terms

of volume” (Horner, 2014) estimated to be worth $ 10 b illion in 2010(Gabble & Kohler,

2014).Of about 10500 units engaged in the production of drugs and pharmaceuticals, only

about 23 per cent produce bulk drugs; the remaining are engaged in the manufacturing of

formulations. Moreover, most of these units are in the unorganized or small sector with

approximately 250-300 units that can be categorized as organized or medium/large (Planning

Commission, 2012a). The industry also has a much skewed distribution with the top 10

Indian Pharmaceutical Industry at a Glance

3rd largest in terms of Volume; 10% of global volume

14th largest in temrs of Value; 1.5% of global value

Prior to 1970‟s foreign players controlled 80% of the market

Domestic market size is approximately USD 5.3 billion

In 2013 Indian pharmaceutical Imports amounted to USD 2.7billion

In 2013, Indian Pharmaceutical Exports amounted to USD 8.9 billion

The ten “big” pharmaceuticals control 36% of the Domestic Market

Source: Horner, 2014, Haley & Haley, 2012, Bedi, Bedi, & Sooch, 2013 and

Department of Pharmaceuticals, 2014.

manufacturers accounting for almost 37% of market share (Planning Commission,

2012b).Generic manufacturers dominate the Indian pharmaceutical industry and remain pivotal


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in providing essential drugs at affordable prices. Patented drugs, on the other hand, comprise

approximately 1% of the pharmaceutical market in the country (Kochhar, 2014).

2.2 Healthcare in India

Health policy in India has historically centred on the idea of equity. More recently, it has been

broadened to incorporate the subject of universal healthcare. Ironically, despite the focus on

equity, accessibility and quality, India shoulders a high morbidity and mortality burden

(Balarajan et al., 2011) and requires innovative solutions to reduce them.

The State in India intervened directly in the healthcare sector by providing health

services through a chain of public hospitals and Primary Health Centres (PHCs). But a variety

of deficiencies plagued the efficacy of the healthcare system. One of the central drawbacks has

been limited expenditure in the sector (Duggal, 2007; Selvaraj & Karan, 2009). The National

Health Policy, 2002 directed the state to commit to universal health care through a “realistic”

consideration of capacity (MoHFW, 2002). The policy document identified its limited capacity

(infrastructure and resources) as a key challenge towards making healthcare available to all.

Expenditure on health has remained only about 1% of the GDP in 2011-12 (Planning

Commission, 2012b: p.4). Over the years, the state‟s inability to provide for the health needs

of the population has resulted in the growth of the private healthcare sector. Currently, India is

one of the most privatized systems in the world (Abhiyan, 2012; Duggal, 2007). The state‟s

strategy to withdraw from the public provision of healthcare has been criticized due to theassociated increase on the costs of healthcare (Duggal, 2007; Selvaraj & Karan, 2009).

Moreover, the recent move by the Federal government to reduce the health budget by 16-17%

would imply lower state involvement in the provision of public health (The Economic Times,

2014) and may further increase the cost of healthcare for Indian households unless state

governments who are expected to receive more resources from the Federal government use

these resources in a more innovative and efficacious manner.

Nonetheless, the 12 th five-year plan (2012-17) had outlined universal health coverageas a central goal proposing an innovative strategy of combining insurance (Rashtriya Swasthya

Bima Yojana), contracting out services and promotion of generic drugs through prescription

drug reforms (Planning Commission, 2013). Such innovative policies are critical for providing

affordable healthcare and reduce the out of pocket expenses on the same. A significant fraction

(72%) of out of pocket expenses on healthcare is incurred on the purchase of drugs and other

medical devices (Kumar et al., 2011). Deregulation of drug prices in recent years had led to an

increase in the prices of branded drugs within the country (Bhargava & Kalantri, 2013) and has


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been brought back partially. Consequently, access to affordable medicines remains a critical

issue and any policy or other innovation that can reduce costs would be very useful.

