The messy truth about achieving economic growth

The writer, Daniel Susskind in The FT, is the author of ‘Growth: A Reckoning’ and an economist at Oxford university and King’s College London 

There seem to be few policy problems in Britain that “growth” will not solve. Backlogged and broken public services? We need growth to bolster tax revenues. National debt breaking £1tn for the first time? We need growth to make that sustainable. Rising worklessness and real wages that have not budged for 15 years? We need growth to fire up the labour market.  

Growth has become one of those rare things, a policy panacea: promising to benefit almost everyone in society, leaving few problems out of its restorative reach. And for that reason, its pursuit has bent the political spectrum back on itself, with leaders at opposite ends meeting in agreement about its merits. For Sir Keir Starmer, it is the “defining mission” of his government; for Rishi Sunak, it was one of his party’s ill-fated “five priorities”.  

The focus on growth is surely right. We need more of it. The challenge is how to create it. Today’s political leaders talk confidently about what is required. But this sense of assuredness is entirely at odds with the little we really know about growth’s causes.  

To begin with, the idea that we should pursue growth at all is surprisingly new. Before the 1950s, almost no politicians, policymakers, economists — anyone — talked about it. That changed with the cold war. The US and Soviet Union, each desperate to show that their side was winning the battle of ideologies, furiously competed to outgrow one another. 

As political interest took off, economists tumbled over one another in their attempts to look useful, responding — with new stories, models and data — to these practical concerns. “[D]uring the Sixties”, wrote the economist Dennis Mueller, “the growth rate of the ‘growth literature’ far exceeded that of the phenomenon it tried to explain.”  

Yet despite all that intellectual firepower, we still lack definitive answers to the question of what causes growth. “The subject has proved elusive”, wrote the economist Elhanan Helpman in 2004, “and many mysteries remain.” 

There is an old-fashioned view of productive activity that pictures the economy as purely a material thing. From this perspective, growth is driven by building impressive things that we can all see and touch — faster trains, wider roads, more houses.  

However, the little we do know suggests that it does not actually come from the world of tangible things, but rather from the world of intangible ideas; not from guzzling up ever more finite resources — land, people, machines, and so on — but from discovering new ideas that make ever more productive use of those resources. Or, more simply, sustained economic growth comes from relentless technological progress.  

These observations — how little we know about growth and the power of ideas in driving it — have important practical implications. The former is a warning against hubris. Political leaders should not claim to have more control over our economic fate than they actually do. After all, if there were a simple lever we could pull for more growth, the problem of economic development would have been solved some time ago. 

The latter observation offers us guidance. We cannot simply “build” our way to more prosperity: there are good reasons to build more houses, for instance, but a radical transformation in national growth prospects is unlikely to be one of them. Instead, securing growth will require a relentless focus on the discovery of new ideas, doing all that we can to make Britain the best place in the world to develop and adopt the most powerful new technologies of our time.  

Vastly more investment in R&D would be a good place for the new government to start. In the UK, expenditure as a percentage of GDP is stuck at just half of what Israel (the leader in this field) achieves. But we must go further.  

During the 20th century, growth came about by providing human beings with ever more education: first basic schooling and then, later on, colleges and universities. For that reason it is known as the human-capital century, a time when a country’s prosperity depended on its willingness to invest in its people.   

The current century will be different. New ideas will come less frequently from us and more from the technologies around us. We can already catch a glimpse of what lies ahead: from large companies like Google DeepMind using AlphaFold to solve the protein-folding problem to each of us at our desks using generative AI — from GPT to Dall-E.  Whether Britain flourishes or fades in this future will depend on our willingness to invest in these new technologies and the people and institutions behind them. Any serious strategy for growth must start with that fact.  

Subramanian Swamy uses data to analyse India's Economic plight

 

The Indian Pharmaceutical Sector

 

By Jill E. Sackman, PhD,Michael Kuchenreuther

Biopharma companies should not overlook India's growing market.

ABHIJITMORE/ROOM/GETTY IMAGES

Recognizing that emerging markets continue to play a significant role in terms of future growth, most major pharmaceutical companies have accelerated efforts to strengthen their presence within these markets through R&D investment, licensing deals, acquisitions, or other partnerships. However, with global markets facing dynamic demographic and disease trends, changing market demands, and evolving regulatory requirements, it has been hard for manufacturers to devise the strategies needed for success in each of these areas.


