Recommendations of the Task force
on
Knowledge-Based Industries

Annexure V : Labour Legislation

A) RESTRICTION ON WORKING HOURS-SECTION 7 OF THE ACT

As per the above section "no employee in any establishment shall be required or allowed to work for more than 9 hours on any day and 48 hours in any week".

This restriction needs to be removed for the following reasons:

Internationally as well as in India, the concept of Flexi-timing is in vogue

Deadlines fixed by the global customers have to be met if competitiveness is to be retained

KBCs provide rest room, canteen facilities, gym facilities, sports facilities etc., to relieve stress and strain of work.

No physical labour or effort is involved in knowledge work viz., the discharge of their duties as work involves only use of creative talents of employees.

The existing section 7 should be amended as follows:

"No employee in any establishment other than an establishment being a KBC, shall be required or allowed work for more than 9 hours on any day and 48 hours in any week".

B) RESTRICTION ON PERIOD OF WORK – SECTION 9 AND 10 OF THE ACT.

As per Section 9 "the periods of work of an employee in an establishment each day shall be so fixed that no period shall exceed 5 hours and that no such person shall work for more than 5 hours before he has had an interval of rest at least one hour".

As per Section 10, "the periods of work of an employee in an establishment shall be so fixed that, inclusive of his interval for rest, they shall not spread over more than 12 hours in any day".

The restriction that no period of work exceeds five hours and shall not spread over 12 hours needs to be removed. The concept of flexi-timing permits an employee to work for such periods as he/she is comfortable with as long as the minimum prescribed hours are worked. In an activity that is essentially creative and innovative, it is counter-productive to place time limits on creative work. Therefore, any form of compulsory rest after five hours is wholly unreasonable and impractical.

The existing sections 9 and 10 should be amended as follows:

Section 9 : "the periods of work of an employee in an establishment other than KBC, each day shall be so fixed that no period shall exceed 5 hours and that no such person shall work for more than 5 hours before he has had an interval of rest at least one hour".

Section 10 : "the periods of work of an employee in an establishment other than KBC, shall be so fixed that, inclusive of his interval for rest, they shall not spread over more than 12 hours in any day".

C) EXTRA WAGES FOR OVERTIME-SECTION 8

As per Section 8 "Where an employee works in any establishment for more than nine hours in any day or for more than forty eight hours in any week he shall in respect of such overtime work be entitled to wages at twice the rate of normal wages.

In view of flexi-time the payment at double the wage rates is not only inappropriate but also wholly unreasonable. It is, therefore, essential that the rule be made not applicable to KBCs.

Section 8 should be amended as follows:

"Where an employee works in any establishment other than KBC for more than nine hours in any day or for more than forty eight hours in any week he shall in respect of such overtime work be entitled to wages at twice the rate of normal wages".

D) PROVISIONS OF EARNED LEAVE AND SICK LEAVE – SECTION 15 OF THE ACT

As per Section 15 of the Act "Every employee who has worked for a period of 240 days or more in an establishment during a calendar year, shall be allowed in the subsequent calendar year leave with wages for a number of days calculated at the rate of –

if an adult, one day for every twenty days of work performed by him during the previous calendar year.

…"

Further, Section 15(3) states "Every employee shall also be entitled during the first twelve months of continuous service and during every subsequent twelve months of such service in any establishment to leave with wages for a period not exceeding twelve days, on the ground of any sickness incurred or accident sustained by him or for any other reasonable cause".

KBCs must be exempted from the purview of these provisions on account of the following:

KBCs usually have a five day week

Prevalence of medical assistance leave scheme in many KBCs.

In a competitive market, a large number of holidays is clearly disadvantageous and at complete variance with world-wide practice.

In the world of technology, each holiday means loss of revenues.

 

The existing Section 15 should be amended as follows:

"Every employee who has worked for a period of 240 days or more in an establishment other than KBC during a calendar year, shall be allowed in the subsequent calendar year leave with wages for a number of days calculated at the rate of –

(iii) if an adult, one day for every twenty days of work performed by him during the previous calendar year."

