UPSC Newspaper Clips
Modi-Morrison summit brought welcome progress on security cooperation, but question marks remain on trade.
Australia has loomed large in modern India’s consciousness — as the land of cricket champions. There was little else binding the two nations during the 20th century despite the shared English language and common political values. Over the last decade, though, there has been a steady improvement in the quality and intensity of the political, commercial, cultural, educational and technological engagement between the two nations. This was reinforced by the Indian diaspora, now 7,00,000 strong in a nation of just 25 million and the fastest growing ethnic minority Down Under. Prime Minister Narendra Modi’s visit to Australia in 2014, the first since Rajiv Gandhi travelled there in 1986, signalled Delhi’s new commitment to end the prolonged political indifference towards Canberra. The virtual summit between Modi and the Australian Prime Minister, Scott Morrison, this week has taken some big steps to elevate the strategic partnership between Delhi and Canberra.
It was no surprise that defence and security cooperation have been at the core of the outcomes from the deliberations between the two leaders. The muscular assertiveness of a rising China and the uncertain trajectory of America are compelling most Asian middle powers to insure against the new dangers by enhancing mutual cooperation. Both India and Australia have been stepping up their strategic collaboration with other key nations in the region, including Japan, South Korea, Vietnam and Indonesia. It was a matter of time before Delhi and Canberra elevated their own bilateral security cooperation in response to a rapidly changing regional environment. A major highlight of the summit meeting was the declaration on the shared vision for securing the troubled waters of the Indo-Pacific. This vision was reinforced by a mutual logistics support agreement that offers the armed forces of the two nations reciprocal access to each other’s military facilities and facilitates seamless cooperation across the high seas. Equally significant was a third agreement for cooperation in cyber and cyber-enabled critical technology domains.
If Delhi and Canberra were ranged on opposite sides of the Asian strategic divide during the 20th century, this week’s summit highlights the strategic convergence between them in the 21st century. While the focus on security is both necessary and urgent, there is no escaping the big gap between the two leaders on regional trade agreements. While Modi’s India has turned its back on the RCEP — an Asia-wide trade pact — Morrison is a strong supporter. The two leaders did agree to renew stalled negotiations on bilateral trade. India has declared its interest in negotiating bilateral trade with a number of like-minded countries like the US and Europe. But Delhi’s inability to wrap up any new bilateral trade negotiation casts a dark shadow over its vigorous security diplomacy. The failure to rejuvenate the domestic economy, confusing political rhetoric on self-reliance, and ambivalent trade posture now threaten to undermine the possibilities for expanding the arc of India’s strategic partnerships across the Indo-Pacific and beyond.
What is Atmanirbhar
Self-reliance is about resilience and decentralisation, not isolationism
In recent weeks, Prime Minister Narendra Modi delivered two important speeches outlining his long-term vision for the economy. The first speech was part of the context-setting for the stimulus package subsequently announced by Finance Minister Nirmala Sitharaman. The second speech was an address to the annual session of Confederation of Indian Industry. In both cases, the Prime Minister emphasised the idea of “Atmanirbhar Bharat” (self-reliant India). But, what does Atmanirbhar Bharat really mean? How does it fit with the reforms being currently announced? What does it imply for future policy?
It is important, at the very onset, to clarify that this idea of self-reliance is not about a return to Nehruvian import substitution or autarkic isolationism. The prime minister emphasised that his vision includes active participation in post-COVID global supply chains as well as the need to attract foreign direct investment.
Similarly, it should also be clear that it is not a return to licence-permit raj and inspector raj of the socialist era. Far from suggesting a centralised, top-down model directed from the “commanding heights” of the Planning Commission, the prime minister spoke of freeing Indian entrepreneurship and innovation from bureaucratic hurdles. This is about decentralised localism that takes pride in local brands, emphasises resilience and flexibility, and encourages local capacity-building and indigenisation.