3. Changes in the IP regime and IP Policy Innovations

As mentioned, it is not possible to easily attribute health-related innovations in recent years to

the new TRIPS regime as a variety of other confounding factors are at work. Therefore, we do

not posit any such linkage. This section provides a brief summary of the new IP regime that

highlights the policy innovations that the Indian government has undertaken as a part of the

new regime. Additionally, the section identifies a few IP policy gaps that have surfaced and

need correction.

As discussed, the earlier IP regime‟s protection of process and not product inventions

resulted in Indian firms‟ focus on process innovation and building of capabilities to produce

bulk drugs in a very cost-effective manner. There is no consensus on the impact of the new IP

regime on the innovation climate in the Indian pharmaceutical industry; while some suggest

that the impact has been positive (Bouet, 2014; Godinho & Ferreira, 2012), others argue that

the impact has been negative or insignificant (Mani, 2014; Chaudhuri, 2007). Still others argue

that while the jury is still out, interesting firm responses in terms of innovation can be seen

(Basant, 2011).

A number of firm-level and state-level strategies have helped the industry to adapt to

the changes in the IP regime. During the pre-TRIPS period the growth of the domestic publicsector and policies relating to science and technology, taxation, and FDI empowered Indian

pharmaceutical industry to adapt to the changes in the institutional environment and grow.

(Agarwal, Gupta & Dayal, 2007). In recent years, the liberalization policies, TRIPS- compliant

patent regime, and other policy support has resulted in a steady flow of inputs to support

product and process innovations: post TRIPS regime has seen an increase in the FDI and

technology transfers directed towards India (Agarwal et al., 2007; Rai, 2008; Chittoor et al.,

2008).While some critics of the TRIPS compliant IP regime have argued that the new IP

regime would lead to a rise in the prices of drugs and expose domestic manufacturers to the

vagaries of international market fluctuations, others suggest that provisions to protect domestic

consumers and manufacturers are in place (Mani, 2014). These have taken the form of

conditions for compulsory licensing 4 (Section 84) and standards of patentability (Clause


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3d1).These provisions attempt to balance the two ideals of ensuring “access to medicines” and

fostering innovation.

3.1 Policy Innovation to Avoid Evergreening

In the year 2006, Novartis applied to the Indian patent office seeking a patent for its

formulation Glivec. The application was rejected as the IPO viewed the move as an attempt

towards “ever greening”. Glivec or ImatinibMesylate is a formulation used in the treatment of

blood cancer or Chronic Myeloid Leukaemia (CML) and costs $ 5,000. The cost of the

medication acted as a strong barrier to many Indians who sought treatment. On the other hand,

the generic variant of the drug is available in India for a meagre $200.

Novartis applied for a patent in the year 1998, and in 2005, was granted exclusive

marketing rights and the application was “ mail boxed ” for consideration (Chaudhuri, 2014).

The patent application was rejected under clause 3(d) of the Indian Patent Act on the grounds

that the formulation was a “modification” of the existing drug and does not enhance efficacy

adequately. (Gabble & Kohler, 2014; Chaudhuri, 2014). Post the rejection of the plea in 2006,

Novartis challenged the decision in the Supreme Court of India. The court backed the ruling

and rejected Novartis‟ appeal for a patent in 2013. It has been suggested that since the Indian

patent legislation does not define the term “efficacy”. Hence, the difference in interpretation

led to the rejection of the appeal (Gabble & Kohler 2014).

On March 4, 2015, using Article 3(d) the Indian Patent Office revoked BoehringerIngelheim Pharma GMBH & Co.‟s patent covering the drug „Spiriva‟ in a response to a post -

grant opposition filed by the Indian generic drug-maker, Cipla. Interestingly, a pre-grant

opposition was also filed by another domestic firm in 2007 but the patent was granted.2

3.2 Compulsory Licensing

In 2012, Natco Pharma was granted a compulsory license to manufacture generic

variant of the Nexavar drug. Nexavar is the original formulation of Bayer and is used in treating

kidney and liver cancer. The drug costs $ 5500 vis-à-vis the generic variant that costs $141(Kochhar, 2014; Hirschler, 2014). Bayer contested the license in the Indian court and lost

(Hirscheler, 2014). The arguments used were that the drug availability did not meet the

reasonable requirements of the public, that it was not reasonably affordable and was not

sufficiently worked in India, not being locally manufactured.

