By many important measures, the Indian pharmaceutical industry is thriving. Indian firms are increasingly seen as innovators, losing their earlier global reputation as copycat firms happy to free ride on Western medical advances. Investment in the sector has climbed and Indian companies are often punching above their weight in global markets. A thriving Indian drugs industry that builds on the nation's enviable stock of science and technology know-how is not just good for India, but for the region and the world. The planet needs more medicine chests, and India can be a significant one.

There remains at least one obstacle, however, to India's continued rise as a pharmaceutical power: concerns over quality and safety in the supply chain. If India can overcome these concerns--something a report published on 18 May indicates is possible--the sky is the limit for Indian firms to push the technological frontier in this critical industry.

Concerns about fake and substandard drugs have led to multiple actions by governments around the world to hinder trade in Indian medicines. In 2008, the European Union detained Indian drugs citing concerns over counterfeiting and fakes. Governments from Sri Lanka to Nigeria have also blocked some Indian drugs from entering the market. Drug industry officials from Japan to the US have also fingered fakes as a chief obstacle to a more robust Indian drug industry.

The Indian government has pushed back against this common perception, releasing a report late last year claiming that the vast majority of drugs produced in India were of high quality. But that government-sponsored report was likely far too optimistic. Its underlying data and methodology have not been made available to the public, and its findings flew in the face of anecdotal and other evidence that India's problem with quality is genuine.

The extent of India's actual drug quality problem is suggested by a new report co-sponsored by the London-based Legatum Institute and the New Delhi-based Liberty Institute, A Safe Medicines Chest for the World: Preventing Substandard Products from Tainting India's Pharmaceuticals. The researchers surveyed pharmacies in New Delhi and Chennai as well as drug wholesalers in New Delhi. They were hoping to get a sense of the size and scope of the problem.

Their findings are encouraging in some respects, but deeply troubling in others.

First, the good news. The majority of drugs the investigators studied were of good quality.

But the problems they did find are real and serious. In Delhi, 80% of the sampled pharmacies were providing at least some substandard medicines (ranging from drugs with zero-active ingredient to those with chalk or talcum powder substituting for active ingredient). In Chennai, almost 40% of the surveyed pharmacies were found to have sold some below-standard products.

Meanwhile, 7% of the samples from wholesale traders that the researchers investigated were found to be of poor quality. This is encouraging, in that it is a small enough percentage that one can imagine a concerted effort tackling this problem. But since wholesalers sell across the market, it means just a few bad actors can have widespread impact.

Almost three quarters of the pharmacists surveyed admitted there was a problem with substandard medicines and said they knew of pharmacists who were complicit in the sale of substandard drugs. Perhaps most worrisome, over 90% of respondents said they had been approached by a wholesale trader offering to sell them substandard pharmaceuticals at a discount. Most of the pharmacists claimed that government corruption and bribery were problems in maintaining high standards. And almost 25% of the pharmacists reported that government officials had demanded bribes of them.

So what can be done to ensure higher quality and safety across the Indian drug supply chain? The researchers, who include my colleague at the American Enterprise Institute Roger Bate, offer several useful suggestions.

For starters, government officials at the national and state levels must get serious about intellectual property (IP) protections, including trademark infringement. And officials must do this not only within India but also at the international level--in multilateral venues such as the World Trade Organization. There is tremendous pressure by activist groups to force Western governments to weaken patent and trademark protections.

India should stand firmly in favour of strong IP protection. It will encourage greater investment in India and help address the quality problem up and down the supply chain.

India also needs serious judicial reform. Strong legal protections will be meaningless if the court system makes swift justice impossible. The researchers point out that a court in Delhi recently convicted a man for selling counterfeit medicines. This would be a welcome development, except when you consider the case against him was first filed 23 years ago. Delays such as this make a mockery of the rule of law and embolden counterfeiters and others who seek to profit from the black market.

The authors also find that "private companies are finding innovative ways of preserving the identity of their products from counterfeiters, through serialization systems (utilizing new technologies) and more secure supply chains". This is great news for consumers and, coupled with public sector reforms, means that India's future, as a leader in the health and life-science industries, will be bright.

Nick Schulz is the editor-in-chief of American.com and the DeWitt Wallace fellow at AEI.

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