In order to understand the intellectual underpinnings of Atmanirbhar Bharat, therefore, it is necessary to skip past the socialist-era connotation of the term to an earlier era of thinkers like Swami Vivekananda. In this context, the idea of self-reliance is about resilience, leveraging internal strengths, personal responsibility, and a sense of national mission (or “Man Making” to use the late 19th century expression of Swami Vivekananda).
The recently announced liberalisation of the agriculture sector is a good illustration of this world view and its economic implications. Since the 1950s, Indian agriculture policy has been driven by two sets of laws — the Essential Commodities Act (ECA) and the state-level Agricultural Produce Marketing Committee (APMC) Acts. Together, these draconian laws gave government officials the power to tell farmers where to sell their produce, restrict transportation, fix prices, confiscate stocks and even imprison so-called “hoarders”.
All of this was justified in the name of food price stability and the paternalistic idea that farmers did not know how to market their produce. The system was not only unfair to farmers, it did not even stabilise food prices. As discussed in the latest Economic Survey (Volume 1, 2019-20), the ECA actually increased the volatility of prices for commodities like onion, pulses and sugar. Moreover, it led to harassment of traders and rampant rent-seeking by officials. The Survey found evidence that only 2-4 per cent of ECA-related raids stood up in court; no small matter when there were 76,000 such raids in 2019 alone.
The scrapping of the ECA-APMC system enables localised decision-making by farmers even as they can participate in a national common market or export to the global market. Similarly, traders can now invest in supply-chains and agri-businesses without the fear of being arbitrarily labelled a hoarder by an inspector. The government still has a role but it is as an enabler, providing soft and hard infrastructure.
The same economic philosophy is reflected in several other supply-side measures announced recently. Self-reliance implies that product and factor markets are made flexible in order to allow the Indian economy to adapt to the problems and opportunities of an emerging post-COVID world. Thus, there is an unapologetic commitment to privatisation of non-strategic public sector entities, opening up of new sectors like space to private investment, decriminalisation of most aspects of corporate law, greater flexibility in labour laws, and so on.
Nonetheless, the above emphasis on flexibility and personal endeavour should not be confused with a completely laissez faire market economy. Self-reliance also means a commitment to resilience at multiple levels — at a national level, an industry level, and at an individual level. For example, the government has indicated that it would provide various forms of incentives and protection to key industries — for example, inputs for the pharmaceuticals industry. We have just witnessed how the vagaries of global supply chains can choke a key industry when it is needed most. Similarly, the incentive structure of defence procurement has been changed to encourage indigenisation even as foreigners are encouraged to manufacture in India.
The same idea of resilience, when applied to individuals and vulnerable social groups, calls for the creation of safety nets. This explains the effort to create a health insurance system (Ayushman Bharat), and the direct benefit transfer mechanism based on Jan Dhan-Aadhaar-Mobile. Notice how an intellectual framework of self-reliance leads to health insurance and direct benefit transfer (that is, resilience) but not to Universal Basic Income (that is, dependence). It also explains why labour reforms emphasise flexibility on the one hand but on the other hand are also pitching for more stringent norms for safety and working conditions.
So where does this approach lead? A decentralised system, where economic entities are expected to be self-reliant, requires a generalised system of social trust and the ability to enforce contracts. In turn, it implies a need to carry out administrative reforms and, more specifically, reform of the legal system. As argued repeatedly in recent Economic Surveys, the inefficiencies and delays of the legal system are now the single biggest hurdle to economic development. This is not just about the judicial process but the wider ecosystem of rules, regulations, policing, investigation and so on. It is not a coincidence that Prime Minister Modi had clearly mentioned “Law” as one of the pillars of his vision.
Hope readers are able to see that Atmanirbhar Bharat is not just a slogan but a vision with deep roots in India’s intellectual tradition. So, when PM Modi speaks of self-reliance, it is about standing up confidently in the world, and not about isolationism behind “narrow domestic walls”.
