Commercialising Traditional Medicine: Ayurvedic Manufacturing in Kerala

Abstract

This is an attempt to answer two questions on the manufacture of ayurvedic products in Kerala. First, has the performance of the ayurvedic sector been impressive? Preliminary analysis shows that the ayurvedic industry, which has a concentrated market structure, is growing at a much higher rate than that of overall manufacturing. Considering the fact that the ayurvedic medicinal ingredients are sourced differently, namely, from herbal, metal and mineral substances that cannot be industrially manufactured, the second question is: what are the challenges faced by the ayurvedic medicine manufacturing sector? The paper also throws light on the economic relevance of ayurvedic knowledge and how modern firms have amassed it in a competitive environment

Full text

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indian systems of medicine
april 18, 2009 vol xliv no 16
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‘commercialising traditional medicine’:
ayurvedic manufacturing in Kerala
M S Harilal
This is an attempt to answer two questions on the
manufacture of ayurvedic products in Kerala.
First, has the performance of the ayurvedic sector been
impressive? Preliminary analysis shows that the
ayurvedic industry, which has a concentrated market
structure, is growing at a much higher rate than that of
overall manufacturing. Considering the fact that the
ayurvedic medicinal ingredients are sourced
differently, namely, from herbal, metal and mineral
substances that cannot be industrially manufactured,
the second question is: what are the challenges faced by
the ayurvedic medicine manufacturing sector? The
paper also throws light on the economic relevance of
ayurvedic knowledge and how modern firms have
amassed it in a competitive environment.
The author is grateful to the comments received from V Sujatha,
Leena Abraham, P Mohanan Pillai, J Devika, Rama V Baru, N Shanta
and Raviraman on the earlier version of this paper.
M S Harilal (harilalms@gmail.com) is a doctoral candidate,
Centre for Development Studies, Thiruvananthapuram.
A
This revival is marked by negotiations and compromises within
and outside the system. The process started with educational re-
form in different parts of the country and lobbying with the cen-
tral and state governments to divert policy attention towards
qualified practitioners of the indigenous systems of medicines.
This necessarily resulted in a strong pluralistic health service
delivery system, where people have better choice, but under the
conditions of unequal power relations between systems of
medicine (Prasad 2007). As there has been a steep increase in the
cost of health maintenance under biomedicine, the indigenous
health systems have become popular and this choice has been
bolstered by the global consumer preference towards plant medi-
cine and natural products. In the Indian context of medical plu-
ralism, ayurveda has been seen as an indigenous counterpart to
biomedicine, but in the global health market, it is one of the many
alternatives to orthodox medicine, namely biomedicine.
In fact, developments in ayurveda during the past two centuries
through organised production of medicine, institutionalisation of
education and professionalisation of clinical practice have often
been parallel to, or a response to developments in biomedicine in
India. Manufacturing in ayurveda has passed from small-scale
physician outlet to petty/cottage production and later to the
industrial scale, emerging as a competing alternative to the
biopharmaceutical market.
Earlier, in the initial half of the 19th century, a number of
households produced and distributed ayurvedic drugs. But the
production and distribution was not based on any pricing mecha-
nism. This means that while raw herbal, metal and mineral prod-
ucts were traded and marketed in a big way, ready-made medi-
cines were never considered as a “commodity” to be marketed for
money. The production of medicine was concentrated in and
around the physician’s residence or locality and the service and
production costs were not clearly distinguished. Various
reasons, including the inability of the modern system to cater to the
healthcare needs of a large number of villages, helped the indig-
enous systems to remain significant throughout the period. In the
mid-19th century, demand emerged for medicines when vaidyas
responded to the spread of epidemics, especially in the case of cholera
and small pox (Varier 2002; Bhattacharya 2001). In responding
to these problems in the 1880s bold initiatives were made by some
vaidyas to shift from household production to bulk production.1
The first initiatives in large-scale medicinal production were
yurvedic practice in modern India reflects a prolonged
history of standardisation and professionalisation that
transformed certain aspects of this medical tradition.