Further, Section 15(3) should be amended as follows : "Every employee shall also be entitled during the first twelve months of continuous service and during every subsequent twelve months of such service in any establishment, other than KBC , to leave with wages for a period not exceeding twelve days, on the ground of any sickness incurred or accident sustained by him or for any other reasonable cause".

E) PAYMENT OF WAGES FOR LEAVE IN ADVANCE-SECTION 17

Section 17 of the Act states that "An employee who has been allowed leave for not less than four days in the case of an adult, and for not less than five days in the case of a young person, shall before his leave begins, be paid the wages due for the period of leave allowed".

KBCs must be exempted from these provisions as they provide other benefits and also since wages for the leave period is paid along with the monthly salary.

The existing Section 17 should be amended as follows:

"An employee who has been allowed leave for not less than four days in the case of an adult, and for not less than five days in the case of a young person in any establishment other than KBC, shall before his leave begins, be paid the wages due for the period of leave allowed."

F) MAINTENANCE OF RECORDS

The following records are required to be maintained under the provisions of the Shops and Commercial Establishments Rules:

Maintenance of leave with wages register - Rule 8

Leave with wages book of the persons employed - Rule 9

Maintenance of attendance registers . - Rule 24(1)

Exemption is required from maintaining these records in manual form due to the following reasons

The system of maintaining registers manually is not only outdated but is also a most unproductive utilisation of time.

The volume of entries in large companies, will make it impossible to manually update such records,

In the present context of technological advances, where computerised records are more accurate and easily accessible, retaining the manual system is not only impractical but also antiquated.

All information that the Act prescribes would be available in computerises systems and, therefore, the prescribed provisions would continue to be followed, except that it would be on a different media.

Constraints of space and need for storage creates logistics problems.

The system of manually signing attendance registers is obsolete and attendance records should be allowed to be maintained electronically.

Rules 8,9 & 24(1) should be amended by inclusion of the following:

"Any Establishment which is KBC is exempted from manually maintaining the leave with wages register, leave with wages book of the persons employed, attendance register provided this information is maintained electronically and all concerned employees can access the information as and when required."

In addition to the above, the following records are required to be maintained manually:

a) Daily periods of work of persons employed

As per Rule 24(2) "Notwithstanding anything contained in sub-rule (1) an employer may instead of maintaining a register as provided in the said sub-rule, exhibit in his establishment, a notice specifying the daily hours to be worked by and interval for rest and meals to be allowed to the employees. The notice shall be in Form "N" and shall be exhibited not later than the closing hours on the Saturday immediately preceding the first week in which the hours of work shall be as specified in such notice. It shall continue to be exhibited so long as the hours of work specified in it are observed".

b) Record of hours of work of persons employed

As per Rule 24(3) "Where an employer has exhibited the notice referred to in sub-rule (2) he shall keep a record of hours of work in form "O".

The concept of flexi-timing permits an employee to work for such periods as he/she is comfortable which is the practice across the globe in KBCs and hence maintenance of these records are not practical.

The existing rule should be allowed as follows:

"Any Establishment which is a KBC is exempted from exhibiting the daily hours of work in Form ‘N’ under Rule 24(2) and record of hours of work in Form ‘O’ under Rule 24(3)".

G) MAINTENANCE OF LIME WASH REGISTER

As per Rule 16 (1)

"In every establishment, all the inside walls……………………. And all the passages and staircases shall be lime washed at least once in each year dating from the period when last time lime washed".

"All internal structural iron and steel work shall be ………. The date on which lime washing, colour washing, painting or varnishing is carried out shall be duly entered in Form ‘I’ which shall be shown to the Inspector when required".

The KBCs normally have state of the art facilities and hence no lime wash is done. They have visitors / customers across the globe and hence they have to maintain the facilities in a presentable way. Hence, the colour wash will be done more often than prescribed under any statute. Therefore maintenance of such record doesn’t add value and should be done away with.

Rule 16 (1) should be amended as follows:

"In every establishment other than KBC, all the inside walls… … …… … … ……. and all the passages and staircases shall be lime washed at least once in each year dating from the period when last time lime washed".

 

A) OBLIGATION TO PAY IN CURRENCY NOTES/COINS.