A right time to shift pharma gears
As a workable idea, a Health Impact Fund can become an alternative track for pharmaceutical innovators
Felicitas Holzer, is a researcher in the Bioethics Center and Bioethics Network of the World Health Organization at the social science faculty of FLACSO in Buenos Aires, Argentina, and a Coordinator for governmental relations at Incentives for Global Health (IGH) And Thomas Pogge, is Leitner Professor of Philosophy and International Affairs and founding Director of the Global Justice Program at Yale. He is co-founder of Academics Stand Against Poverty (ASAP).
We are living in the shadow of the COVID-19 pandemic — anxious about our families, our friends and ourselves, depressed by worldwide suffering and anxiety, upset by knowing that once more the poor and marginalised are worse affected. Could the rules and practices organising health care around the world have been better suited to this outbreak? Consider the Health Impact Fund as a plausible institutional reform of the current regime for developing and marketing new pharmaceuticals.
Medicines are among humanity’s greatest achievements. They have helped attain dramatic improvements in health and longevity as well as huge cost savings through reduced sick days and hospitalizations. The global market for pharmaceuticals is currently worth ₹110 crore annually, 1.7% of the gross world product (IPFPA 2017, 5). Roughly 55% of this global pharmaceutical spending, ₹60 lakh crore, is for brand-name products, which are typically under patent.
Commercial pharmaceutical research and development (R&D) efforts are encouraged and rewarded through the earnings that innovators derive from sales of their branded products. These earnings largely depend on the 20-year product patents they are entitled to obtain in WTO member states. Such patents give them a temporary monopoly, enabling them to sell their new products without competition at a price far above manufacture and distribution costs, while still maintaining a substantial sales volume. In the United States, thousandfold (100000%) markups over production costs are not atypical. In India, the profit-maximising monopoly price of a new medicine is much lower, but similarly unaffordable for most citizens. To be sure, before such huge markups can yield any profits, commercial pharmaceutical innovators must first cover their large R&D costs, currently ₹14 lakh crore a year (Mikulic 2020), including the cost of clinical trials needed to demonstrate safety and efficacy, the cost of capital tied up during the long development process, and the cost of any research efforts that fail somewhere along the way.
R&D and concerns
While we should evidently continue funding pharmaceutical R&D, it is worth asking whether our current way of doing so is optimal. There are three main concerns. First, innovators motivated by the prospect of large markups tend to neglect diseases suffered mainly by poor people, who cannot afford expensive medicines. The 20 WHO-listed neglected tropical diseases together afflict over one billion people (WHO n.d.) but attract only 0.35% of the pharmaceutical industry’s R&D (IFPMA 2017, 15 and 21). Merely 0.12% of this R&D spending is devoted to tuberculosis and malaria, which kill 1.7 million people each year.
Second, thanks to a large number of affluent or well-insured patients, the profit-maximising price of a new medicine tends to be quite high. Consequently, most people around the world cannot afford advanced medicines that are still under patent. This is especially vexing because manufacturing costs are generally quite low. Every year, millions suffer and die from lack of access to medicines that can be mass-produced quite cheaply.
hird, rewards for developing and then providing pharmaceutical products are poorly correlated with therapeutic value. Firms earn billions by developing duplicative drugs that add little to our pharmaceutical toolbox — and billions more by cleverly marketing their drugs for patients who won’t benefit. These large R&D investments would be much better spent on developing new life-saving treatments for deadly diseases plaguing the world’s poor.
To address these problems, we propose a complement to the present regime: the Health Impact Fund as an alternative track on which pharmaceutical innovators may choose to be rewarded. Any new medicine registered with the Health Impact Fund would have to be sold at or below the variable cost of manufacture and distribution, but would earn ten annual reward payments based on the health gains achieved with it.
The Health Impact Fund could start with as little as ₹20000 crore per annum and might then attract some 10-12 medicines, with one entering and one exiting in a typical year. Registered products would then earn some ₹17000-₹20000 crore, on average, during their first ten years. Of course, some would earn more than others – by having greater therapeutic value or by benefiting more people.
