“In the space of a decade, China and India have emerged as dramatic, dynamic competitors.”- Peter Mandelson.
For a long time, the People’s Republic of China (PRC) has held the monopoly as the world’s largest consumer and supplier of spare parts, chemicals, toys, lighting, base metals, or oil. However, in light of the spread of the global pandemic having originated in China, the world leaders are now looking for alternatives. Is this an opportunity for India to attract them here, bringing with their investments both jobs as well as a transfer of technologies? Maybe! Being a labour-intensive country and being geographically well-positioned, India might prove to be the best option for all the major unicorns planning to move out of China.
The current scenario has drawn a lot of focus on the healthcare industry and its contribution. What follows is an analysis of the challenges and impact on the healthcare and pharmaceutical sector and the benefits extended by the Government.
At the epicentre of this unprecedented global pandemic, is the healthcare sector, with medical workers toiling hard to rescue the affected, while vaccines are being tested to tackle this deadly virus. The impact is multi-layered as on one hand, medical tourism, which is a principal source of revenue generation for India has been staggered due to prohibition on both inter and intra cross-border movement. While on the other hand, the dependency of the Indian pharmaceutical industries on China for Active Pharmaceutical Ingredients (APIs) for the production of their medicine formulations is estimated to be around seventy percent. Moreover, hospitals are holding back on performing and providing services such as outpatient division (OPD) and stalling the surgeries of in-patient division (IPD), leading to further loss of economy owing to various government notifications and advisories.
Due to the ongoing pandemic, the Indian Department of Expenditure, vide Office Memorandum1 has declared the pandemic to be a Force Majeure event. Scarcity in raw materials due lack of supply and heightened demand has affected the supply chain majorly. Non-performance by the contracting parties may lead to Invocation of the Force Majeure clause inherently present in the contract.
It is relevant to mention at this juncture that common law jurisdictions, have witnessed a rather rigid and narrow applicability of the concept of ‘frustration of contracts’ due to impossibility, as compared to civil law jurisdictions. Essentially FM (Section 32 of the Indian Contract Act, 1872) deals in supervening impossibility in the contractual provision while Frustration (Section 56) deals with the rule of positive law, in supervening impossibility, irrespective of the absence of contractual provisions.
In the case of Satyabrata Ghose, the Hon’ble Supreme Court suggested that “impossibility’’ under Section 56 does not mean in the physical or literal context. It refers to change in circumstances that completely upset the very foundation upon which the parties rested their bargain. The Supreme Court in Energy Watchdog v. Central Electricity Regulatory Commission3 clarified that “if the fundamental basis of the contract remains unchanged and no frustrating event occurs, except for a rise in coal prices, it could not be held that a mere increase in prices constituted a force majeure event.”
All commercial transactions between China and India shall be governed as per Article II4 of the bilateral treaty between the countries. The Import, Export, and Foreign Exchange Regulations in force, from time to time, in their respective countries, shall be followed.
India is globally well-poised specifically for the manufacturing of APIs but the drawback is that with the current system of work, the dependency of Indian pharmaceutical companies on Chinese APIs is a cause for serious concern that needs to be addressed, including dependency on homegrown units. The increased dependency of low-cost API is mainly attributed to China’s extensive efforts towards developing economies of scale, easing regulations for bulk drug manufacturers, availability of low-cost utilities, building process efficiencies and supporting manufacturers in the form of subsidy, low taxes and fiscal incentives. The Indian government, in order to realise the shortcomings, decided to set up a task force to review the internal API sector by involving several key representatives from the pharmaceutical industry and NITI Aayog5 on 19th February 2020.
In the pre-COVID-19 period, with no disruption in the supply chain, commercial contracts were being honoured and no greater need was felt by Indian pharmaceutical industries to be self-reliant. The Indian government did not take a step towards manufacturing the same within the country instead of exporting the raw materials from China. However, an opportunity has knocked on the doors of these industries to be immensely benefitted from this havoc, albeit if only all the cards are played right.
The Hon’ble Supreme Court through various judgments has clarified that adequate medical facilities6 and public health services7 for the people is an essential part of the obligations undertaken by the government in a welfare state. Further, it was held by the Apex court that “The Government is required to assist people, and its endeavour should be, to see that the people get treatment and lead a healthy life. A healthy society is a collective gain and no Government should make an effort to smother it…”
In light of the same, attempt is being made by the government through notifications and circulars to revive various businesses adversely affected by the pandemic. The Directorate General of Foreign Trade (DGFT) operating under the Ministry of Commerce and Industry, Government of India has made notable exemptions keeping in mind the current situation, which are as follows:
In a nutshell, the Indian Pharmaceutical Industry has huge potential and should work towards increasing the target market as this pandemic has opened multiple opportunities for India. It is relevant to understand that in order to be able to replace China, Indian manufacturers have to work towards quality, quantity as well as marketability of the API. The Indian Government has to work in multiple dimensions. On one hand, it has to come up with a liberal trade approach to encourage export of API to the global market so that, India can emerge as a global choice, and on the other hand, it has to aim towards reducing the financial backlog and crisis of the manufactures so that they can focus on increasing the production and also increase the horizon of activities they are involved in. The other direction in which the government should strive towards is providing better employment benefits for those working in the healthcare sector. The government should aim towards striking a balance so that there is a multidimensional growth of the country.
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