At the stroke of midnight, India will enter a new era: after over three decades, the country will once again become an attractive destination for multinational drug companies, and textile exports to the US and Europe will no longer be restrained by quotas. Or, to look at it differently, India will no longer enjoy the security of quotas.
With the Multi-fibre Arrangement consigned to history, the textile sector is being freed of export restraints after almost 40 years.
India has been a votary for dismantling of the textile quota system for long, much before the initiation of the Uruguay Round negotiations in 1986. Now, the country is hopeful that textiles exports will leapfrog, from under $14 billion now to $50 billion by 2010.
The government, on its part, has tried hard to create an environment for the projections to come true: the cotton chain is fully excise-free, while a correction in the tax regime for man-made fibre is expected in the coming Budget. Due to the Technology Upgradation Fund, textile companies are able to raise debt at globally competitive rates.
Anticipating the new opportunities, some companies have spent large sums of money to expand their capacities. Big buyers in the West are now expected to focus only on a handful of large suppliers in low-cost economies like India.
The trouble is, competing countries like China, Pakistan and Bangladesh, too, have built up large capacities. While only 15 Indian textile companies have a turnover of Rs 100 crore (Rs 1 billion) or more, there are at least 35 in China with a turnover in excess of $250 million.
"Indian textile companies have been late in making investments," said Riju Jhunjhunwala, joint managing director of Rajasthan Spinning & Weaving Mills Ltd.
If the textiles sector has to learn to survive in new realities, the pharmaceutical sector will have to brace up for some serious competition from abroad.
The return of product patents will see the arrival of global best-selling drugs to India though it will happen only after overseas companies are convinced of adequate data protection laws in the country.
Of course, because of the hundreds of millions of dollars sunk by these companies in developing new molecules, these drugs will be priced at a premium.
Ironically, it was to deflate the high prices of medicine in the country that had led the Indira Gandhi government to do away with product patents in 1971. An Indian company could develop any drug under the sun so long as it found a new process to make it.
Indian scientists, over the years, became past masters in process technologies. As a result, every drug in the country has at least 40 brands.
And multi-national companies, which lorded over the domestic drugs market, slowly started losing out to Indian firms -- from 85 per cent in 1971, their share shrunk to 26 per cent by 2004.
For all medicines patented after 1995, the reverse engineering will stop. "Such product flow will start tapering from 2007 onwards. At that time, companies with proprietory products alone will survive. The smaller companies with wafer thin margins will get squeezed," said Malvinder Singh, president (pahramaceuticals), Ranbaxy Laboratories Ltd.
But will pharmaceutical MNCs really make a beeline for India as the country accounts for less than 2 per cent of the world market for drugs?
Also, the Indian market is still driven by medicines like anti-infectives and anti-malarials, while pharmaceutical MNCs are focusing on western lifestyle disorders like cardiovascular diseases.
January 1 is also a landmark since India is set to complete its integration under the Information Technology Agreement by bringing the import duty on 116 hardware components to zero. This would drive down the prices of computers in the country and fuel further growth in sales.
India had joined the ITA on March 25, 1997. The objective of the agreement is to bring down tariffs on IT items in stages to zero. Under the ITA, India, agreed to bind all its 217 lines pertaining to the sector.
While 95 lines were reduced to zero duty in 2000, 4 lines in 2003 and two in 2004, the remaining 116 lines will have the same fate on January 1.
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