India’s IP growing pains

By Stephen Ezell
March 25, 2013

(Any opinions expressed here are those of the author and not of Reuters)

As it celebrates its 65th year as an independent country, India seems poised for an economic take-off. Already, this south Asian country is the world’s largest democracy, has about the same number of middle-class citizens as the United States, and has the planet’s tenth largest economy.

But India still has a long way to go. An average citizen lives on less than $10 a day and its per-capita gross domestic product is less than half that of the other Asian giant, China. For India, moving to the next level is going to require a potentially painful but absolutely necessary engagement with the global economy.

That’s the topic that a congressional committee considered earlier this month in a hearing carefully monitored by most major industries doing business in India (more recently, Deputy Director of USTR Demetrios Marantis faced tough questions from senators in a separate hearing). The consensus among those speaking out on the issue is that if India seeks to drive innovation, it will first have to bring many of its laws and policies — particularly those concerning trade and intellectual property — into line with those of the developed world. But in the end, the real beneficiaries of a more open India won’t be Americans or residents of other already wealthy nations but the Indian people themselves.

Although Indian governments in the 1990s and early 2000s took some important steps toward openness, much of Indian trade policy remains mired in 18th-century mercantilist economic theory: tariffs, subsidies, and “buy local” requirements that make it hard for the country to compete in the global economy. While these policies certainly help some incumbent Indian business owners, they isolate the rest of India’s economy from the world. And the Indian people, in any case, have shown that they are unnecessary.

Where India competes in world markets, in industries like making steel (the world’s largest steel company began in India) or providing outsourced business services, domestic enterprises can easily stand toe-to-toe with those of any other nation. But that hasn’t stopped the country’s bureaucrats from creating severely limiting trade laws in recent months. Since last year, India has put into force “buy local” laws that constitute pure trade protectionism. Not only do they apply to government purchases, but they also extend into the private sector.

And the policies are already having real consequences. Just last month, chief U.S. trade negotiator Ron Kirk began the process of disputing protectionist policies that subsidize India’s solar industry while penalizing international trade.

If India’s policies are bad, its intellectual property protections do even more damage to international trade. Even though the country is a leading producer of films (Bollywood makes more feature-length motion pictures than Hollywood), patents (the tenth largest producer), books, and computer software, India does surprisingly little to protect intellectual property.

Two-thirds of all computer software sold in the country is copied illegally as compared to less than a quarter in most of the developed world. And film piracy is also rampant. More recently, a patent appeals court, in a potentially precedent-setting decision, revoked a pharmaceutical company’s patent on a new cancer drug. The decision itself won’t save a single life but may well end up stemming the development of new medicines around the world.

And, even worse, such policies tend to wall off India from the outside world. When intellectual property rights are not protected, it has a chilling impact on both rates of domestic innovation and on foreign direct investment into India’s economy.

It doesn’t have to be this way. India is a massive, powerful, culturally rich country. Its leading industries already compete very well in world markets and support a large middle class. Creating hundreds of millions more middle-class jobs will require India not to focus primarily on pursuing export-led economic growth but rather to focus on boosting domestic employment by increasing across-the-board productivity growth in the local-serving sectors that account for the vast majority of India’s economy.  And this — the long-term interests of the Indian people — is the reason why the world’s largest democracy must continue to embrace open markets and strong intellectual property protections.

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Thanks for the article. Nice and balanced. I am an Indian and it is good to see an article that mentions both the positive and the negative instead of just focusing on one side.

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