1

Clause 3d states that the discovery of a variant of an existing substance or process that does not enhanceefficacy significantly is not patentable. The clause attempts to discourage frivolous inventions.2 http://ipindiaservices.gov.in/decision/00558-DELNP-2003-9637/558-delnp-2003%2025(2)%20decision.pdf


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3.3 Some Issues Relating to the Validity of the Patent

The Indian IP policy has received wide criticism as it is seen to favour domestic manufacturers

(Kochhar, 2014; Gabble & Kohler, 2014). Both the patentability and compulsory licensing

criteria have been criticized, apart from cumbersome patenting procedures (OPPI, 2014).

However, many argue that the current patent regime increases the vulnerability of small and

medium enterprises (SMEs), a segment that dominates the Indian pharmaceutical industry but

cannot compete with “big” pharmaceutical companies (Agarwal et al., 2007). These enterprises

do not possess deep pockets to engage in technology transfers, marketing, new drug discovery,

and acquisitions.

While some provisions reported above are expected to enhance access and ensure that genuine

inventions get patented, some others may increase the vulnerability of SMEs and may bedetrimental to the promotion of inventive activity and innovation. For example, Section 13(4)3

under the patent act asserts that granting of a patent to the inventor does not automatically

ensure validity of the patent. The ambiguity in the law can prove detrimental to several small

Indian firms investing heavily in R&D.

The process of granting of a patent requires the application to go through a number of filters to

validate the patentability of the invention. Once conditions of novelty, non-obviousness and

industrial application are satisfied, the patent is granted. Like in many other countries the Indian

patent act has provisions for pre- grant and post-grant opposition, which some find quite

onerous (OPPI, 2014) but enhance the efficacy of scrutiny and, as discussed above, have helped

revoke patents. However, the presence of Section 13 (4) makes copying easy and stalls

infringement action. These combined with the delays in the judicial process work against the

inventor and undermine the technical and legal checks provided by the pre-and post-grant

opposition processes. Indeed, there have been cases that large firms have copied inventions of

small pharmaceutical firms in India adding significantly to the costs of protecting IPRs by theinventive SMEs. The case of the 75ml Diclofenac Injection4 by Troikka Pharmaceuticals

3 Clause 13(4) states that granting of a patent does not necessarily translate into validity of the

patent.

4 In the February, 2005, Troika pharmaceuticals filed for a patent for its invention: the 75ml

Diclofenac Injection, an anti-inflammatory drug. In the following years other companies filed

for patent applications presenting a formulation similar to that of Diclofenac injection.


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provides a strong case, suggesting that Section 13 (4) can be dysfunctional. Notably the courts

in the US and Europe treat the patent valid and thereby curb frivolous challenges and facilitate

quick infringement action.

4. Innovations in the Indian Pharmaceutical Industry

This section discusses technology innovations and strategic responses by pharmaceutical firms

including changes in R&D expenditures and organizational innovations. Studies show that

organization level changes have backed the institutional change introduced in the form of a

changed patent regime. While Kale & Wield (2008) argue that the new regime has provided

India with the opportunity to “exploit” its advantage at reverse engineering and “explore” the

area of enhanced R&D in medical innovation, Haley & Haley (2012) suggest that the Indian

pharmaceutical industry has been adversely affected by the policy change.

