In the context of recent amendments to the Indian Patent Act and introduction of the product patent, the present paper attempts to examine the innovative efforts of Indian pharmaceutical companies in the new patent regime. The paper finds that although R&D expenditure has increased significantly in the current decade, the increasing R&D efforts are not widespread across the firms and more than half of the Indian pharmaceutical companies do not spend at all on in-house R&D. This means that protection of intellectual property alone is not enough to encourage the firms towards innovation. Instead, it is observed that R&D expenditure varies directly the with market size of the firms, their capital intensity, exports orientation and past profitability, but inversely with their market share, selling efforts and import intensity. However, a firm's involvement in mergers and acquisition or sourcing of technology from foreign sources or variability in financial performance does not have any significant impact on its R&D efforts. Hence, the policy measures should be directed towards restricting the monopoly power of firms, encouraging exports, liberalizing imports of necessary machinery and equipment, and motivating the firms towards innovation, especially in life-saving drugs, an through appropriate incentive/disincentive structure.
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