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seen in the late 19th century in Bengal2 by Kavirajas (Gupta 1976;
Bala 1991; Kumar 2001) and in Kerala by P S Varier (Varier
2002), and later, spread to different parts of the country.
Mechanised production of ayurvedic medicines initiated by
the vaidya community was intended to make the medicines more
palatable, improve their shelf life, and provide information about
the content of medicine in the labels. In the production process, this
was accompanied by centralised manufacturing systems and
some amount of mechanisation. By the end of the 20th century,
the turnover of the industry was more than government funding
for ayurvedic and unani education, treatment and research
(Bode 2004). We may delineate a second phase of commerciali-
sation of the ayurvedic medical sector in the end of the 20th
century, marked by a move from bulk to mass industri alised pro-
duction. In this later phase, the process was not necessarily under
the control of the vaidyas, but with the manufacturing firms. This
phase was governed by the dynamics of the market and state reg-
ulations on drug development; and at this juncture, clinical test-
ing and usage of scientific methods became a necessity. Today
there are hyper modern factories of ayurvedic medicine and the
production process is completely mechanised, where the phases
of traditional medicine production are no longer visible, though
this is not true in the case of numerous small manufacturers.
An analysis of ayurvedic manufacturing industry is germane
for the simple reason that we are more or less ignorant about the
dynamics of this thriving industry in the 21st century. The
pluralistic healthcare market is of great relevance as a strong
parallel to allopathic generic medicine market in the contem-
porary context. But there is hardly any authentic estimate of income
generated through ayurvedic manufacturing in India. In this
paper, we make an attempt to understand the organised ayurvedic
manufacturing sector in Kerala, one of the prominent states,
where ayurveda has its lineage. This is borne out by the fact that
only 34% of the private medical institutions in Kerala (in 1995)
were allopathic medical institutions, while 39% were ayurvedic,
and 24.7% were homeopathic medical institutions and the share
of other systems of medicine (mostly unani, siddha, etc), marginal
(Sankar 2001). Hence, an analysis of Kerala would not be repre-
sentative of the Indian situation with ayurvedic manufacturing
sector, but certainly throws light on the conditions and coping
strategies of the industry in a region which is its stronghold.
Due to non-availability of data we have to confine the analysis
only to the organised sector (nine out of 12 manufacturing units)
during the period 1993-05. The major sources of data for this
study are from Ayurvedic Manufacturing Association of India
(AMAI), Registrar of Companies, Kochi, Kerala State Industrial
Development Corporation (KSIDC), Thiruvananthapuram, Con-
federation of Indian Industries (CII), Kochi, Drug Controllers’
Office, Thiruvananthapuram and administrative documents of
ayurvedic firms to name a few, from which we have compiled the
information. The rationale for selection of this study period is
higher growth, which is visible mainly in the last decade and
many major firms have started their operations in the 1990s.
This study is presented in four sections to follow: We start with
contemporary ayurvedic market and its nature; the second section
discusses manufacturing sector of Kerala and its performance;
the subsequent section tries to look into the exports and research
and development (R&D); while the final section analyses the
product pattern shift and sustainability issues and concludes
with our observations.
1 size, structure and Product Profile
Ayurvedic manufacturing industry is different from the general
pharmaceutical industry in terms of source of knowledge, nature
and process of drug discovery, scientific applications, fragmenta-
tion of markets, consumer categories and pricing. It shares simi-
larities with the pharmaceutical sector in the case of product in-
novation, marketing strategies, institutional development and
networking. India’s pharmaceutical industry is one of the fastest
growing segments of the Indian economy with an average annual
growth rate of 14% during 2002-05 (Greene 2007). The value of
the pharmaceutical market in India was $6 billion in 2004 repre-
senting 2% of global market, and ranking fourth in terms of
volume and 13th in value (Mani 2006). Though the turnover from
ayurvedic sector constitutes meagre in terms of actual, it also holds
2% of the global herbal market. Unlike the biopharmaceutical
industry, where we have evidence that within therapeutic cate-
gory like antibiotics, the degree of concentration is much higher
(Chaudhuri 2005), the
market concentration
is much higher in gen-
eral ayurvedic sector
as well as in the herbal
cosmetics category. As
shown in Table 1, the
industrial scene in this
sector has oligopoli-
stic structure with few big firms dominating the market share
and thousands of other small firms contributing very little, but
having a wider social base.
The leading companies like Dabur, Zandu, Himalaya, Arya
Vaidya Sala, Kottakkal (henceforth, AVS) have achieved a signi-
ficant growth in the last few years. In 2003, among 9,000
ayurvedic firms, a mere 2%, constituted more than 80% of the
market share, while the rest of the firms (small/tiny/household)
had a smaller percentage, though they have a strong niche
market in some regions, especially in rural areas. The smaller
firms cater to a large spectrum of population by providing with
low cost ayurvedic medicine.
Currently, ayurvedic and unani health and beauty products
could be broadly divided into three categories: classical formula-
tions, biomedical providers and consumer brands.3 The consumer
brands (over the counter products) are advertised directly to con-
sumers through public media such as television, newspapers and
magazines. In contrast, the biomedical providers are marketed
to physicians, pharmacists and chemists. Liv 52, Geriforte (anti-
ageing), both from Himalaya are examples for ayurvedic bio-
medical providers, and in principle, are available only on pre-
scription. Classical products like Chyawanprash, Dasamularishta,
Triphala are also marketed directly and purchased without the
prescription of the physicians, while some of the lesser known
formulations like Praval Bhasma, Chandraprabha, Vatika are
table 1: distribution of 7,000 ayurvedic
manufacturers in india ($)
Licensed Ayurvedic Units
10 large units
25 medium units

965 small units

6000 very small units < $250,000 (Rs 1 crore)
Source: MoHFW (2001).
Turnover
> 12.5 $ million (Rs 50 crore)
Between $1.23 and
$12.5 million
Between $250,000 and
$1.25 million