4.1 Manufacturing Capability and ANDA Approvals

The dominant perspective, however, is that given the focus on process innovation during the

pre-TRIPS period , India acquired a competitive advantage in the production of quality bulk

drugs (Chittoor et al., 2008). This initial strength in “imitative” capabilities provided a fertile

ground to develop “innovative” capacities with changes in technology and policy (Kale &

Little, 2007). Consequently, the number of FDA approvals obtained by Indian pharmaceuticals

has greatly increased. Exploiting this opportunity with better production processes, India is

currently one of the leading generic drugs manufacturers. In fact, India manufactures eight out

of the ten “blockbuster drugs” (Agarwal et al., 2007). The p rocess innovation driven building

of manufacturing capabilities, fostered by the pre-TRIPS regime, has helped Indian

pharmaceutical firms capture a significant share of ANDA approvals in the US. In recent years,

India‟s share has been more than 40 per cent (Fig. 2) despite the increasing cost of compliance.

4.2 Trends in Patenting Activity

The post-TRIPS regime has witnessed greater investment in R&D (Jagdeesh and Sasidharan,

2014). A detailed econometric exercise has shown a shift to a stronger IP regime has resulted

in greater thrust in the R&D activity in the sector (see some estimates below) and domestic

firms have also increased patenting in India and abroad (Goldar et al, 2010). Within

Additionally, the grant process was delayed due to the procedural hurdles in the form of

measures for pre grant and post grant oppositions.


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pharmaceutical R&D, there has been a significant increase in the focus on novel drug discovery

(Agarwal et al., 2007), although new dosage forms remain dominant among product patents.

The data on PCT applications (Figure 1) suggests that in anticipation of the change in the IP

regime in India in 2005, the top Indian pharmaceutical firms showed an increase in inventive

activity. In the subsequent period there has been a trend decline in PCT applications by these

pharmaceutical firms. Although, the reasons for this decline are not very clear, studies had

observed a global downtrend in the patent applications during the crisis period in the late 2000s

and beyond.

Fig 1: Trends in ANDA Approvals in the US for Indian Companies

Source: CRISIL (2014), Figure 7, p. 7.

(http://www.crisil.com/Ratings/Brochureware/News/V5-Pharma%20Article%20EdV3.pdf )

http://www.crisil.com/Ratings/Brochureware/News/V5-Pharma%20Article%20EdV3.pdfhttp://www.crisil.com/Ratings/Brochureware/News/V5-Pharma%20Article%20EdV3.pdfhttp://www.crisil.com/Ratings/Brochureware/News/V5-Pharma%20Article%20EdV3.pdfhttp://www.crisil.com/Ratings/Brochureware/News/V5-Pharma%20Article%20EdV3.pdf


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Figure 1: Total PCT Applications filed by top 10 Indian pharmaceutical companies

Source: Tyagi et al (2014), Fig 4.

The patent filing activity in the Indian Patent Office has increased dramatically in recent years

(Table 1). Overall, the top pharmaceutical firms seem to have engaged significantly more in

inventive activity in the post-TRIPS period. A comparison of the patenting activity of the top

eleven large pharmaceutical companies during the period 1999 - 2009 has brought out some

interesting patterns (Bedi, Bedi and Sooch, 2013). During 1999 - 2004, when product patents

in pharmaceuticals were not permitted, a much larger share of applications related to inventions

in the field of new/improved processes t o m a k e products than for the products themselves

(Figure 2). There has been an increase in the product patent applications filed by large

Indian pharmaceuticals companies after 2005 (Figure 3). The product related applicationsinclude intermediates and formulations with maximum contribution from modified release

dosage forms. Besides, most top companies are increasingly using the PCT route for filing

patent applications. (Bedi, Bedi and Sooch, 2013). Patenting by SMEs in the sector is, however,

small although as we shall see below patenting is widely prevalent among start-ups in this

sector.