India, a member of the BRIC nations (Brazil, Russia, India, and China), is much more comparable to the United States in terms of market size and must be included in this list of promising potential markets for global pharmaceutical manufacturers. Recent changes in India’s population and economy have contributed to a shift in the country’s epidemiological profile towards ‘lifestyle’ diseases that are more prevalent in Western markets. Such changes have increased the demand for better healthcare and for medications that address chronic diseases. Furthermore, India’s own pharmaceutical industry, a recognized world leader in the production of generic drugs, offers manufacturing expertise to organizations looking to outsource or create networks of collaboration and discovery. However, a more granular assessment of India’s pharmaceutical market reveals growing concerns over patent protection, price capping, quality, and safety. Understanding this country’s complex market dynamics will be crucial for manufacturers exploring new opportunities for growth in India.

India health and pharmaceutical market overview

India is the second most populous country in the world with about 1.27 billion people, and is projected to surpass China by 2028 (1). As the Indian population has continued to grow in recent years, so too has the country’s economy. Over the past decade, India’s economy grew above the Organization for Economic Co-operation and Development (OECD) average, which can be attributed to rising average income levels, an expanding middle class, and a drive toward urbanization (2). These socio-economic changes are contributing to a significant shift in India’s epidemiological profile. With working-age adults accounting for the majority of the overall population and more people becoming affluent and living longer, Indian health service users are facing increasing challenges associated with the prevention and treatment of chronic diseases such as obesity, heart disease, stroke, cancer, and diabetes (3).

At the same time, India continues to be challenged by a range of infectious disorders. Despite economic advancements, significant income inequality still exists throughout the country. In fact, per capita gross national income in India was only $3,391 in 2012 when adjusted by purchasing power parity (compared to $50,000 in US) (4).  In rural areas, where two-thirds of the nation’s citizens are located, hundreds of millions of people are still living in severe poverty, and vaccination coverage for children remains poor.

RELATED CONTENT Global Instability Affects the Pharma Market in Brazil1 The Affordable Care Act's Impact on Innovation in Biopharma2 More Global Report Topics3

Taken together, this high incidence of infectious and chronic disease and the large number of disadvantaged communities have created an even greater need for patient access to quality healthcare delivery as well as new and innovative therapeutic products. Historically, India has had one of the world’s lowest levels of health spending as a proportion of gross domestic product (GDP). In 2011, India’s total health expenditure was 3.9% of GDP (public expenditure was only 1.2% of GDP) compared to 10.1% of GDP, an average across all G-5 countries (4). The lack of government funding in healthcare has led to significant gaps in the quality and availability of public facilities and has pushed an increasing proportion of Indian patients to use private healthcare facilities that are associated with high costs. Where other countries have a well-established insurance sector that seeks to reduce this economic burden, health insurance in India is still in its infancy.

Approximately 243 million people are covered by different forms of government-sponsored insurance schemes while approximately 55 million rely on commercial insurers (5). With the vast majority of people in India uninsured, out-of-pocket payments are among the highest in the world. According to the World Health Organization (WHO), 70% of Indians are spending their entire out-of-pocket income on medicines and healthcare services (6). On top of this, most insurance plans only provide coverage for inpatient healthcare services and do not include coverage for outpatient treatments, including prescription medicines. Thus, it is no surprise that approximately 90% of India’s pharmaceutical market is currently made up of branded generic drugs (7).

Against this backdrop, India’s Ministry of Health has been focused on improving access to healthcare facilities, increasing population coverage by way of healthcare insurance, and creating initiatives for the prevention and early stage management of chronic diseases. In 2012, as part of the country’s 12th Five-Year Plan, the government proposed to double its public expenditure on healthcare to 2-3% of GDP in an effort to boost local access and affordability to quality healthcare. In light of these efforts, the Indian healthcare industry as a whole is expected to reach $158 billion by 2017 (8).
India’s pharmaceutical market accounts for about 10% of the global pharmaceutical industry in terms of volume and represents a major component of growth for the country’s healthcare industry (9). The Indian pharmaceutical market was estimated at $18.4 billion in 2012 and is expected to almost double by 2016. Although India’s market is currently dominated by generic drugs, rising incomes, enhanced medical infrastructure, and insurance coverage could provide a valuable opportunity for manufacturers’ higher-priced branded healthcare products moving forward.  