As per Section 6 of the Act "All wages shall be paid in current coin or currency notes or in both.(Provided that the employer may, after obtaining the written authorisation of the employed person, pay him the wages either by cheque or by crediting the wages in his bank account).

The statutory requirement is wholly obsolete as in the present context of electronic banking, payment by currency notes is totally impractical and cumbersome. A statutory provision needs to be introduced that permits direct credit of salaries into the bank account of employees without the necessity of signing on stamped pay-slips or issuing cheques. Direct credit to the bank accounts of employees would promote paperless procedures. Additionally, computer assisted transfers are fool proof, time saving and substantially quicker. It would also eliminate voluminous records and physical handling of currency notes.

The existing Section 6 should be amended as follows:

"All wages in any Establishment other than KBC shall be paid in current coin or currency notes or in both."

B) MAINTENANCE OF RECORDS

The following records needs to be maintained under the provisions of the Act:

Rule 3 –Register of fines in Form-I

In any factory or industrial establishment in respect of which the employer has …. … … ……… shall maintain a register of fines in Form-I

Rule 4 - Register of Deductions for damage or loss in Form-II

In any factory or industrial establishment in which deductions for damage or loss are made, the employer shall maintain a register in Form-II.

Rule 5 - Register of wages

A register of wages shall be maintained in every factory or industrial establishment … ………………….

Rule 19(iv) - Register of Advances

The amounts of all advances sanctioned and repayment of such advances shall be entered in a register maintained in Form-III

Exemption from maintenance of these records particularly in the manual form is required as all records in the KBCs are computerised, including payrolls. Such records could be in the prescribed format, but on electronic media and this would eliminate voluminous paper work and manual effort. Since all deduction are automatically reflected in the computerised payroll the need to maintain registers physically for such purpose is redundant. Also, computerised records are more accurate as clerical and mathematical errors are eliminated. Retrieval of data and availability of information is almost instantaneous.

The existing Rule should be amended by insertion of the following clause:

"The KBCs are exempted from maintaining the records manually provided such information is maintained in electronic media."

C) DISPLAY OF RATES OF WAGES

As per Rule 7 - "In every Factory or Industrial Establishment, the employer shall display at or near the main entrance of the Factory or Industrial Establishment, notices in Form-VI specifying the rates of wages payable to different classes of workers employed therein. The notices shall be in English and in Kannada:

The concept of displaying "wages" paid is obsolete and does not serve any purpose. It has become irrelevant in the present context of modern technology and work atmosphere. This rule needs to be deleted as in KBCs, it would be completely irrational and impractical to disclose these figures as quite often there could be a variation inter-se employees depending upon merit. The display of salaries/wages paid tends to have a unsettling and negative effect on co-employees and could vitiate the working environment. In the strictest sense, what is paid to employees is not "wages" as commonly understood, but remuneration/salary as in KBCs almost all employees are engineering graduates and/or are qualified in computer technology. In any event, salaries are substantial and any verification is always possible with computerised records.

The existing Rule 7 should be amended as follows:

"In every Factory or Industrial Establishment other than KBCs, the employer shall display at or near the main entrance of the Factory or Industrial Establishment, notices in Form-VI specifying the rates of wages payable to different classes of workers employed therein."

D) ADVANCES

Rule 19(1) states that any advance of wages not already earned shall not, without previous permission of an Inspector exceed an amount equivalent to the wages earned by the employed person during the preceding two calendar months; or if he has not been employed for that period, twice the wages he is likely to earn during the subsequent calendar month.

ii. The advance may be recovered in instalments by deductions from wages, spread over not more than 12 months;

The restriction on payment of advance has ceased to be relevant as most loans/advances are for securing basic necessities like housing, vehicles and consumer durables. Since the employment of knowledge workers commences at a young age, the need to ensure basic needs/necessities of life is of considerable importance. Unless these basic needs are assured, productivity tends to become low which, in a globally competitive market, operates adversely. The restriction is totally unrealistic as the salaries/remuneration paid to knowledge workers is comparatively higher than others similarly placed.

The concept of master and servant has made way to a "participative" process in which employees are partners in the progress of business. The rule was originally intended to ensure that such financial commitments did not result in a form of bonded labour. In the present context, the perspective and nature of employment itself has undergone change and the chances of indulging in any form of bonded labour in KBCs is practically non-existent.