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available as per vaidya’s prescription. Generally, the proprietary
medicines and the beauty products fall into the category of con-
sumer brands and seem to be fast moving in the world market.
There is, however, a very thin line between the three categories
and quite often manufacturers shift their products between them.
A case for this is Pudinhara, a remedy for gripe, stomach aches,
gas and indigestion, has recently been converted by Dabur from
biomedical provider category to the consumer good category, be-
cause of its huge production costs, and now it is widely advertised
through popular media. On the other hand, the same product
may be positioned differently by different firms. For example,
Chyawanprash is a consumer good for Himalaya, but a biomedi-
cal provider for Dabur and a classical medicine for AVS.
A comparative structure of ayurvedic and biopharmaceutical
industry shows that product pattern is different in both the systems.
Biomedical industry is also dominated by small firms in the cate-
gory of bulk drugs4 and vaccines and large firms are concentrated
in the formulation type. In Table 2, “branded products” include
both consumer good category and biomedical provider category.
With AVS as an important exception, branded products dominate
the sales of other
firms. Within the firms
there are some lead-
ing products that gen-
erate the highest in-
come for the firm.
In the current situation, most of the companies target the ex-
ternal market through new marketing techniques and shift in
product profile to suit the global demands. Dabur attributes its
growth over the last decade to the sale of its products via whole-
salers in specific markets as large as the Netherlands and Greece.
And now the company moved from the traditional ayurvedic sta-
tus and to branded products and its product profile is like this:
Dabur hair oil, Lal Danthamanjan (tooth powder) are the major
items ($67 million) of the family products and the Chyawanprash
and Hajmola, digestive Pudinhara include in the healthcare prod-
ucts ($60 million) and the ayurvedic basic medicines are the mi-
nor category of the product sections.
2 Performance analysis in Kerala
Kerala is considered to be the home of traditional ayurvedic
system, with a rich biodiversity and natural ingredients based on
plant species. Kerala has the second largest number of ayurvedic
manufacturing units (12% of total manufacturing units) next to
Uttar Pradesh. In Kerala, AVS medicinal unit, established in 1903,
was the pioneer in mechanisation and bulk production as solu-
tion to the constraints in the steady supply of medicines. While
P S Varier did not envisage total centralisation of ayurvedic
medicinal production, he thought it necessary to have regional
centres that would supply good quality medicines to all practising
physicians in the area. The developments in ayurvedic pharmacy
during the past half a century focused on the enhancement of
potency, changing the form of medicine (for instance, decoctions
into tablets) and improving palatability. AVS initiated the mecha-
nisation era with the initiation of AC generator in 1949 and a
counter line grinding system with 12 grinders in 1952.
The sample consists of the firms under different types of owner-
ship such as public limited, private limited and private trust. Of
these, AVS constitutes more than 33% of market, while the public
sector firms contributed less than 12%.
Today, almost all leading ayurvedic firms have their outlets
throughout Kerala, but each firm has created its brand loyalty and
niche market in particular regions within Kerala: AVS in north
Kerala (Malappuram, Kasargode, Palakkad); Sitaram, Arya Vaidya
Pharmacy and Vaidya Ratnam in Thrissur-Ernakulam belt; and
Nagarjuna herbal concentrates in south Kerala (Ernakulam and
southward), SD Pharmacy, Oushadhi and Pankajakasthuri cater
to all regions of Kerala. Though concentrated in structure, it is
important to note that in Kerala, medicinal production consti-
tutes bulk of the ayurvedic manufacturing sector unlike other
states, where nutraceuticals and cosmetics have the dominance.
Ayurvedic manufacturers in Kerala could be broadly categorised
under the following three types:
(1) Household level, small manufacturing centres run largely by
vaidyas to serve the village needs. These are largely self-regulated
entities, growing on the basis of the track record and credibility.
(2) Large-scale units solely manufacturing ayurvedic medicines
as per the texts. Many a times, these companies draw upon tradi-
tional knowledge and selectively adopt modern technology to
attain growth.
(3) Firms, which mainly concentrate on the nutraceuticals5
and cosmetics along with medicines. However, they face regula-
tory problems.
The second type is the most common in Kerala though the third
type of firms is new and emerging. While considering the organ-
ised large manufacturers of the second and third category, market
structure is basically one of monopolistic competition because
largely, each firm adopts similar range of products except for some
difference in the formulation or the combination in the products.
The price system is also very competitive and less barrier to entry.
We have instances of huge success of several ayurvedic formula-
tions, which are promoted as nutraceuticals like Kamilari liver
tonic, Kandamkulathil Eladi Lehyam and Benatone. The preva-
lent practice in the industry is a large number of classical/proprie-
tary products, in which a small addition or omission has been
made from the original formulae. The alteration in the classical
formula makes the product branded (case of Chyawanprash).
The third category of branded products is also poised for
growth in Kerala. For instance, in the case of Pankajakasthuri, in
table 2: Break-up of the Product sales of the four
Large ayurvedic firms (in %)
Manufacturers Dabur
Consumer brands 97
Classical products
Source: Bode (2004).
Himalaya Zandu
100
None
AVS
80 None
20 3 100
table 3: sample firms – ownership and market share
Sl No Firm

A.1 AVS
B.1 Kerala Ayurveda, Ernakulam
B.2 Oushadhi, Thrissur
C.1 Nagarjuna Herbal Concentrates
C.2 Vaidya Ratnam, Thrissur
C.3 Santhigiri
C.4 SD Pharmacy
C.5 Pankajakasthuri
C.6 Sitaram Ayurvedic Pharmaceuticals
Other small manufacturing units
Total
Source: AMAI (2006).
Ownership

Private trust
Market Share, Market Share,
2005 (%)
33.02
1996 (%)
33.33
Public 11.79 10.01
Private
Mostly private