Table 1: Status of Patents Filed at the Indian Patent Office

Patent 2002-03 2005-06 2009-10 2012-13Filed 11466 24505 34287 43674


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Granted 1379 4320 6168 4126

Source: Compiled from Controller General of Patents, Designs, Trademarks, Annual Reports

2005-06, 2009-10 & 2012-13

Figure 2: Patent Applications Filed in India (1999-2004)

Source: Bedi, Bedi and Sooch (2013), Figure 1, p. 106

Figure 3: Patent Applications Filed in India (2005-2009)

Source: Bedi, Bedi and Sooch (2013), Figure 2, p. 106


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Apart from New Drug Discovery a number of firms are also participating in Novel Drug

Delivery Systems (NDDS). Firms like Ranbaxy, Alembic and Dabur have been able to produce

NDDS formulations with great success and have as a result also entered into licensing

agreements with foreign players (Joseph, 2012). In an earlier study, it was shown that while

few pharmaceutical and biotech firms in India patent in the US, a significant proportion

(ranging from 48-59% depending on the estimates used) of these firms have product claims.

However, most (about 55%) of these applications are for incremental inventions including

those relating to bio-enhancers, new dosage forms, new use and NDDS (Basant, 2011). In

vaccine development, Rotavac Vaccine presents a salient example of indigenous innovation.

Rotavirus diarrhoea is a major cause of death amongst several children from poor socio-

economic backgrounds. Estimates suggest that rotavirus accounts for 37% of diarrhea related

deaths globally and 22% of diarrhoea related deaths amongst the under-five age group in India

(Bhaumik, 2013; N. Mehta, 2015). Pioneered by Indian pharmaceutical company, Bharat

Biotech, the three dosage vaccine displayed 56% higher efficacy and is available at a fraction

of the current cost. This provides an example of tropical and other diseases where the

magnitude presents a profitable opportunity to innovate and achieve economies of scale and

low cost solutions.

Despite the evidence of higher inventive activity, studies in the domain of biotechnology

provide divergent perspectives; while some argue that the changed patent regime has benefitted in the take-off of the knowledge intensive sector (Agarwal et al., 2007), others

suggest that it may not have contributed at all (Ramani & Maria, 2005). But all the studies

reviewed make a case for the immense potential the sector holds in delivering for the medical

needs of the future. The writings recommend focus on off-patent products such as bio-

generics, vaccines and diagnostics arguing that reengineering is the true edge required for

establishing Indian biotech competence on an international stage (Ramani & Maria, 2005).

Besides, given the decentralization of drug development process, Indian firms are finding

niches to become part of the international R&D networks. (Basant, 2011)

4.3 Entrepreneurial Innovation

High penetration of mobile phones and the Internet in India has fostered a variety of

innovative medical devices and healthcare solutions. Many of these have been introduced

through start-ups as these increasingly provide profitable business opportunities and also have

a social impact by enhancing healthcare access. Many of these innovations currently lie outside

the ambit of TRIPS and once scalable, the products hold great potential to address a variety of

public health concerns.

While there is a fair bit of entrepreneurial activity in the healthcare provision, many IP

based biomedical start-ups have also been set-up in recent years. Unfortunately, there is no


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systematic database of such start-ups. A recent survey of 50 such companies has brought out

two very interesting features5:

a. There is a fair bit of diversity among these IP based biomedical start-ups. Firms provide

diagnostics products, biologics & services, medical devices, small molecule drug

discovery, chemistry based or other drug discovery services and software basedservices; and

b.

Almost all (44 out of 50) either have some sort of IP or plan to have it in future. More

than 50% (27) of these firms have either filed for patents or have patents issued in their

name and an additional 20% (10) plan to file for patents. Interestingly, apart from

protecting their technologies from imitation, patenting is used by them to attract venture

capital, enhance reputation and improve their bargaining power in inter-firm deals.

Innovation possibilities in medical devices seem quite high. Available estimates suggest

that the market size of this sector is about USD 2400 Million (Planning Commission,

2012a) and is growing at the rate of 16% annually (Pulakkat, 2014). About 75% of the

medical devices available in India are imported (Jaroslawski & Saberwal, 2013).