The rule, therefore, needs to be suitably amended so as to reflect progressive thought and also to incorporate modern concepts of employment and employees welfare.

The existing Rule 19 (1) should be amended as follows

"In any Factory or Industrial Establishment other than KBCs, any advance of wages not already earned shall not, without previous permission of an Inspector exceed an amount equivalent to the wages earned by the employed person during the preceding two calendar months; or if he has not been employed for that period, twice the wages he is likely to earn during the subsequent calendar month".

A) REQUIREMENT OF PAYING D.A. AS A SEPARATE COMPONENT

Section 4(1) states that any minimum rate of wages fixed or revised by the appropriate Government in respect of scheduled employments under Section 3 may consist of,

(1) a basic rate of wages and a special allowance at a rate to be adjusted, at such intervals and in such manner as the appropriate Government may direct, to accord as nearly as practicable with the variation in the cost of living index number applicable to such workers………………

The requirement of paying DA separately is redundant as the salaries paid to knowledge workers is at all times substantially higher than the minimum wages prescribed, inclusive of DA. The objective of the Act is to ensure that minimum wage needs are met, and also that whenever the cost of living increases, a suitable protective mechanism is available in the form of variable DA. However, in the case of employees in KBCs, their salaries are high enough that all upward revisions of minimum wages and/or DA would be absorbed by their salaries. At no point of time would the salaries of employees be less than minimum wages inclusive of DA. In these circumstances, to compel employers to pay DA separately without reference to the total emoluments being paid to them imposes extreme hardship upon the employer. It is, therefore, essential to ensure that in cases where salaries/remuneration/emoluments are more than the prescribed minimum wages, inclusive of DA, there is no need that DA be paid and shown separately.

The existing Rule 4(3) shall be amended as follows:

"The payment of special allowance / Dearness allowance need not be indicated separately; provided the total emoluments paid to the employees is more than the total of minimum basic salary and such special allowance / dearness allowance as prescribed under the Act from time to time".

B) PUBLICITY TO THE MINIMUM WAGES FIXED UNDER THE RULES

As per Rules 23 of Karnataka Minimum Wages Rules 1958, "Notices containing the minimum rates of wages fixed together with abstracts from the Act, the rules made thereunder in Form No. X and the name and address of the Inspector shall be displayed in English and in a language understood by the majority of workers in the employment at a conspicuous place or where wages are disbursed, and shall be maintained in a clean and legible condition. Such notices shall also be displayed on the notice boards of all sub-divisional and district offices".

Display of wage rates cause undesirable results as wage structures in KBCs and the world over are based entirely on merit and competence. It is also practically impossible to publish or display the several wage scales prevalent due to their sheer volume. In any case, as all records, data and information are computerised and such information would be readily available, the practice of physically displaying such information is irrelevant and obsolete.

Amendment required:

The Rule should be amended to exclude KBCs from its purview.

C) EXTRA WAGES FOR OVERTIME

As per Rule 28(1) "When a worker works in an employment for more than nine hours on any day or more than forty eight hours in any week or more than the hours of work notified under sub-rule (6) of Rule 25, as the case may be, he shall in respect of overtime work be entitled to wages at double the ordinary rate of wages".

In view of flexi-time and the facts set forth above payment at double the wage rates is not only inappropriate but also wholly unreasonable. It is, therefore, essential that the rule be made not applicable to KBCs.

The Rule should be amended to exclude KBCs from its purview.

D) MAINTENANCE OF REGISTERS

The following records needs to be maintained under the provisions of the Rules:

Register of fines - Form-I, Rule 22(4)

Register of deductions for damage or loss - Form-II, Rule 22(4)

Register of Overtime - Form-IV, Rule 28(2)

Register of wages - Form-V, Rule 29(1)

Wage Slip - Form-VI, Rule 29(2)

Muster Roll - Form-VII, Rule 29(5)

KBCs must be exempted from the requirement of maintaining these records manually as all records in KBCs are computerised.

The Rule should be amended to exclude KBCs from its purview.