27.37
27.82
100
26.63
30.03
100

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2000, about 92% of the total sales were shared by Pankaja-
kasthuri medicine (granules for breathing disorders) and Illogen
Excel, an anti-diabetic medicine. But the market pattern has
changed towards cosmetics; Kaveri fairness cream suddenly rose
to the second largest product, with 28% share of income while
medicine, Illogen’s share declined to 21% from 47% in the year
2002. Pankajakasthuri granules and tablets were popularised
under a new name Breathe Easy, and has retained a sales turno-
ver of Rs 2.92 crore. This is an evidence of the sudden shift in
emphasis from medicine to cosmetics.
The Drugs and Cosmetic Act (DCA) of 1940 is silent on this
emerging class of branded products, while they are widely used
by the people.6 This allows companies to escape the regulative
hurdles of efficacy and toxicity tests; further, when they are
promoted as nutraceuticals they fall into the lower tax category.
2.1 macro trends: status, Profitability and Growth
There has been a sustained growth in the number of ayurvedic
manufacturing units and in 2005 (Figure 1), it stands as 986 and
the state comes next to Uttar Pradesh in the national scene. Re-
cently there has been a decline in the number, but the established
firms improved their market share. Districtwise data of ayurvedic
firms shows that concentration of industry in the state is espe-
cially in Thrissur. There are 195 manufacturing units (more than
20% of the total) in Thrissur, because it is the home-ground of the
Ashtavaidya families7 who continue to exert a strong influence
here and Vaidyaratnam, a major firm is connected to Thaikkattu
Moosath, one of the Ashtavaidyas. Kollam and Ernakulam follow
Thrissur with 121 and 112 units, respectively.
The overall trend with regard to sales is upbeat. For the whole
period, sales recorded a compound growth rate (CGR) of 14.6%.
During this period of analysis, there were two price revisions by
the industry. First was in 1998, around 3% hike in the price level
and second 9% in 2002. But the price revision did not seem to
have an impact on the demand for the medicines as evident from
the growth rate of over 12% in the second period. Moreover, the
period saw the entry of innovative ayurvedic non-drug products
into the market, which was largely advertised in the popular
media. Demand was created by the specific promotional tech-
niques in the upper middle class, and in a short while these pro-
prietary drugs8 became blockbuster products of the companies
(e g, Kaveri fairness cream, Anoop herbal oil and Kamilari liver
tonic). In 2004-05, the sampled firms’ data showed, the total sale
were around Rs 300 crore approximately and constituted less
than 10% of Indian market. The trend in net assets was almost
stagnant after an initial increase.
Despite the constraints like increasing raw material expendi-
ture, firms like AVS, Vaidyaratnam and Oushadhi have made sig-
nificant profits. Value addition to total production in terms of fac-
tor incomes and other payments in the total value of output re-
veals a fluctuating behaviour, with an increase from 1993 to 1995
and then a stagnation from 1995 to 1998 then a fall till 2000 and
again an increase, over time it has been hovering in the range of
50-55%. But, if we look into the trend of both the production and
net value addition (NVA) separately, it is of an increasing trend
and NVA-output ratio shows a marginal increase.
Table 4 gives the trend in the profitability ratios9 of the ayurvedic
industry. All profitability ratios declined in 2001-02 after an im-
provement in 2000, which shows that the rate of growth of profit is
less than the growth of assets and net worth. But again, there is a
spurt of growth in all the ratios in the recent years. The decrease in
the total profit earning is due to the fact that some firms have made
loss intermittently due to managerial inefficiency. But the recent
data shows that in the year 2007-08, Kerala Ayurveda Limited
(KAL) has recovered and made a net profit of more than Rs 4.5
crore10 and that its annual revenue has crossed Rs 10 crore.
Table 5 analyses the significance and contribution of ayurvedic
industry in the manufacturing sector of Kerala, using ASI data.
The share of major variables like gross output, NVA and gross
value added (GVA) has improved over the years. Data reveals that
ayurvedic industry is contributing around 2.75% to the GVA and
3.13% to the NVA to the manufacturing sector, while the gross
output comes around 0.70% of the manufacturing sector. Share
of fixed capital shows an increasing trend moving from 0.26% to
0.50%, productive capital increased from 0.4% to 0.9% in 1995,
and declined to 0.73% in 2004-05. This is due to the fluctuation
in the share of working capital and it is improving in the recent
years. The increasing share of NVA and other variables in the state
manufacturing shows increased significance of this industry over
1000
800
600
400
200
0
figure 1: organised ayurvedic manufacturing Units in Kerala 1975-05 (in number)
Source: Drug controller’s office, Thiruvananthapuram.
1976 1978 1900 1982 1984 1986 1988 1990 1992 1998 2005
table 4: Profitability Ratios
Year


1992-93
1994-95
1997-98
1999-2000
2001-02
2004-05
Source: Compiled from annual reports.
Gross Profit
(In Lakh)

303.79
531.50
628.71
887.14
742.78
1,012.45
Net Assets
(In Lakh)

1,502.39
4,291.16
4,332.53
4,355.64 1,609.83
5,253.24 1,446.09
5,638.75 1,621.06
Net Worth
(In Lakh)

341.86
769.50
1,397.51
Return on
Net Assets
(%)
20.22
12.39
14.51
20.37
14.14
17.95
Return on
Net Worth
(%)
88.86
69.07
44.99
55.11
51.36
62.45
Return On
Capital
Employed (%)
19.35
11.50
14.94
16.12
10.76
14.61
table 5: share of ayurvedic industry in state manufacturing (in %)
Fixed Productive
Capital Capital
1992-93 0.262 0.461
1994-95 0.296 0.981
1997-98 0.288 0.381
1999-2000 0.401 0.638
2001-02 0.426 0.783
2004-05 0.509 0.739
Source: Compiled from ASI and firms’ annual documents.
Value of
Output
0.523
0.744
0.517
0.580
0.712
0.703
Depreciation

0.177
0.562
0.394
0.555
0.741
0.679
GVA

1.174
1.544
1.537
1.804
2.319
2.752
NVA

1.316
1.656
1.720
1.989
2.621
3.138
Net
Profits
0.886
0.974
1.595
0.789
1.212
1.614
figure 2: trends in net sales and net assets (in lakh)
Source: Compiled from firms’ annual reports.
30000
20000
10000
0
1992-93 1994-95 1997-98 1999-2000 2001-02 2004-05
Net sales
Net assets

