By Monica Chadha
BBC News, Delhi
India's $4.5bn (£2.4bn) pharmaceutical industry is at a crossroad following the introduction of a new patent regime on 1 January this year.
Critics say medicines will be more expensive in the future
The new law was introduced as part of the government's efforts to honour its commitment to the World Trade Organisation (WTO).
In the past, India would not grant patents on final products, but rather on the process used to manufacture them.
But when it signed the Trade Related Aspects of Intellectual Property Rights (TRIPS) in 1994, it was given ten years to change its decades-old patent law of the 1970s and make it compliant with WTO laws.
With the new law, the government will now grant patents for all new products developed after 1995.
As yet it is not clear whether the law will benefit or harm a sector seen by many as India's next big success story after information technology (IT).
While a segment of the Indian IT industry and the food and chemical industries will be affected, it is the pharmaceutical industry that will feel it the most.
The sector has done well under the old process patent regime. Companies could produce medicines introduced by international firms via a different process and sell them at less than half the price, thus making huge profits.
This is also how pharmaceutical major Cipla could sell anti-retroviral drugs for HIV/Aids patients in African countries at less than half the drugs' global price.
But this will not be the case anymore. Indian companies will no longer be able to reproduce products that will be patented under the new law and some people say this will adversely affect the industry.
Mr Dhaara Patel, secretary general of the Indian Drug Manufacturers Association that represents six hundred small and medium sized manufacturing companies, says the new law is not in favour of the people or the national industry.
"Under the new law, frivolous patents will come up and we don't know when we will be asked to stop manufacturing a particular product," he says.
"Prices will go up, the shortage of medicines will increase and we are completely unsure of our future."
Mr Patel says this new law is bad news for the patients as they are used to local medicines at cheap rates.
Now they are at the mercy of the patent holders who can demand whatever price they desire, he says.
The prices of Generic drugs are set to rise
But Rajeev Ranjan, Director of Policy and Promotion in the Commerce Ministry, says the government has made provisions for the public and insists the new patent policy is good for the industry as well as the people.
"All major Indian pharmaceutical companies are globally competitive in terms of research and development and this new law will force other companies to also become quality conscious and innovation-based," he says.
"Only when there is patent protection will companies invest more in research and come up with new molecules.
"This is the price we must pay for new medicine."
Mr Ranjan says the fear of immediate increases in the prices of medicines is unfounded, as the law change and the new patent enforcements will only affect post-1995 products.
He points out that most of the medicines being made and sold in Indian markets were either first produced before that time, or either generic drugs that are therefore unaffected by patents.
However, over time, perhaps in a couple of decades, a rise in prices would be natural because new patented medicines would be introduced by then and it would become "an issue of choice", he says.
DG Shah, consultant to pharmaceutical companies, says while the patent law will have a positive effect on the industry in the long run, the immediate effect on the small players will be negative.
"Small sized companies will have to compete in a globalised market and adhere to strict quality issues," he says.
"Since not all are capable of doing so, some may be forced to shut down."
The silver lining here is that since India is WTO compliant it would be able to make a greater foray in the global generic medicine sector, Mr Shah says. India currently holds a 16% share of this $48bn market.
Leading Indian pharmaceutical firms say the new patent law signals good times for the industry.
Chairman of Wockhardt Industries, H Khorakiwala, says India has become a part of the global village and can compete on a level platform with international companies.
"This is the only way to encourage research and development in India," he says.
"We have 400 scientists, invest almost £10m on research every year and with patent protection will be able to pump more funds in this field."
Ramesh Adige, vice President of the drugs firm Ranbaxy agrees.
"The innovator must get the reward," he says, adding that this would encourage international pharmaceutical firms to invest in India and thus create job opportunities for people here.
"We have a huge workforce of highly skilled and qualified people," he says, adding that quality innovation in India comes relatively cheap.
"I have no doubt that pharmaceutical outsourcing will be the next big thing here."