Entrepreneurship in this arena has targeted low-cost innovative solutions but in the absence

of the required resources (infrastructure, capital, and technical know-how), innovations in

non-drug based products remains gravely underinvested.

Broadly, innovative entrepreneurial solutions in healthcare have taken three forms; replacing,

supplementing and enabling the public sector or established private sector endeavours in this

space. Replacement aims to occupy the space inadequately covered by the public/private

sector; Aravind Eye Care that aims to target eye illnesses and blindness in cost effective

manner, is an example. Similarly, emerging telemedicine based solutions like eVaiday can

replace several health care initiatives. (https://www.evaidya.com/home.html#!/home)

Several new devices can supplement the services that are currently being provided by existing

healthcare systems or be enablers to make them more efficacious by supporting the paramedics,

frontline health workers and PHCs with technology. The innovation of Swasthya Slate6 (Health

Tablet) is a prime example that facilitates decentralized diagnosis. Similarly, a diagnostic

equipment, 3Nethra developed by a start-up, Forus is revolutionising remote decentralized

screening of a variety of eye ailments (http://forushealth.com/forus/). In the same vein,

innovations such as Bio sense (http://www.biosense.com/) and Achira

5 These observations are based on a personal communication from Dr Gayatri Saberwal who

has undertaken this survey.

6 For details see, For details see, http://venturebeat.com/2014/11/18/this-indian-startup-could-disrupt-health-care-with-an-affordable-diagnostic-machine//

https://www.evaidya.com/home.html#!/homehttps://www.evaidya.com/home.html#!/homehttps://www.evaidya.com/home.html#!/homehttps://www.evaidya.com/home.html#!/home


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(http://www.achiralabs.com/) are easy to manoeuvre diagnostic devices that aim to take testing

and diagnostic services to each household. While one innovation assists in non-invasive

haemoglobin level testing, the other is dependent upon micro fluids to diagnose the ailment.

Innovations such as a Windmill (http://windmillhealth.weebly.com/neobreathe.html) and

Embrace (http://www.embraceinnovations.com/) address the issue of infant mortality. Other

innovations include low-cost sanitary napkins7 , devices to monitor cardiac health8 12, low cost

health products (insulin)9 etc.

Given the healthcare needs of the nation, such innovations have thus far targeted affordability

and ease of use. A critical challenge to popularizing the technologies is the cumbersome and

expensive process of accessing administrative approvals (Jaroslawski & Saberwal, 2013).

4.4 Strategic Responses and Innovations

Kale (2010) suggested that the new patent regime has led to organizational learning to provide

strategic response to the changed situation. The learning has been both internal, focused

towards developing stronger processes and external, whereby firms collaborate with foreign

partners. Indian firms have employed alternative strategies that focus on greater

internationalization which has taken two forms: facilitating greater inflow of FDI and

entering into joint ventures and acquisitions abroad. Kale and Weild (2008) divide Indian

pharmaceutical firms into three categories: alpha, beta and gamma. Alpha firms invest in

foreign subsidiaries; beta firms enter into joint ventures with foreign partners to leverage the

existing capacities in biotechnology capabilities and gamma firms acquire foreign firms.

Between, 1999-2004, the number of joint ventures rose from 7 to 20, and wholly owned

subsidiaries grew from 4 to 52 (Agarwal et al., 2007). International JVs and acquisitions have

focused on accessing marketing, manufacturing and R&D capabilities. Besides, the trend

towards joint ventures and acquisitions indicates a higher risk appetite. Arguably, two

institutional changes had a noteworthy impact on the number of mergers and acquisitionundertaken by Indian pharmaceutical and drug industry; the liberalization policies undertaken

7 Aakar Innovation (http://www.aakarinnovations.com/) provides access to menstrual hygieneto women in a low cost and environmentally friendly manner.8 GEH's Cardiology Diagnostics' Indian (http://www3.gehealthcare.in/en) division called InIndia for India withthe central objective of catering to the specific needs of medical practitioners in low-resourcescenarios (Jarosławski & Saberwal, 2012). 9 Bigtec Holdings is currently developing low cost insulin for sale in the Indian market(Jarosławski & Saberwal,2012).