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the last decade. Growth rate of these variables gives a clear
picture (Table 6).
During 1992-93 to 2004-05, all variables of ayurvedic manu-
facturing are showing a much higher growth rate and consist-
ency. But when we divide period into two, first time period shows
the same trend except for productive capital and value of output.
But in the second period, i e, 1999-2000 to 2004-05, there is a
decline in the growth rate of the ayurvedic sector as compared
with first period; however, the sector experienced much higher
growth than the factory sector. Incidentally, this is a period in
which Kerala’s manufacturing sector suffered a severe crisis, but
the ayurvedic industry has performed decently and more consist-
ently throughout the period, it is visible that net profit of the ay-
urvedic sector is much higher than that of manufacturing sector.
Thus the reduction in the growth rate during the second period
may be due to an overall industrial slowdown.
It is necessary to mention here that the crucial moves to
consolidate achievements in the ayurvedic medicinal products
sector and to support large number of manufacturing firms
were made from 2000 onwards. The formation of the Confed-
eration for Ayurvedic Renaissance-Keralam (CARe-Keralam)11
is one such development. The objective of this consortium was
to promote Kerala as a global destination for sourcing ayurvedic
products and services of internationally acceptable standards.
The consortium also facilitates the creation of common facili-
ties for raw material supply, quality control laboratories, R&D
facility and positioning Kerala Ayurveda as a brand. This and
several initiatives have had major implications for Kerala
ayurvedic sector.
3 external sector, R&d and standardisation
3.1 exports of ayurvedic Products: india
An estimate (Gautam et al 2002) shows that about 84% of the
domestic market for Indian system of medicine is for ayurveda,
13% for homeopathy and 3% for unani and siddha. Here, the
export data available with Directorate General of Commercial
Intelligence and Statistics (DGCIS) (eight-digit level) has been
used to understand the quantum of ayurvedic and unani exports,
and they are listed under three heads. They are: Code 1211:
Plants and parts of plants including seeds and fruits used
for perfumery pharmacy or similar purposes, 30039001:
Ayurvedic and Unani medicines (medicaments consisting of two
or more constituents, which have been mixed together for thera-
peutic uses for bulk sale) 30049001: Ayurvedic and Unani medi-
cines for retail sale.12
Ayurvedic and unani products for bulk sales (i e, 30039001)
have gone up in a substantial scale in the past seven years. It has
marked 39% growth during this period, more than 5% annually.
The highest point of growth occurred in 2002-03 due to an in-
creased demand for ayurvedic products in the United States (US).
The export to the US has gone up from 10% to more than 65% per
year. This put the US as a major trade partner of India in the tradi-
tional medicine export front. Recently, Nepal has also emerged as a
major destination with more than $5 million. Trade of medicines
for retail sale added significantly to this with a growth of 7%.
In the case of plants and plant materials (Table 7), the growth
of export is not very encouraging. This reflects the difficulty faced
by many firms to get adequate and non-adulterated plant mate-
rial for the production of medicines and other herbal products.
Concerns about the depletion of bio-
logical diversity due to overharvest-
ing and urbanisation is another fac-
tor. The US is the major export desti-
nation for plant materials as well,
with more than 40% of the exports.
The export of ayurvedic medicines
for retail sale has shown substantial
growth and shift in the export desti-
nations. The United Kingdom (UK)
and the US replaced Russia and Nepal
in the case of retail ayurvedic prod-
ucts. Still Russia remains the single
largest importer with more than $45
million in international market.
The biopharmaceutical industry in
India has attained significant growth in
export market owing to high drug prices
in the west. India’s pharmaceutical
exports grew from $1.9 million in
table 6: ayurvedic industry and Kerala manufacturing sector – Growth (in %)
Fixed Capital
CGR 1992-93 to 2004-05
Ayurveda 8.32 (35.94) 7.54 (29.53) 8.53 (39.49) 20.55 (67.00) 8.96 (38.71) 8.77 (38.10) 5.26 (22.55)
Manufacture 2.92 (24.27) 3.70 (29.40) 6.08 (33.37) 8.70 (41.38) 2.04 (13.04) 1.74 (11.88) 0.51 (32.19)
CGR 1992-93 to 1997-98
Ayurveda 13.85 (41.70) 11.35 (41.36) 7.32 (21.78) 28.02 (60.34) 9.49 (26.74) 9.24 (26.18) 3.96 (14.59)
Manufacture 12.07 (39.17) 14.93 (47.83) 7.54 (33.45) 12.00 (42.65) 4.68 (16.03) 4.46 (14.53) -5.75 (26.40)
CGR 1999-2000 to 2004-05
Ayurveda 3.55 (10.48) 2.51 (10.71) 6.45 (19.66) 10.37 (28.80) 6.58 (19.23) 6.49 (19.12) 3.18 (14.75)
Manufacture -0.50 (3.47) 0.02 (0.43) 3.06 (13.95) 6.73 (19.31) -0.66 (3.88) -1.31 (6.01) -8.42 (32.54)
Number in parentheses is coefficient of variation.
Source: As of Table 5.
Productive K Output Value Depreciation GVA NVA Net Profits
250
200
150
100
50
0
1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03
1211
30039001
30049001
Total
figure 3: export of ayurvedic categories from india (1996-97 to 2002-03)
(Exports of ayurvedic and unani products ($ million))
Source: DGCIS, Ministry of Commerce, Government of India.
table 7: major export destinations in Plant and Parts of Plants (in $ million)
1996-97 1997-98 1998-99 1999-2000
Total 66.87 68.52 63.88
USA 28.25 37.97
UK 4.07 3.21
Germany 5.91 4.15
Spain 0.87 0.84
Pakistan 1.57 1.33
Japan 2.6 3.32
Source: DGCIS, Ministry of Commerce, Government of India.
2000-01
78.24
31.02
3.93
3.26
0.94
1.78
4.34
2001-02
77.78
37.19
2.7
2.1
2.4
1.06
5.46
2002-03
69.05
27.1
3.5
2.76
3.43
1.17
6.21
2003-04
65.75
24.39
2.46
2.96
4.58
1.24
4.32
2004-05
61.66
22.85
2.5
2.72
3.05
2.07
2.89
2005-06
79.29
29.71
2.57
3.81
3.11
5.76
3.66
CGR
1.72
0.51
-4.49
-4.30
13.59
13.88
3.48
44.18
17.69
1.67
2.48
1.04
1.66
3.58
27.85
3.61
3.21
1.55
1.37
2.36

