The Role Of Biotechnology In Inclusive Economic Development

25th Intelligence Bureau Centenary Endowment Lecture delivered onSaturday, Dec 22, 2012 at New Delhi by

Kiran Mazumdar-Shaw
Chairman & Managing Director, Biocon Limited

Ladies and Gentlemen,

We are living through turbulent yet transformational times as we see India transitioning from a rural, agrarian country into an urban, modern economy. This metamorphosis has been the result of a massive entrepreneurial churn that has unleashed pent-up economic energy over just two decades.

As our economy grows – sometimes rapidly and sometimes hesitantly – the transformation is evident to all, whether or not they are included in India’s development.  Fueled by accelerating urbanization and widespread access to information, aspirations are burning across all sections of society. When these are not realized, resentment stokes the yearnings of the disadvantaged. In this highly disruptive phase of India’s history, we must therefore ensure that the benefits of growth reach every single citizen of India. If not, if inequity reigns and hopes die, our efforts to create a prosperous India will not bear fruit.

Today, the Indian economy faces grave challenges that have been compounded by a stalled global economy and political crises at home. Industrial output has dropped, exports are declining, consumer price inflation is stubbornly hovering near double digits, and the fiscal deficit is alarming. These are not mere indicators of the distress business is suffering in the country; instead, they are reflective of the pain enveloping all of India. The basic needs of the majority of the Indian population remain unsatisfied with unacceptable levels of hunger, illiteracy and jobless existence, creating a vicious cycle of poverty and despair.

According to the Organization of Economic Cooperation and Development (OECD), India will have the fastest growing economy in five decades, overtaking China. However, it will rank towards the bottom of the heap in terms of living standards of its citizens measured by per capita income. I don’t think mere growth serves much purpose if the basic requirements of much of the population are not met. So, how can we ensure that India’s economic growth enables inclusive and more importantly, equitable development?

I, for one, believe that we need to draw up a clear roadmap of where we want to be as an economy by 2050. A key characteristic of an equitable economy is, I believe, one that balances the contribution of the three main sectors – agriculture, manufacturing and services. We need to shift subsistence jobs in agriculture to sustainable jobs in labour intensive industry. We also need to create a large market for skilled jobs through building scale in high end manufacturing. We need to adopt a strategic roadmap to deliver such a model. All our reforms, policies and investments must be tailored to meet this strategic goal.

Today, we have a skewed economic model wherein India's service industry accounts for nearly 58% of the country's GDP while the industrial and agricultural sectors contribute 28% and 14% respectively. However, agriculture accounts for about 52% of employment. The service sector makes up 34%, and the industrial sector around 14%.

Clearly, the sectoral structure of India's growth has provided insufficient employment opportunities for the poor. With agricultural productivity low and manufacturing sub-optimal, the poor have failed to get the employment opportunities needed to participate in India’s growth story. We require well-balanced growth with the three sectors reinforcing each other.

Even as we work to bring the contribution of the three sectors on an even keel, the critical support provided by education and health must not be overlooked. The basic food, education and healthcare requirements of a vast majority of Indians remain unsatisfied. These human enablers are so fundamental to individual and national development that their inadequacy – and their absence – has kept Indians from fulfilling their potential and India from realizing comprehensive economic and social progress.

This is where I wish to make a case for Biotechnology and its potential to play a strategic role in adding value to the economy and addressing the challenges   facing each of these sectors.

TRANSFORMING AGRICULTURE

I will start with agriculture, the foundation of India’s economy – for although its contribution to GDP is low, its significance to the people of India cannot be overemphasized. In addition to feeding the country, agriculture has more than half our 1.2 billion-plus population depending on it for livelihood. The sector also holds the key to delivering inclusiveness in the economy. However, this inclusiveness will only be possible through adopting   co-operative farming models that build economies of scale and thereby support productivity enhancement through mechanization and technology.  For the economy to grow at 9%, this sector needs to grow at least by 4-5%. However, agriculture is presently growing at only 2.9%. Agriculture is a neglected sector, and we disregard its requirements at our peril.

At first glance the challenges in agriculture appear staggering: India has only 2.3% of the world's land area but must ensure food security for 17.5% of the world population. Crop yields in India continue to languish at just between 30% to at best 60% of crop yields achieved in developed and emerging countries. Take for example, China, with 110 million hectares of arable land; it produces 483 million tons of cereal. This is better than USA’s output – with 163 million hectares of arable land; American farmers produce 420 million tons on an average per year. In contrast, India, with 158 million hectares of arable land, produces just 249 million tons of cereal. It is not surprising; therefore, that NSSO data indicates that 40% of our farmers want to opt out of cultivation as an occupation.  This aspirational trend is not necessarily alarming since it is in fact necessary and even desirable to shift labour from subsistence farming to Industrial jobs.  More importantly, agricultural productivity needs to be enhanced and this can be done, I believe, through science and technology. This is fundamental to the poorest of the poor in India participating in development while ensuring food security for all of us. Although this line of thinking is deeply rooted in the electoral rhetoric and manifesto of every political party, the fact remains that, after the Green Revolution of the 1960s which saw the advent of hybrids, few innovative solutions have been encouraged on a national scale.