At present, outsourcing of services like catering, transport, gardening, house keeping, maintenance and other related services makes the KBCs liable as a principal employer and certain obligations are imposed by the Act. The provisions of the Contract Labour (Regulation & Abolition) Act should not be made applicable to KBCs outsourcing such services.

The definition of Principal employer under Contract Labour (Regulation & Abolition) Act should be amended as

"Establishment" means –

any office or department of the Government or a local authority, or

any place where any industry, trade, business, manufacture or occupation is carried on;

provided that the establishment is not a KBC".

As per Section 1(17) of the Act "Principal employer" means –

In a factory, the owner or occupier of the factory and includes ……………………….

In any establishment under the control of any department of any Government of India, …………………………..

In any other establishment, any person responsible for the supervision and control of the establishment;

KBCs should not be made liable as a Principal Employer under the provisions of the Act in respect of contract labour provided the concerned contractor is having a .ESI code number allotted by ESI Corporation.

The above definition of Principal employer shall be followed with

"exclusions – provided, the establishment is a KBC hiring the services of any contractor having ESI code number allotted by ESI Corporation."

As per Section 2(f) of Employers Provident Fund and Misc. Provisions Act 1952, employee means any person who is employed for wages in any kind of work manual or otherwise, in or in connection with the work of an establishment and who get his wages directly or indirectly from the employer and includes any person-

employed by or through a contractor in or in connection with the work of the establishment;

engaged as an apprentice, not being an apprentice…………………..

KBCs should not be made liable as a Principal Employer under the provisions of the Act in respect of contract labour provided the concerned contractor is having a Provident Fund code number allotted by Commissioner of Provident Fund.

The above definition of employee shall be followed with

"exclusions –

provided, the employee is engaged by the contractor having Provident Fund code number allotted by The Commissioner of Provident Fund and rendering services for a KBC."

Under the existing legislation related to Labour and Labour Welfare, the following persons/authorities have been vested with complete discretion and power to inspect establishments individually or jointly and issue directions which are mandatory in nature;

Senior Labour Inspector

Labour Officer

Asst. Labour Commissioner

Dy. Labour Commissioner

There is no provision in the existing statute to ensure that after inspection is carried out by one of the aforesaid persons/authorities subsequent inspections in respect of the same subject matter are not repeated by other authorities. Powers that have been granted to these authorities are so wide and arbitrary that they have quite often resulting in loss of valuable man-hours, particularly in the case of Export Oriented Units. It has also been found that understanding computer maintained records by such authorities is difficult as they have not been exposed to computers or their use. It is therefore, essential that KBCs be exempted from inspections at the whims and fancies of the aforesaid authorities. Instead, a common authority could be appointed who would carry out inspections on an annual basis at pre-determined times.

Annexure VI : Giving a Thrust to R&D – the Case of the Pharmaceutical Industry

We are bound to bring about legislative amendments to comply with the requirements of the WTO agreement. While on the one hand these changes are essential for the progress of science and innovation, on the other hand, they could threaten the survival of the domestic pharmaceutical industry in the short to medium term. In essence, this would mean that unless Indian companies are able to discover new drugs, they would be deprived of significant opportunities in the marketplace. So far, Indian companies have focussed on reverse engineering rather than basic research. Control over drug pricing (and resultant resource constraints), lack of critical mass and absence of a scientific culture has deterred Indian companies from investing into basic research. Unless this situation is corrected soon, the future of the indigenous pharmaceutical industry will be threatened in the new patent regime. In the interim, there is a need to nurture a scientific culture and promote innovation-based research in the pharmaceutical industry, while complying with our obligations under the WTO agreements, under sections 70.8 and 70.9. To protect the interest of the domestic pharmaceutical industry, it is vitally important not to advance the schedule of introduction of product patents which are due in 2005.

The pharmaceutical industry in India has the potential to go beyond the export of products, to generate wealth through the export of assets created through intellectual capital. Today, India is considered to be amongst the largest manufacturers of pharmaceuticals, accounting for nearly 8.5% of the world's pharmaceutical production. Despite price regulations, which restrict margins and limit the investible funds available for research, Indian companies have been able to develop cost competitive technologies which enable them to compete internationally. India exports pharmaceutical products all over the world and a few companies have established their presence in advanced markets as well. This is indicative of the inherent potential of Indian scientists, who are capable of creating intellectual capital which can be leveraged to generate wealth with limited resources.