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Economic & Political Weekly
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49
1999 to $5.2 billion in 2005 with a trade surplus of $3.8 billion
and the vast majority of India’s exports, are mainly to developed
economies of the west, particularly the US, Germany, the UK
and Russia (28%, 10%, 8%, 11%, respectively). On the other hand,
most of the ayurvedic exports from India are in the form of
food supplements, toiletry products and cosmeceuticals. This is
because of the non-acceptance of ayurvedic medicines and drugs
for want of data on its scientific proof13 and efficacy standards.
Presently, countries like Malaysia, UAE, Switzerland and Singapore
have accepted manufactured ayurvedic medicines from India,
subject to safety and efficacy tests. But the US does not consider
these drugs as medicine but as “dietary supplements”. The label
has to explicitly state that they are not intended to treat any
disease, nor been evaluated as a drug by the country’s Food and
Drug Administration. Large manufacturing units in the ayurvedic
sector are concentrating on single drug formulations that are
easy to validate rather than formula drugs, whose multiple in-
gredients make them difficult candidates for testing and valida-
tion. This is likely to result in a major shift in the composition of
ayurvedic formulations.
3.2 Kerala and the international market
In Kerala, a strict demarcation under the categories like con-
sumer brands, biomedical provider brands and classical medi-
cines is not available, and most often, the boundaries between
these categories are
very fluid and artificial
since there are no of-
ficial rules, which tie
a product to a particu-
lar category. Manu-
facturers move goods
freely from one cate-
gory to another.
The markets for
cosmeceuticals and the nutraceuticals are increasing in the for-
eign countries, and hence, many medicine-producing firms di-
versify their products to nutraceuticals. Pankajakasthuri and
Oushadhi are examples for this. The main export destinations of
Pankajakasthuri Herbals Limited (PKHL) are Malaysia, South Africa
and the west Asia. United Arab Emirates (UAE) is emerging as
another major destination, having recently recognised ayurveda
as an official medical system. Nagarjuna’s export has increased
from Rs 17.38 lakh in 2002 to Rs 39.42 lakh in 2003, which
accounts for a plus 100% growth rate. AVS has an export of Rs one
crore only (mostly service exports) because their main products
contain materials, which are banned under the Convention on
International Trade in Engendered Species of Wild Fauna and
Flora (CITES) agreement.14 Otherwise, the company, which has a
huge share in Kerala, could have earned more foreign exchange
in the form of food supplements. KAL is rapidly expanding its
export market in Europe, west Asia and the US addressing the
growing popularity of ayurveda. Most of the company’s products
are exported as herbal and dietary supplements except one
proprietary drug that is exported to Japan and has entered the
Russian market recently with Chyawanprash.
3.3 R&d and standardisation
It is evident that in the hi-tech industries like pharmaceuticals,
the R&D, innovation and growth is linearly related (Mazzucato
and Dosi 2006). This is of major concern especially for compa-
nies, which produce cosmeceuticals and nutraceuticals because,
market for beauty and dietary product exports are highly respon-
sive to quality and innovation.
In Kerala, the R&D in ayurvedic industry is mainly concen-
trated on: (1) clinical research, (2) process-related research, and
(3) medicinal plant research. Clinical research is aimed at evolv-
ing new methods and procedures for dealing with acute ailments
such as cancer, AIDS and rheumatic arthritis. Process researches
broadly cover activities like bioactive research, standardisation
of medicinal formulations from classical ayurvedic texts and de-
velopment of new products. One important factor that hinders
drug invention is the high cost of R&D and clinical trials. On the
other hand, in “nutraceutical” category, clinical validation is
not mandatory and a clearance from local authority is required.
Besides, as an OTC product it could be priced high. Therefore, the
incentive for converting medicine into nutraceutical is common.
Ayurvedic firms encourage research on standardisation of
ayurvedic medicines, biochemical analysis of medicines with an
objective to identify the active ingredients and clinical trials of
new and old medicines. AVS has recently set up a Medicinal Plant
Research Centre to satisfy a long-felt need of an institution for
conservation and study of medicinal plants used in ayurveda in
collaboration with national and state Medicinal Plant Boards.
AVS has research connections with institutions like Council of
Scientific and Industrial Research (CSIR), International Develop-
ment Research Centre (IDRC). AVS and Pankajakasthuri signed an
agreement with Tropical Botanical Garden and Research Insti-
tute (TBGRI). Arya Vaidya Pharmacy, Coimbatore collaborated
with National Health Institute of the US for clinical evaluation of
specific ayurvedic therapies.
AVS’ R&D expenditure increased from Rs 13.19 lakh in 1992-93
to Rs 42.79 lakh in 2001-02. But their R&D intensity is less than
1%, this is a rate less than half the amount invested in R&D by the
biopharmaceutical firms on an average in India (Nair 2003;
Green 2007). Formation of the department of ayurveda, yoga,
unani, siddha and homeopathy (AYUSH), Medicinal Plant Boards,
traditional knowledge digital library (TKDL)15 and Golden Triangle
Partnership (GTP) scheme of department of science and techno-
logy (DST), CSIR and ICMR are important developments in the
recent past. So far, the government of India has invested Rs 106.40
crore as its share under this programme and the industries have
contributed Rs 154 crore making a ratio of 1:1.50.
Currently, there is no organisation or government body that
certifies labelled ayurvedic products. Without proper quality con-
trol (QC), there is no assurance that the herb contained in the
bottle is the same as what is stated on its outside label. Process
and product validation and, safety and toxicity tests remain as
major problems in securing a breakthrough in the European and
American market for ayurvedic medicine. Research institutions
are trying hard to hike the export market for ayurvedic drugs by
creating a uniform process, which does not vary from batch to
batch. For compound drugs, it is very difficult to find therapeutic
table 8: export of major ayurvedic firms in Kerala
(2002, in Rs lakh)
Firms

Kerala Ayurveda Limited
AVS
Arya Vaidya Pharmacy
Pankajakasthuri
Nagarjuna herbal
concentrates
Source: Balance sheets and EXIM Bank.
Export

