**5. Development and importance in pharmaceutical industry**

India's modern pharmaceutical industry was primarily shaped by Patents act 1970. Before that Indian market dominated western Multinational Corporation that controlled over third fourth market basically through imported drugs. At that time most of the pharmaceutical product was held by foreign companies and domestic drug price was among the highest in the world. An important point of the 1970 patents act was the special delivery connects to the pharmaceutical that allowed patent protection only for a new method or process of manufactures in the synthesis of a molecule in the Indian market. This patent protection was provided for only 7 years for pharmaceuticals.

This robust domestic manufacturing industry for pharmaceuticals stems, in part from the 1970 Patents Act effectively encouraging the reverse engineering of internationally patented products. If the large price increases that some predicted following the adoption of TRIPS were realized, they should be evident in the aggregate data. Our primary identifying assumption is that the timing of patents being granted was orthogonal to other events that might also have affected the market outcomes of newly patented products. To further address concerns regarding heterogeneity in the strength of patents or the importance of the patented molecules in the Indian market, we next examine the subset of patent applications identified. Perhaps the most direct is a decrease in the number of producers due to the increased exit rate of incumbent firms or a lower entry rate of new firms. The change in prices can occur without any actual difference in the observed market structure. As evidence of the existence of this phenomenon, we note that some of the firms receiving patents for molecules never appear in the retail sales data. India has granted hundreds of patents to both domestic and multinational firms. This represents one of the first attempts to apply an entirely new patent system to an existing market of this size and scope. Prior to the new patent system, there were many products being sold containing molecules that were patented outside of India but were domestically manufactured and sold by a large number of firms [9, 10].
