An Analysis on Regulations playing Key Role in the Development of Industry and Company in Indian Market

Lets consider the Indian scenario in pharmaceutical industry and banking industry.

Industry: Pharmaceuticals:
Industry overview during the period: The Indian pharmaceutical industry was shaped to a great extent by economic policies since independence in 1947. In the early years, multinational companies from Europe and US region dominated the Indian market. In 1960, the government authorities in India established Hindustan Antibiotics and Ltd and India Drug and Pharmaceutical Ltd to compete with overseas companies. In 1970s, a regulation was passed by government (Drug Price Control Order – government authority can set prices on drugs sold in local market) and due to this the industry experience massive growth. Facing escalating costs in overseas markets (average of US$800 million to bring a new drug to market), major pharmaceutical firms focused on outsourcing. When choosing to outsource, global pharmaceutical firms tended to focus on three areas of the drug development and value chain (see Figure )
 Research and development (R&D). Drug discovery usually required considerable quantities of particular molecules with which to experiment. A contract research organization (CRO) could make target and even custom molecules to order. (Source: Based on information available in www.indiastat.com)
 Clinical trials. A drug would usually take through four phases of clinical trials to determine whether it worked consistently, for a large population, without toxicity or major side effects.
 Manufacturing. Once the drug was tested and approved, it could be produced in bulk according
to the set formula and process.
The country of choice for outsourcing of pharmaceutical products, whether finished or intermediate, was India. India had a large pool of English-speaking scientists and professionals who were well-educated and well-trained. Seeing the growth and importance of pharmaceutical, biotechnology and technology related fields, in 1986 the government authorities in India created the Department of Biotechnology within the Ministry of Science and Technology. So with this, Biotechnology attracted venture capital funding which resulted in growth of pharma industry.

Figure 2: Drug Development and Value Chain

Industry: Banking

In early 1990s, Banking was dominated by public sector banks, which fell into two categories, the State Bank of India group, which comprised of SBI & its associates, and 19 other nationalized banks. After nationalization of banks in 1969, the banks used to focus on two objectives: increasing deposits and increasing loans. This was achieved by increasing the branch network. Some of the private banks used to operate in regional spaces. The government neither did not allow any new players freely enter into market nor gave permission to some of the foreign banks to expand. So the public share of banks was around 85% of deposit and loans but lacked customer orientation.
Progress of Commercial Banks
See in Figure 1
Source: Report on Currency and Finance, 1999-2000, RBI

With the advent of financial sector reforms in 1992-93, the government decided to ease restrictions on private players. Foreign banks and new private players entered the Indian market space. At the same time may be because of competitive pressures or RBI norms, public sector banks (PSB) changed focus from asset expansion to asset quality. There were initiatives taken by RBI on interest rate deregulation from 1989 like banks were allowed to set its own interest rates on deposits of 30 days and above. With this according to Mckinsey Report , the banking index has grown at a compounded annual rate of over 51 percent from April 2001 as compared to 27% percent in the market index for same period. The size of the banking sector has gone up over six times from Rs.5,984 bn in 1995 to over RS.36,105 bn in 2006 Also considering the regulation of RBI, under Basel II, capital allocation will be based on risk of assets.
This create an integrated approach to risk management credit, market and operational risk. The risk adjusted return on capital made selected rapid growth companies in banking sector to drive its own pricing on products and manage their portfolio under RBI guidelines. Due to this, some of the factors contributed to rapid growth in Banking sector are specialised branches, new products targeted at specific groups, change in structure, systems and procedures involving quick turnaround time to meet world standards, marketing orientation, change in ambience, recruitment of specialists, tie-ups and sharing networks (ATM’s), and strategic alliances, Bancassurance and other products were introduced, technology-based payment systems, adoption of technology (Information Technology had also an impact) to business transformation and cost advantage were made during the period. So Industry had a direct impact in Banking sector as well.