Biotechnology, I truly believe, can usher in a SECOND GREEN REVOLUTION with unprecedented opportunities to ensure food security along with the economic well-being of the farmer.

Biotechnology offers scientific techniques that optimize the use of available resources without placing additional demands on land or water to boost yields – which is just what India needs. These solutions, which can be easily scaled across the country, can also improve the quality of the produce with disease-free and nutritionally enhanced varieties of crops.

The early benefits of Biotechnology are already being reaped by Indian farmers as they increasingly opt for Genetically Modified  Bt cotton seeds to enhance productivity.  Bt-cotton has not only delivered  high yields but also additional benefits of  reduced pesticide use. Today Bt cotton accounts for 90% of the 11 million hectares under cotton cultivation with an annual output of 35.5 million bales (7.1 million tons) making it the world's No 2 cotton producer next only to China. This has enabled India to convert its status from a net importer to a net exporter of cotton thus providing inherent strength to its large employment generating textile industry.

Apart from Genetically Modified crops, agricultural Biotechnology is leveraging molecular markers in crop breeding for the selective propagation of genes that improve yields and resist disease.  Micro-propagation is another area where Biotechnology is helping to produce pathogen-free plants and address soil imbalance issues.

Unfortunately, Biotechnology itself faces several challenges. While the Government understands the importance of food security, it needs to translate this understanding into action through the effective use of Biotechnology.  Instead of putting up regulatory roadblocks, it must pave the way for agricultural Biotechnology. The knee-jerk decision against Bt-Brinjal is a case in point. I believe the Government needs to put in place a clearly articulated policy on Agri-Biotechnology which provides checks and balances that ensure safety instead of making ad-hoc decisions under political compulsions. The only acceptable compulsion is inclusive development.

Even as we move on the policy front, we must also bridge the huge knowledge gap in Indian agriculture between farmers on one side and crop scientists on the other. We must develop a framework to ensure dissemination of information to farmers on new breakthroughs in agricultural science so that they harvest the greatest benefits of Biotechnology.

Beyond cultivation, Biotechnology also provides value added economic opportunities in the area of bio-pesticides and bio-fertilizers that have the potential to help farmers move up the value chain.

Agro-industry must be a key thrust area for development. Economic policies must therefore incentivize investment and expansion of agro-processing and provide a natural path for jobs to move from farming to value added processing at industrial scale.  The long awaited policy reform that allows FDI in multi-brand retail will certainly improve supply chain logistics that will surely drive growth emanating from agriculture and agro-processing.

REBOOT WITH BIOMANUFACTURING

 Now let me move to the manufacturing sector. India's manufacturing sector has the potential to be a fantastic engine of growth. Instead, lack of enabling policies have shackled this sector into inertia and crippled it with high cost of capital and antiquated labour and land laws. China has clearly demonstrated that manufacturing has generated wide-spread employment, and manufacturing exports have ensured a huge trade surplus for the country. India on the other hand has witnessed how its weak manufacturing and agriculture sectors have throttled economic growth.

India's efficiency and effectiveness in traditional manufacturing show up poorly when we compare our performance with China. Take for example textiles: China’s textiles exports stood at $94 billion in 2011, Indian textile manufacturers managed only $34 billion of exports in the same period. Or consider the fact that India’s share of global merchandise exports has doubled to 1.5% between 2000-2012, yet it still remains way below China’s 11%.

Such examples clearly demonstrate that we have failed to create significant manufacturing scale and depth. Studies show that the productivity of our manufacturing industry is approximately one-fifth that of its US counterpart.  A glimmer of hope though comes from our Automobile manufacturing sector where India is the preferred destination and a recognized global auto hub.

McKinsey and Co believe that India's manufacturing sector has the potential to create up to 90 million jobs by 2025. Today, the sector generates only about 45 million jobs, 80% of which are in the unorganized sector. Most of these micro and small-scale enterprises rely on traditional, low- grade technologies that offer limited earnings and stunted prospects for growth.  I for one believe that India should reboot its manufacturing sector by pursuing a strategy of scale based on technology driven manufacturing. This will create a core manufacturing sector based on high end expertise fed by ancillary manufacturers that rely on technical skills.