Key market challenges and considerations

Regulatory. Similar to many other countries, India’s medical regulatory structure is divided between national and state authorities. The Drug Controller General of India (DCGI) is the national authority responsible for the regulation of pharmaceuticals. The DCGI registers all imported drugs, new drugs, and biologicals in selected categories and has responsibility for approving clinical trials and quality standards in the country. Recently, these standards have come under question by FDA, citing quality-control problems ranging from data manipulation to sanitation. While FDA and regulatory bodies in other countries step up inspections of Indian plants in response to these developments, global manufacturers have had to reassess their contracted relations with these plants and give careful consideration to developing new strategic partnerships in this country moving forward (10).  

Concerns over quality and data integrity have also impacted manufacturers’ perception of India’s clinical trials system. India’s large and diverse patient pool and low drug trial costs have made the country an attractive destination for multinational pharmaceutical clinical trials. However, India has recently seen the number of clinical trials fall dramatically among allegations that protocols were not being conducted properly and that companies were taking advantage of disadvantaged patients (11). In response to these developments, manufacturers have been forced to either shift their trials to another country or encounter significant delays in clinical trial approval--both of which are holding their organizations back.

Market access and pricing. The high prevalence of self-pay generic drugs throughout the country has created little incentive for the development of certain market access disciplines such as health economics and outcome research (HEOR) and reimbursement. Government affairs and pricing functions, on the other hand, play an important role and have been broadly cited as the most crucial challenges global manufacturers face in the Indian marketplace.

India’s National Pharmaceutical Pricing Authority (NPPA) controls product pricing throughout the country. In 2013, the NPPA expanded the National List of Essential Medicines (NLEM) to include 652 drugs, a substantial increase over the 74 drugs previously listed. These products will now be subject to price controls that are projected to reduce prices by more than 20% for half the drugs (12). As if this did not challenge manufacturers enough, the Indian government recently decided to revise the NLEM later this year in response to complaints that the list should include all dosages, strengths, delivery mechanisms, and combinations of these previously identified drugs (13). The NPPA is also allowed to control prices of patented drugs that lie outside this list, and last month the government began exploring the possibility of using a reference pricing system for these products (14).  With intense generic competition already driving down drug prices in India, these additional controls pose a significant threat to international manufacturers’ ability to generate revenue.

Intellectual property. Aside from pricing, patent protection has also come under the microscope as of late. In an effort to ensure greater accessibility to higher-cost, branded drugs, India, as well as other BRIC countries, has begun to allow generic-drug manufacturers to market these drugs at dramatically reduced costs without consequence through compulsory licenses.  While only one compulsory license has been approved by India’s government to date (Bayer’s Nexavar), other manufacturers have recently had their patents weakened, revoked, or rejected. While appeals to some of these rulings are still in process, precedents have been set, leading manufacturers to question their future investment in India.

Implications for successful market entry 

Despite the aforementioned challenges, major pharmaceutical companies recognize the long-term prospects of this market and continue launching new patented drugs and pursuing unique business opportunities in India. To encourage future investment, the government has made tax breaks available to the pharmaceutical sector, including a weighted tax deduction of 150% for any R&D expenditure incurred. In addition, the government recently declared that all drugs that offer some form of innovation would be exempt from price regulation for the first five years following approval. Here, innovation refers to drugs or drug delivery systems that arise from native R&D efforts or existing drugs that are improved upon by an Indian company. This measure is aimed to spur growth in the domestic pharmaceutical market and to ensure that pricing regulations do not turn global manufacturers away from India. Thus, companies that develop strategic partnerships with local businesses and outsource some of their R&D and manufacturing activities will be well-positioned to maximize revenue by avoiding steep price cuts. This opportunity for manufacturers will only apply, however, for those products that offer true innovation by providing economic and/or clinical value.

Uncertainty over patent security and obstacles to clinical trials are discouraging Western companies from conducting drug research in India. With that said, the government has already initiated clinical research reform efforts through new amendments and regulations that could quickly restore the growth of clinical trials throughout the country.  At the same time, there is speculation that a transfer of power in India’s upcoming election could dampen fears of additional compulsory licenses (15). Manufacturers should closely monitor these internal developments and react accordingly.

Moving forward

A growing middle class that is projected to see a significant rise in noncommunicable diseases provides an excellent opportunity for global companies to launch their premium products and expand their market share. India’s underdeveloped insurance industry and high poverty rates, however, require that manufacturers first develop a careful pricing strategy. Pricing products appropriately can go a long way towards ensuring future growth as well as avoiding disputes over patent protection and licensing agreements.  In a country that holds about one-fifth of the world’s population, India’s market is too big for pharmaceutical companies to shy away from, despite all of the hurdles placed in front of them.