The basic objectives of Government’s Policy relating to the drugs and pharmaceutical sector were enumerated in the Drug Policy of 1986. These basic objectives still remain largely valid. However, the drug and pharmaceutical industry in the country today faces new challenges on account of liberalization of the Indian economy, the globalization of the world economy and on account of new obligations undertaken by India under the WTO Agreements. These challenges require a change in emphasis in the current pharmaceutical policy and the need for new initiatives beyond those enumerated in the Drug Policy 1986, as modified in 1994, so that policy inputs are directed more towards promoting accelerated growth of the pharmaceutical industry and towards making it more internationally competitive. The need for radically improving the policy framework for knowledge-based industry has also been acknowledged by the Government. The Prime Minister’s Advisory Council on Trade and Industry has made important recommendations regarding knowledge-based industry. The pharmaceutical industry has been identified as one of the most important knowledge based industries in which India has a comparative advantage.

The process of liberalization set in motion in 1991, has considerably reduced the scope of industrial licensing and demolished many non-tariff barriers to imports. Important steps already taken in this regard are: -
Industrial licensing for the manufacture of all drugs and pharmaceuticals has been abolished except for bulk drugs produced by the use of recombinant DNA technology, bulk drugs requiring in-vivo use of nucleic acids, and specific cell/tissue targeted formulations.
Reservation of 5 drugs for manufacture by the public sector only was abolished in Feb.1999, thus opening them up for manufacture by the private sector also.
Foreign investment through automatic route was raised from 51% to 74% in March, 2000 and the same has been raised to 100%.
Automatic approval for Foreign Technology Agreements is being given in the case of all bulk drugs, their intermediates and formulations except those produced by the use of recombinant DNA technology, for which the procedure prescribed by the Government would be followed.
Drugs and pharmaceuticals manufacturing units in the public sector are being allowed to face competition including competition from imports. Wherever possible, these units are being privatized.
Extending the facility of weighted deductions of 150% of the expenditure on in-house research and development to cover as eligible expenditure, the expenditure on filing patents, obtaining regulatory approvals and clinical trials besides R&D in biotechnology.
Introduction of the Patents (Second Amendment) bill in the Parliament. It, inter-alia, provides for the extension in the life of a patent to 20 years.

1. The impact of the policies enunciated, from time to time, by the Government has been salutary. It has enabled the pharmaceutical industry to meet almost entirely the country’s demand for formulations and substantially for bulk drugs. In the process the pharmaceutical industry in India has achieved global recognition as a low cost producer and supplier of quality bulk drugs and formulations to the world. In 1999-2000, drugs and pharmaceutical exports were Rs.6631 crores out of a total production of Rs.19,737 crores. However, two major issues have surfaced on account of globalization and implementation of our obligations under TRIPs which impact on long-term competitiveness of Indian industry. These have been addressed in the Pharmaceutical Policy-2002. A reorientation of the objectives of the current policy has also become necessary on account of these issues:-
   The essentiality of improving incentives for research and development in the Indian pharmaceutical industry, to enable the industry to achieve sustainable growth particularly in view of anticipated changes in the Patent Law; and
   The need for reducing further the rigours of price control particularly in view of the ongoing process of liberalization.