Biotechnology and more explicitly, Fermentation technology can help boost India’s manufacturing sector in this manner.  Fermentation based manufacturing supports production of antibiotics, vaccines, bio pharmaceuticals, enzymes, alcohol, foods and biofuels.  India has global scale in many of these but the true potential remains unrealized. A focused policy thrust can build global prowess and generate millions of jobs at all levels. Here is how:

India is already one of the world's leading manufacturers of generic drugs and vaccines at the lowest cost. A "made in India" vaccine immunizes a third of the world's children just as one in three generic drugs is of Indian origin.  This has earned us a global competitive edge over China.  However, recent drug pricing policies have hampered investment and early signs of China taking advantage of this situation are apparent.  Whilst the drug industry is a soft target to derive political mileage, it can cause long term irreparable damage to a key manufacturing resource. Beyond generics, India is a contract manufacturer to leading Multi National Pharmaceutical companies who are increasingly shifting their manufacturing base to lower cost centers in Asia.

The Indian Contract Manufacturing  (CMO) market was estimated to be worth approximately $2.3 billion in 2010 and forecast to attain a size of $10 billion by 2025.

It is well acknowledged that over the next decade there will be worldwide shortage of fermentation based Bio-pharmaceutical capacity.  India’s existing fermentation base gives us a competitive edge to stake a dominant claim as the world seeks to bridge the global demand-supply gap in a cost-efficient manner.  Can we leverage this global opportunity through a differentiated bio- manufacturing strategy?

Biomanufacturing, together with our large chemical synthesis based pharma and Petrochemical Industries can build an indomitable position for India in the world.   It can make us the “Pharmacy”  for the world and a  global resource for biofuels, petrochemicals and fertilizers. What is even more compelling is the plethora of jobs it creates for engineers, scientists, technicians and

entrepreneurs.  This Bio- manufacturing strategy can catalyze a cluster effect – as it happened in Bangalore after my company Biocon was established in 1978. This must be encouraged. A cluster outsources what it requires rapidly and at low costs, spurring the growth of ancillary companies. A cluster brings growth to the region – in terms of employment, investment, and a wide range of socio-economic services that spring up to support the cluster.

Another critical area where biomanufacturing can play an important role is in biofuels.  With fossil fuel resources expected to dry up in the future, biofuels are showing significant promise. They offer an attractive opportunity to conserve and economize the use of conventional fuels like petrol and diesel. Bioethanol, fermented from sugarcane bagasse, sorghum and cereals is already being blended with petrol to defray our oil imports. Microalgae and seaweed that grow abundantly along our coast line are now being harnessed through novel enzyme technologies for fuel alcohol as a more sustainable option for renewable energy. Such innovative new approaches must be supported through fiscal policies that provide grants and tax credits in order to build specialized skills as well as scale. Or else such innovative approaches will remain trapped in crucibles that never release the transformational power that it can bring to our economy.

Biotechnology has the potential to make India energy independent just as Brazil has done with its Bioethanol production from Sugar cane bagasse.   Biofuels also help to create new solutions for energy-starved rural India. We must therefore come out with enabling policies that enhance investments in developing new manufacturing technologies and capacity building in biofuels.

Clearly, the biomanufacturing opportunity is huge. If India is to seize it, we must act expeditiously. The Government will need to play an enabling role by creating a suitable physical, financial, legislative, and regulatory infrastructure. The private sector will invest in building the necessary manufacturing capacity, provided that the enabling infrastructure is in place.

A primary concern for biomanufacturers in India is the physical infrastructure, which remains as big a stumbling block as it was over three decades ago when I founded Biocon. The success of biomanufacturing depends on land availability, uninterrupted power supply, potable water, effective effluent treatment, and good logistical connectivity.

Going beyond an enabling environment, we must also think creatively in terms of locating these Biomanufacturing clusters in a manner that generates rural development and thereby inclusive growth.  We must also encourage policies that create Biomanufacturing hubs in university townships which have engineering institutes like IIT Kharagpur or BITS Pilani.  This has the synergistic benefit of giving industry access to high quality talent as well as provides these relatively remote areas the doubtless benefit from such collateral socio-economic development.

HIGH VALUE BIO-SERVICES

Let’s now take a look at the services sector, which has been pivotal to India’s growth, especially in the post-liberalization era. Driven by the dynamic knowledge-intensive service industry, the Indian economy has shifted gears to grow much faster.