World-wide, companies in the pharmaceutical industry invest billions of dollars in research to discover new drugs. While there is abundant human capital available in India, pharma companies in the country cannot sustain such high levels of R&D activity and need support and encouragement to make headway in R&D.

The area of intellectual assets is gaining in importance and will play a key role in the success of the Indian pharmaceutical industry. These assets are manifest in the cost-effective technologies developed by Indian scientists and the new chemical entities that are being developed by a few Indian companies. In future, in addition to exporting products, Indian companies could begin to market knowledge based assets. The areas in which cost competitive research can be carried out in India should be encouraged by Government, because it is possible for Indian companies to open up a niche area of exports, viz. intellectual assets. The software industry has demonstrated that it is possible to market 'knowledge' much more profitably than goods. The marketing of intellectual property in the area of pharmaceuticals could be through the sale or lease of technology developed in India to overseas companies, or sale of marketing rights for molecules developed in India, to companies abroad. This could open up a new window for earning foreign exchange for the country.

The objective should be not only reducing the overall cost of research, but also, making optimal commercial use of scientific enterprise in the field of pharmaceutical research. The benefit of this will eventually flow to consumers, who will have access to newer drugs, at a lower cost.

This section describes some specific steps that could be taken for enhancing the quality and productivity of research in India. The fact that Indian companies do not have the critical mass to carry out research on a sustainable basis, is one of the reasons that the Indian industry has lagged behind the developed economies. Industry and Government can benefit from economies of scale and scope by pooling their resources together. An important factor that needs to be recognised upfront, is that research is specific to companies and can not be expected to be applied generally to the entire industry. Therefore, the policies adopted by Government to encourage research and science in India, should be sensitive to the needs of the sector and the strengths and nuances of individual companies. This would require effective networking between Government labs and private sector (research oriented) companies through one-on-one JV arrangements. Various sections of this note list out possible means by which research endeavours in industry can be encouraged to play a meaningful role.

In order to make the best use of research, it is important not only to conduct research in laboratories, but also, to develop strengths for commercialising technology. A possible solution lies in creating venture capital funds to support research and development activity. The source of these funds could be a small portion of tax collections from the pharmaceutical sector, and this amount could then be handed to a financial institution for setting up of a venture capital corpus for funding specific research projects.

The pharmaceutical sector contributes over Rs. 3000 Crores, per annum to the exchequer through various forms of taxes. If the Government were to set aside Rs. 500 crores each year for funding research in the area of discovery of new molecules, it would serve to give a major boost to research in this sector.

This amount could be deployed in 20 or so meaningful projects, for discovery of new molecules. The decision to fund a research project could be left to a high powered technical committee, comprising scientists from DST, CSIR and industry, who would recommend each project on the basis of its merits. Such projects should then be progressed on a fast track, free from bureaucratic hurdles, and encouraged by Government to put the industry's development on a fast track.

To further aid the availability of financial resources for discovery research, necessary efforts should be made through instruments in capital markets for raising equity directed towards funding research. This may require regulation through SEBI, so that capital is made available specifically for conducting discovery research in the field of pharmaceuticals.

Special long-term soft loans could be made available for the purpose of conducting discovery research, where drawl and repayment of loans would be synchronised with completion and commercialisation of research projects.

These measures will provide an opening for Indian companies to launch meaningful research projects in the area of pharmaceutical research. This is essential in the interim period, where industry needs support and encouragement for preparing to meet the challenge of the new patent regime. However, in the final analysis, the industry will build on its own success for finding avenues to conduct research on a sustainable basis.

