From courts to markets: New evidence on enforcement of pharmaceutical bans in India

Regulatory enforcement of product safety standards given health concerns, whether it is in romaine lettuce, smartphones or cars, is emerging to be a challenge for global public health. This is particularly true for developing economies with fragile institutions. In this context, recent studies on Indian pharmaceutical markets provide evidence suggesting that the sector is a hub for substandard quality of medicines. Departing from these prior studies which use randomly collected samples, we reinvestigate this question using novel pan-India market sales data of banned medicines from 0.75 million pharmacists and chemists in India. We find that indeed such medicines get sold in India even after bans are imposed on them in the period 2007 to 2013. However, there is a general decline in demand post ban for our focal molecules suggesting broad adherence to bans. We also observe regional heterogeneity in prevalence of banned medicines sold between rich and poor regions of India with the former counterintuitively showing more sales. That said, while Ozawa et al. (2018) argue that prevalence of substandard medicines is around 13% in low and middle-income countries, we find an infringement ratio which is more muted in India at about 5%. Finally, a regression-based examination suggests that prior firm presence in therapeutic markets and popularity of molecules positively impact the likelihood of sale of banned medicines in India. Our results are robust to alternative explanations and are substantiated with a theoretical set up examining firm trade-offs in the decision to infringe. India has recently been under the lens of the global access to medicines debate and our findings have important policy implications for global health.