Now that we have established a reasonably strong foundation in this sector, we need to enhance our expertise in value-added service offerings.  At a time when companies in the developed world are

challenged with spiraling R&D costs, declining regulatory approvals, extended time to market, and loss of patent protection on a number of blockbuster drugs, outsourced R&D services that deliver value and cost arbitrage offer a large opportunity to our scientists and technologists. India can effectively position itself as the “Laboratory” for the world for cost effective research capabilities that develop affordable drugs, vaccines and diagnostics for global healthcare. The Research Services sector has performed impressively, growing 15.5% in 2011-12 to pull in revenues of $765 million.

According to a McKinsey report, R&D costs of Drug research in India are about 75% lower than that in the US. Our qualified English-speaking scientific, engineering and medical talent pool provides us with a competitive edge over China. These strengths must be leveraged not only to create a services based contract research sector but also address our own unmet medical needs through affordable innovation.  

Another promising area is new-age diagnostics based on genetic, protein as well as metabolite-based bio-markers. Bioinformatics is playing an increasingly vital role in this area where our IT prowess gives us a natural advantage.

Biometrics is another enormous opportunity where DNA techniques can far outweigh the benefits of retinal and fingerprinting technologies of today. The cost of sequencing entire human genomes is shrinking exponentially and it won't be too long before it overtake present day conventional biometrics to make DNA fingerprinting the most reliable identification technology of the future.  India missed participating in the Human Genome Project We now have the opportunity to lead the way in its application where Aadhar can spearhead a powerful global paradigm.

There are two other areas where we can combine our expertise in life science and IT to improve healthcare delivery. The first is through telemedicine: Only 25% of India’s specialist physicians reside in semi-urban areas, and a mere 3% live in rural areas. As a result, rural areas, with a population approaching 700 million, are deprived of quality healthcare amenities. Telemedicine can be a powerful way to connect rural primary and secondary care centers with well-equipped, urban tertiary care hospitals. There is already a growing movement within India to establish a health grid that connects medical institutions and practitioners throughout the country. This needs to be encouraged through enabling policies.

The second is M-health which relies on mobile phones to deliver personal and point of care healthcare solutions. Several innovative initiatives in M-Health are making rapid strides in addressing our healthcare challenges. One such program I am closely associated with involves the early diagnosis of oral cancers that afflict a large part of our rural population. ASHA our women's brigade of Healthcare workers have been trained to use mobile phones to collect information on tobacco consumption patterns. They also undertake physical examination that is followed by the transmission of photographs of mouth lesions to central hospital data sites. This enables early diagnosis of cancer and thereby early treatment intervention, which has helped us save many lives.

Beyond Biotechnology

While Biotechnology can be a game-changer in enabling inclusive growth, as I said earlier, the critical role of education and health must be taken very seriously. Universal healthcare and education are the two keys that can truly unshackle India’s potential. It is encouraging that the Government is taking

positive steps in this direction. However, it is important that these health and education schemes are planned and implemented with clear vision, unshakeable will and unimpeachable transparency.

There is no shortage of schemes in India to address the myriad challenges that confront us. However, most of these often fulfill only a small part of what they set out to do. Reasons for failure range from corruption or simply the lack of political and bureaucratic will to execute. In addition, inadequate resources, and poorly thought through schemes also fail to deliver on their expected outcomes. As a result, most of our programs, even if well-intentioned, have one fundamental shortcoming: The governance mechanism to deliver these schemes is mired in inefficiency and unaccountability.

India’s transition to a vibrant economy where every citizen has access to modern infrastructure and effective healthcare and education systems depends on transparent and quality governance for all. For growth to be inclusive, we must leverage innovative, problem-solving approaches to deliver such governance.

Conclusion:

As I end, I would like to summarize my case for Biotechnology as a powerful enabler for transformational economic reform. I would like to conclude by recommending a simple policy agenda for our 3 core sectors as follows:

1. Bio-Agriculture:  Strategy for the second Green Revolution based on safe genetic technologies that bridge the productivity gap.

2.Bio- Manufacturing:  Fermentation based bio-manufacturing as a global leadership strategy for drugs, vaccines, enzymes and bio- fuels to deliver affordable healthcare, energy independence and eco-friendly manufacturing.

3. Bio-services:  Policies that support exponential investment in pharmaceutical research and healthcare delivery.  Policy makers must leverage the synergistic combination of Biotechnology and Information Technology to deliver world beating innovative solutions for global healthcare.    

Finally, we must formulate policies that focus on helping people emerge from an existence of perpetual disadvantage through incentives not hand-outs. To this end, we need to adopt a focused, metrics-driven approach, offering self-empowerment opportunities to the disadvantaged so they can participate in growth and partake in its dividends, lifting them out of poverty.

Thank you