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since 1991 and the changes in the IP regime post TRIPS. (Mishra and Chandra, 2010) There

has also been significant consolidation within the Indian pharmaceutical industry with a lot of

M&A activity suggesting the need of large size to compete effectively in the new business

environment. (Table 2)

Table 2: Mergers and Acquisitions in Indian Pharmaceutical Industry

Year M&A-Completed Deals Announced Total Value (US mil. $)

2005 15 39.6

2006 7 24.8

2007 9 605.8

2008 9 2336.8

2009 5 197.6

2010 12 3809.2

2011 7 241.92012 11 199.8

2013 9 1859.7

2014 7 406.1

Source: Compiled from Prowess Database

Overall, the trend seems to be that Indian firms, at least the larger ones, are adopting strategies

to remain competitive in this knowledge intensive sector with a sharp focus on building

technological capabilities (Basant, 2011). Chittoor et al. (2008) argue that the Indian

pharmaceutical industry has adapted to greater indigenous growth and entry of MNCs. Besides,

in order to make up for the “late-mover” disadvantage, Indian firms have acquired absorptive

capacities and have begun importing technology and other inputs. (Chittoor et al.,

2008).Guennif & Ramani(2012) provide a comparative analysis of “catching up” strategies in

Brazil and India under a national system of innovation framework. The authors conclude that

the system of catching up has adopted a three stepped process, by enhancing capabilities

towards production, ‘re-engineering’ and finally ‘new drug discovery’.

R&D expenditures in the pharmaceutical industry have increased significantly while

expenditure on technology purchase has not increased. In fact, the share of technology purchase

expenditure as a proportion of sales has reduced and is less than 1% while that of R&D is more

than 5%, a remarkable rise. (Table 3) This trend indicates that an increasing number of

pharmaceutical firms are engaging in various aspects of research relating to drug development

and manufacturing. And probably foreign technology is now coming in through FDI rather

than arms-length technology licensing arrangements. This is now feasible given the liberal FDI

regime in the industry.


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Table 3: Trends in R&D and Technology Purchase in the Indian Pharmaceuticals

Year Expenditure onRoyalty/TechnicalKnowhow (US Mil $) As per exchange rates as ofApril 14, 2015

Expenditure onR&D (US Mil$) As per exchange ratesas of April 14, 2015

Expenditure on the purchase oftechnical knowhowas a percentage of

sales

R&DExpenditure asa percentage ofsales

1998-99 3.8 2.7 0.13 0.91

1999-00 4.5 4 0.13 1.18

2000-01 5.1 5.3 0.15 1.55

2001-02 2 7.4 0.05 1.96

2002-03 2.8 10.2 0.06 2.21

2003-04 2.5 16.3 0.05 3.04

2004-05 2.2 22.8 0.04 3.99

2005-06 3 30.3 0.05 4.59

2006-07 3.2 38.6 0.04 4.662007-08 6.4 41.2 0.07 4.31

2008-09 8 49.7 0.07 4.41

2009-10 9.8 58.2 0.08 4.51

2010-11 8.6 68.7 0.06 4.67

2011-12 6.3 75.5 0.04 4.63

2012-13 6.4 87.2 0.04 5.13

2013-14 9.8 107.3 0.05 5.85

Source: Computed from Prowess Database.

5. Public Policy Innovations

Healthcare access and innovations in healthcare provisioning are often not seen as

complementary. We already discussed how entrepreneurial innovations along with

product/process innovations can potentially be complementary. Given the possibility of

increases in healthcare costs with the new IP regime, policy innovations become necessary to

ensure affordable access to health care services. In this section, we discuss some of these health

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