150 1,200
100 6,200
48 1,500
160 1,400
Sales

Export
Intensity
12.50
1.61
3.20
11.43
17.38 1,400 1.24

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indian systems of medicine
april 18, 2009 vol xliv no 16
EPW Economic & Political Weekly
50
quality of every ingredient and their joint action. Chemical finger
printing mechanism up to three ingredients is possible, but quite
difficult. Most of the ayurvedic medicines contain more than
three ingredients, as for example, Dasamoolarishtam, a prepara-
tion of 10 constituents that make testing jointly impossible. Thus
the standardisation of ayurvedic formulations is ridden with
several questions about its purpose.
4 sustainability Question
4.1 financing Pattern of firms
Sustainability of funds is a major factor for firm’s growth. There
are three sources of funds, viz, equity share, loan funds (can be
secured or unsecured) and reserves and surplus. Internal funding
rose through equity and reserves and surplus, are considered to
be more dependable sources than external funds through loans
that entail high interest rate. But secured loans from the reliable
financial institutions would not be a problem. Data reveals that
there is an increasing move towards more internal funds among
companies like Oushadhi and Santhigiri. In contrast to Santhigiri,
Sitaram and SD are very less dependent on internal funds. Though
in the initial years, Pankajakasthuri depended on loans, now
the major portion of its funds comes from reserves and surplus.
Companies like Nagarjuna, Oushadhi and KAL are generally more
dependent on loans from institutions like KSIDC and banks.
4.2 Raw material Linkage and Vertical integration16
Kerala medicinal plant market has developed in tandem with the
number of ayurvedic manufacturers. This is evident from the
uninterrupted supply of raw material to the major ayurvedic
manufacturing units. The ayurvedic pharmacies of Kerala use
around 500 plant species for medicinal formulations. Around 95%
of these medicinal plants are directly collected from the wild and
in the rest, 20 species are under large-scale commercial cultiva-
tion. Secondary studies show that the price elasticity is positive
for major medicinal plants demanded by ayurvedic firms.
The Marshallian demand curve (i e, higher the price, lower
the demand) is not applicable for medicinal plants market.
Apparently, the huge demand for medicinal plants is unrespon-
sive to price changes. So to reduce the cost of production, firms
adopt the strategy of vertical integration of raw material. Since
there is no increase in the natural supply, there is a shift in the
sourcing of raw material. Table 11 gives the direct relation be-
tween price and quantity demanded. All figures in the price
elasticity column are showing an increasing non-availability of
many medicinal plants. Unsustainable collection in many places
and encroachments into the forest land have led to the extinc-
tion of many rare species. Scarcity of different plants has led to
substitution of other parts of the same plant; similarly adultera-
tion with plant species of same organoleptic properties or the
same vernacular name.
The large expenditure on raw materials, especially medicinal
plants (sample data shows it is 41%) shows how the ayurvedic
sector and the medicinal plant sector are linked. That means the
cost of medicinal plants has a bearing on the growth and profitability
of ayurvedic industry. In Kerala, major medicinal plant markets
(transactions) are in Thrissur, while Thiruvananthapuram,
Palakkad and Ernakulam have minor markets. For Pankaja-
kasthuri and other south Kerala-based pharmacies, the tribal belt
of the southern parts of the Western Ghats are the major providers
of medicinal plants, particularly from the areas like Palode and
Kottur. As there are a large number of middlemen in the medicinal
plants supply chain, the share of collectors or growers seems to be
very less and it works as a negative incentive for medicinal plant
conservation. This adds to the cost, without any addition to the
output value (Harilal 2004). AVS mostly depends on conventional
age-old suppliers (contractors) for the past few decades. But of late,
the conventional suppliers have not been able to meet the increased
requirements because of the phenomenal surge in the quantity
demanded and the non-availability/extinction of some of the raw
materials. In case of Oushadhi, National Agriculture Cooperative
Marketing Federation of India (NAFED) is a major source of ob-
taining raw materials. The linkages of the ayurvedic manufactur-
ing units with tribal cooperatives and other traditional collectors
provide livelihood for thousands of people.
Though the manufacturing units in Kerala depend on outside
suppliers, the major dependence is still within Kerala. Around 45
pharmaceutical units are linked to private suppliers, but the
number of the tribal cooperatives is quite low. Tribal coopera-
tives are connected with only six to seven manufacturing units
(Harilal 2004); in the absence of linkage with the tribal federa-
tions, the concern is that commercial suppliers from outside the
state are likely to take control of herbal resources. This call for a
rearrangement of the supply chain is an efficient way though the
in situ character of the plants restrains this possibility.
table 9: share of internal funds (in %)
Oushadhi

1992-93 43.2
1994-95 44.4
1997-98 97.19
1999-2000 na
2001-02 na
Source: Compiled from firm’s annual reports.
KAL

79.35
92.81 76.22
51.54
43.58 50.34
37.69
Nagarjuna

29.21
Santhigiri

Sitaram

67.84
54.8
87.46
31.35
31.57
SD

Pankaja-
kasthuri Ratnam (VR)
–
–
35.83
72.9
76.84
Vaidya
– 36.17
97.88
15.6
15.5
22.84
32.39
48.76
42.72
36.79
31.66
99.53
96.99
95.56
96.73
50.42
57.16
table 10: secured Loan to the Loan funds (in percentages)
Oushadhi KAL

1992-93 90.65 100
1994-95 90.62 100
1997-98 100 77.325
1999-2000 74.36
2001-02 72.46
Source: Compiled from firm’s annual reports.
Nagarjuna Santhigiri

93.49
96.70
90.05
88.57
89.06
Sitaram

78.98
87.81
82.81 88.00
92.84
89.76
SD

Pankaja-
kasthuri
VR




0
0


98.43
4.01
0.74 93.96
100
100
100
100
76.62
57.49
table 11: market analysis of the major medicinal Plants
Name of the Plant



Sida spp (sida)
Tinospora cordifolia (gunduchi)
Terminalia chibula (black myrobalau)
Withania somnifera (ashwagandha)
Adathoda sp (adathoda vasica)
Cedrus deodara (Himalayan cedar)
Woodfordia frutisoca (shiranji tea or dhataki) 123
Indian names are given in the brackets, Sida is the common name of sida spp (Spp means more
than one species).
Source: Devi and Joseph (2003).
Quantity Demanded Price Elasticity
(in Tonnes)


608
282
164
149
141
138
Scarcity Ratio
(Ratio of
Availability to
Needed)
2.79
0.00
-3.20
-4.02
-1.60
-3.80
-5.16
of Demand