Long-term funding for the Health Impact Fund might come from willing governments — contributing in proportion to their gross national incomes — or from an international tax, perhaps on greenhouse gas emissions or speculative financial transactions. Non-contributing affluent countries would forgo the benefits: the pricing constraint on registered products would not apply to them. This gives innovators more reason to register (they can still sell their product at high prices in some affluent countries) and affluent countries reason to join.
The Health Impact Fund would get pharmaceutical firms interested in certain R&D projects that are unprofitable under the current regime – especially ones expected to produce large health gains among mostly poor people. Such projects would predominantly address communicable diseases, which continue to impose devastating disease burdens mainly upon the poor. With the Health Impact Fund in place, there would be much deeper and broader knowledge about such diseases, a richer arsenal of effective interventions and greater capacities for developing additional, more targeted responses quickly. Pharmaceutical innovators would thus have been much better prepared to supply or develop suitable medicines for containing the COVID-19 outbreak.
The Health Impact Fund would make an important difference also by rewarding for health outcomes rather than sales. For selling a medicine, it helps, of course, if this medicine is known to be effective. But it is quite possible to sell a relatively ineffective drug or to sell a drug to patients who will not benefit from it or would benefit more from another. With exorbitant markups, this sort of thing happens often: firms seek to influence hospitals, insurers, doctors and patients to use their patented drug and to favour it over others.
For achieving health gains with their product, innovators need different strategies. They need to think holistically about how their drug can work in the context of, or in synergy with, other factors relevant to treatment outcomes. They need to think about therapies and diagnostics together, in order to identify and reach the patients who can benefit most. They need to monitor results in real time to recognize and address possible impediments to uptake or therapeutic success. They need to ensure that high-value patients have affordable access to the drug and are properly instructed and motivated to make optimal use of it with the drug still in prime condition. In sum, a reward mechanism oriented towards health gains rather than high-markup sales would lead to a sustainable research-and-marketing system that is better prepared for fast and effective responses to outbreaks of unknown diseases, such as COVID-19.
Issue of state risk
Participation of commercial pharmaceutical firms is crucial for tackling global pandemics. They are best suited to develop and scale up provision of new vaccines and medications fast. At present such firms do, however, face discouraging business risks from governments who may — as some have done — use compulsory licences to divest them of their monopoly rewards. Health Impact Fund registration would remove this risk as states would have no reason to interfere with innovators whose profit lies in giving real and rapid at-cost access to their new product to all who may need it (Hollis and Busby 2020).
Nowhere is this focus on results, which the Health Impact Fund would encourage in innovators, more important than in the domain of communicable diseases. A firm rewarded for merely selling malaria drugs need not be distraught by the fact that malaria continues to infect over 20 crore people each year (WHO 2019, xii), killing 5 lakh of them. A firm rewarded for making its medicine reduce the malaria disease burden, by contrast, would aim to decimate the proliferation of malaria as rapidly and cost-effectively as possible. Collaborating with national health systems, international agencies and NGOs, such a firm would seek to build a strong public-health strategy around its product. Its highest goal would be complete eradication. If it succeeds in year seven, it can enjoy the world’s gratitude and collect three additional handsome reward payments for investment in its other research projects.
Applying this point to a new disease like COVID-19 is complicated by the fact that we lack here a well-established baseline representing the harm the disease would have done in the absence of the new medicine to be assessed. For malaria, such a baseline can be established on the basis of a stable disease trajectory observable over many years. In the case of a new epidemic, one must rely on a modelling exercise that estimates the baseline trajectory on the basis of obtainable data about the spread of the disease and its impact on infected patients. This surely is a challenging undertaking which cannot yield precise or uncontroversial results about what damage the epidemic would truly have done if the vaccine or medication in question had not appeared.
Still, despite the roughness of such a modelled baseline, the Health Impact Fund would give innovators the right incentives. It would guide them to ask not: how can we develop an effective product and then achieve high sales at high markups? But rather: how can we develop an effective product and then deploy it so as to help reduce the overall disease burden as effectively as possible? The COVID-19 pandemic should make us stop and think: which of these two questions should be guiding our pharmaceutical innovators?