Kautilya: New Convert to Reforms

India Today, December 7, 1998
Dec 7, 1998

KAUTILYA
New Convert to Reforms

The BJP's changed thinking on insurance and patents augurs well.

Jairam Ramesh

The two far-reaching decisions taken at the Union Cabinet meeting on November 23 show that power moderates, just as the absence of power unhinges. Exactly a year ago the BJP, then in the Opposition, had cussedly torpedoed P. Chidambaram's efforts to liberalise the insurance industry and end the monopoly of the Life Insurance Corporation (LIC) and the General Insurance Corporation (GIC). The BJP wanted Chidambaram to give a categorical assurance that no foreign investment would be permitted in the insurance sector, an assurance that the then finance minister rightly refused to give. Now, the very same BJP has decided to open up the insurance industry and offer up to 40 per cent equity to foreigners.

Again, over a year ago, a strange combination of George Fernandes of the Samata Party, Ashok Mitra of the CPI(M) and Murli Manohar Joshi of the BJP prevailed upon then prime minister I.K. Gujral not to carry out changes in the Patents Act in keeping with our obligations to the World Trade Organisation (WTO) and in keeping with what our research system needs to make it more user-oriented. Now, a government in which Fernandes and Joshi are leading lights has done exactly that. Welcome as they are, the two cabinet decisions are only the beginning. Relevant bills will now have to be introduced in Parliament. The Congress could be reasonably expected to support these bills.

Instant results from the opening of the insurance industry must not be expected. The most immediate effect will be that the Americans will be happy. We will gain powerful lobbyists on our behalf in Washington DC, where insurance companies are enormously influential. Once the bills are passed, it will take another year to actually give out the first licences to private companies.

Even so, we can look forward to more attractive insurance schemes, particularly in health and pensions. Life insurance and provident fund coverage is good although it falls far short of what is needed. For example, there are about 100 million life policies -- roughly a fifth of the insurable population. Similarly, there are about 25 million workers covered by provident fund -- less than a tenth of the workforce. A paltry two million have health insurance and a minuscule one million have pension policies.

In the long term, more money could be mobilised for infrastructure projects. Today, out of its annual investible surplus of about Rs 20,000 crore, LIC allocates Rs 5,000 crore per year for water supply, housing and power projects. Each private company would, in about eight years time, be in a position to generate a similar amount annually to be invested in infrastructure.

Now that competition is imminent, LIC and GIC also have to be radically restructured. After a long hiatus, Chidambaram constituted the boards of these companies with eminent citizens and professionals as a first step to making them autonomous. This must be consolidated.

The Indian Patents Act, 1970, confers only process patents, that is on the method of manufacture, and not product patents in research-intensive industries like pharmaceuticals and agro-chemicals. The lack of product patents has enabled Indian companies to do what they call "innovative reverse engineering" but what the Americans, the Germans and others call "patent-busting".

Initially Indian drug companies like Ranbaxy actively fought against changes in the Patents Act. But when Ranbaxy became a major exporter and a global investor and began to entertain visions of growth through R&D, it became an enthusiastic proponent of the very changes. Other drug firms like Dr Reddy's Labs are also in the same boat. According to the WTO agreement, we have to amend the Patents Act to allow for product patents before January 1, 2005. Till then, we have to open a "mailbox" into which all companies will apply for product patents in India. The mailbox is akin to the old industrial licensing system. It will establish priority dates and the applications being made will be examined for patentability.

After examination, such companies must be given exclusive marketing rights (EMRs) in lieu of product patents. The first EMR in drugs and chemicals is unlikely to be granted before January 1, 2002. The EMR will be valid up to January 1, 2005. In this period no other company can market that product in India. Initially we thought we could get away by allowing for the mailbox and EMRs through a government order. But such is our reputation for non-transparency that we have been forced by the world community to make this provision explicit in our laws before April 19, 1999.

The BJP's volte face is commendable. But while announcing these cabinet decisions the finance minister, in a needless fit of reform bravado, also declared that the Government is contemplating advancing the date for introduction of product patents to January 1, 2000. No doubt this will please the Americans. But it is ironical that a party wedded to "calibrated globalisation" is seeking to curtail a 10-year transition period won through hard bargaining at the WTO to five years. Clearly there is no convert more zealous than the neo-convert.

The author is secretary of the AICC's Economic Affairs Department. The views expressed here are his own.

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