0.54
0.35
3.31
0.60
1.46
1.98
0.42

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51
5 conclusions
The ayurvedic sector is undoubtedly emerging as medicine-cen-
tred as opposed to its basic orientation that was patient-centred,
characterised as the pre-eminence of the “pharmaceutic episteme”
(Banerjee 2002). Our paper substantiates this trend with regard to
the state of Kerala. It is evident that as an industry, ayurveda has
huge potential, but what industrialisation of medicinal production
will do to the system of medicine, however, remains to be examined.
This study suggests that the growth of ayurveda in comparison
with the manufacturing sector of Kerala is promising with high
level of growth and consistency in net profit, value of output and
NVA. The fast depletion of medicinal plant is a major concern, and
higher vertical integration is required for sustaining this industry
by reducing the transaction cost.
In short, ayurvedic manufacturing has better prospects with
the present growth provided that, there are higher incentives for
R&D, sustainable use of raw material, further linkage with
medicinal plant cooperatives and successful cluster promotion.
A major concern is the change in product pattern and impor-
tance given by most of the firms towards nutraceuticals and
cosmetics, and the failure of regulation systems, which may
hamper the spread of ayurvedic therapeutic tradition and its
clinical value in future. Conscious efforts are, therefore, required
to promote the therapeutic aspects of ayurveda as a system, so
that it can emerge as a distinct contender in the pluralistic
healthcare market, rather than a supplier of some “safe” herbal
remedies for the international market for complementary and
alternative medicines.
Notes
1 Here petty production means, the physicians
owned the means of production and there was use
of (unpaid) labour of family members. The scale of
production was small and there was little capital
accumulation, but the producers received some
remuneration to cover the cost of production.
2 Vaidya Gangadhar Ray in Bengal was inspired by the
increasing demand for ayurvedic drugs, set up a large-
scale manufacturing unit in 1884 called N N Sen and
Company (Gupta 1976). By 1900, the demand for
ayurvedic drugs had increased sufficiently to occupy a
fair share in the country’s drug market (Kumar 2001).
3 Classical formulations are based on ayurvedic
treatises, which include traditional medicinal for-
mulations like arishtams, asavams, ghruthams,
lehyams, thailams, and choornams. Consumer brands
are beauty products and nutraceuticals developed
by the firm based on recipes or ingredients listed in
the ayurvedic texts. Biomedical providers are me-
dicinal products for biomedical disease categories
developed by the firm drawing from textual indi-
cations. Ayurveda’s science of substances (padartha
vignana), however, does not view substances in
terms of one active ingredient; rather identify sev-
eral properties of each of the ingredients listed
that will contribute to the formula’s efficacy.
4 Bulk drugs are defined as the active chemical ingredi-
ent in powder form used for the production of phar-
maceutical formulations. Formulations are medicines
ready for consumption by patients, sold as a brand
or generic product as tablets, capsules, injectables,
or syrups. Formulations can be subdivided into two
categories: generic drugs and branded/patented
drugs. Vaccines are generally made from an infec-
tious agent or its components – a virus, bacterium,
or other microorganism – that is killed (inactive) or
live attenuated (active, although weakened).
5 Nutraceuticals are those products, which have its
origin in traditional medicine, are used as food and
include in the category of food supplements, func-
tional foods and food for special dietary purposes.
6 DCA, 1940 specifies that an ayurvedic drug is a
medicine “intended for internal or external use
for or in the diagnosis, treatment, mitigation or
prevention of disease or disorder in human beings
or animals and manufactured exclusively in ac-
cordance with the formulae subscribed in the
authoritative books of ayurveda specified in the
act”. It lists 54 texts, including Charakasamhita.
7 Ashtavaidya families are ayurvedic physicians
well-versed with knowledge on eight branches
of ayurveda.
8 Proprietary/classical medicines, strictly speaking
are not patented medicines. Proprietary medicines
are medicines of “known composition”, bearing
trade mark names, given on prescription and dis-
tributed to the medical professionals. Patent/
branded medicines are of “unknown composi-
tion” bearing trade mark names and advertised
and sold directly to the consumer.
9 Since it is quite possible for variations to exist between
the return to total resources and owned resources,
we use two profit ratios: return on capital employed
and return on net worth. First ratio arrives at a cal-
culation of return independent of the composition
of capital in terms of own and borrowed funds. The
latter provides a yardstick for measuring the rate of
return on the shareholders own capital represented
by paid-up capital and reserves.
10 Information availed from KAL website http://
www.keralaayurveda.biz (Viewed on 28 July 2008).
11 CARe-Keralam (Confederation for Ayurvedic
Renaissance-Keralam) is formed under the aus-
pices of Kerala Industrial Infrastructure Develop-
ment Corporation (KINFRA) and KSIDC, with the
help of major manufacturers of Kerala.
12 The categories, 30039001 and 30049001 are not
available from 2004, as they have dropped from
DGCIS.
13 The European Union rules suggest that the herbal
products are required to be in traditional use for
the last 30 years of which, 15 years should have
been in EU itself. The 15-year use period in any EU
country seems to be an unrealistic expectation
given the fact that the original use of the tradi-
tional product is in some other country.
14 To ensure, international trade both sustainable and in
accordance with national legislation, member coun-
tries of the CITES have also established international
trade controls for some Asian medicinal species.
15 The basic idea of TKDL is to make all documented
information on ayurveda available to patent ex-
aminers so as to prevent grant of patents on non-
original inventions and to retrieve about 35,000
formulations of ayurveda, 30 ayurvedic experts
and scientists and five patent examiners have pro-
vided the expertise for setting up of the facility
and AYUSH works as a nodal agency.
16 Vertical integration is the degree to which a firm
owns its upstream suppliers and its downstream
buyers. It is typified by different aspects of pro-
duction managed by one firm (e g, growing raw
materials, manufacturing, transporting, market-
ing and/or retailing).
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