High cost of discovering a new drug and vast spectrum of skills required in the process, create high entry barriers for the Indian pharmaceutical industry. There is a huge gap between our future demand position and our abilities to adequately meet those demands. Neither the industry, nor the Government has taken measures to address this gap through discovery of new drugs in India. The solution lies in effective networking between Government labs and those companies who have significant research strengths in an identified area. There needs to be a focused effort, where Government labs (such as IICT, CDRI) enter into separate agreements (through joint ventures) with select companies for carrying out research in the area of drug discovery. Discovery of new drugs, which is an expensive, risky and time consuming process and involves a multi-disciplinary approach, needs a strategy by which, both industry and Government can profit, by forming joint ventures in the areas of drug design and synthesis, toxicology and pharmacology studies and clinical studies. While the details of such agreements can be worked out, a broad framework is presented below.

The first step for the Government, in this direction would be to collaborate with select research oriented Indian pharmaceutical companies and set up drug design and screening centres with high throughput capabilities, on a one-on-one basis. The involvement of Government labs at this stage would be dominant, as the requisite strength and infrastructure in this area is abundant in various Government research laboratories and academic institutions in India. The next step, is to conduct pharmacology and toxicology studies on the leads identified at this stage.

For conducting GLP conforming pharmacology and toxicology studies, Government could set up a few centres of excellence, where Government and industry leaders could be equal partners through separate joint venture arrangements. This should again be a partnership between one Government lab and a single, identified company. For such a venture, capital, equipment and expertise should be shared equally by the industry and the Government. This facility would essentially cater to the needs of the JV, it could also function as a contract research organisation for optimal utilisation of its spare capacity.

The final step in the process of discovery research is to conduct clinical trials on humans. For this, it is possible to create facilities for clinical trials conforming to GCP standards at identified Government hospitals, again through the joint venture route. These facilities can be created with the help of companies who have expertise in the field of clinical research. This facility would essentially cater to the needs of the JV, it could also function as a contract research organisation for optimal utilisation of its spare capacity.

In order to put the entire program on a fast track, it is important to completely de-bureaucratise these collaborations. They should be run under an autonomous scientific body with a meaningful corpus, created out of joint venture agreements, between the private sector and the Government.

Time has now come to give a fillip to the industry by actively promoting research and science, and encouraging Indian companies to develop knowledge based competencies to meet the challenges of the new patent regime. Industry should be provided with such avenues where it draws strengths from Government to prosper and aid in the overall well being of nation's economy.

The pharmaceutical industry has been subjected to price controls over the last three decades, which did not recognise the need for focussing on research. While the aspect of providing a cost-effective means of healthcare for the masses cannot be ignored, it must never result in stifling of the future of industry. A balance needs to be drawn between the social imperative of providing effective healthcare and Government's stated objective of being a facilitator rather than a governor of the industry. In order to meet its social objective, the Government could exercise macro level policy control rather than product specific micro measures (through DPCO). All efforts should be made to control monopolistic situations in the industry, through price controls or any other suitable means, whereas, other (market based competition) products should be allowed to be priced at market determined levels. While encouraging science through the measures suggested in the note will provide a launching pad for research oriented companies to initiate meaningful research activity in India, unless the industry is able to generate an investible surplus, it will not be in a position to conduct research on a sustainable basis.

Annexure VII : Income from Export of Intellectual Assets

Currently, profits from export of goods or merchandise are exempt from tax U/S 80 HHC, and profits from export of computer software as well as affiliated technical services in are exempt U/S 80 HHE.

However, the income received in foreign exchange by way of royalty for use of intellectual property rights (IPRs) such as patents, inventions, secret formulae or processes, etc. developed indigenously is eligible for deduction U/S 80-O at 50% only and Income received through outright sale of such IPRs is chargeable to tax as capital gains. Further, this income, whether received as royalty or as capital gains, is subject to Minimum Alternative Tax (MAT) U/S 115JA.

This needs to be amended by giving tax incentives to encourage Indian companies to export intellectual property from India.

In clause (1) in Section 80 HHE, after sub-clause (ii), the following sub-clauses should be inserted:-

"(iii) Export of intellectual property rights (IPRs) such as patent, invention, secret formula or process, etc. out of India.

(iv) Any other income received in consideration for the use outside India of any intellectual property rights (IPRs) such as patent, invention, secret formula or process, etc."

After incorporation of these amendments in Section 80HHE, the provisions of Section 80-O, with regard to royalty payments in foreign exchange may be suitably changed.