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FDI reforms: Now, pharma in focus

July 18, 2013 08:44 IST

A day after a high-level panel headed by Prime Minister Manmohan Singh relaxed foreign direct investment (FDI) norms in sectors ranging from telecom to single brand retail, it seems he would hold a separate meeting to review the policy in the pharmaceutical sector by the month-end.

Photograph: Getty ImagesA senior official, involved in the talks, told Business Standard:  “The main concern of the ministry of commerce and industry is that a stage might come when India might not have a company ready to manufacture drugs on behalf of the government, even if the provision of compulsory license is invoked. The fact that acquiring companies are paying huge valuations which are many time the cost of setting up new projects does raise a question on their motivation. Thus a separate meeting on the issue might be taken up by the PM.”

Recently, in a letter to the PM and Finance minister P Chidambaram, Commerce and Industry Minister Anand Sharma had raised concerns the FDI policy in the pharmaceutical sector had not yielded any tangible benefits.

According to Sharma, in greenfield investments, there had been no value addition in terms of additional infrastructure creation and research and development segment. On the other hand, FDI in brownfield investment has resulted in acquisition of domestic drug-manufacturing firms by multinational companies.

“The health ministry is concerned that if the FDI policy on pharma remains unchanged, it would adversely impact the availability of essential drugs, production capacity and supply of low priced drugs,” the official added.

Presently, 100 per cent FDI is allowed in new projects through the automatic route in the pharmaceutical sector, while 100 per cent is also allowed in existing facilities subject to the government’s permission.

During the meeting with senior Cabinet ministers on Tuesday, the PM discussed the matter “informally” and decided to hold a separate meeting on the issue due to the sensitivity of the matter.

The official also indicated towards the working of several lobby groups which do not want the FDI policy on pharma to be reviewed under any circumstances. Recently, during a meeting between Sharma and representatives of Indian industry, several questions were raised on reviewing the policy.

The problem had been going on since 2011 when a certain panel created under Arun Maira recommended giving more teeth to the Competition Commission of India (CCI) in allowing mergers and acquisitions in the pharmaceutical sector and not changing the FDI rules.

It later emerged however, that the CCI Act could not be amended and till such time the government worked out another mechanism, all proposals concerning FDI in existing companies would be taken up by the Foreign Investment Promotion Board.

The finance ministry under the committee headed by economic affairs secretary Arvind Mayaram had batted for the government’s control on proposals which seek to invest up to 100 per cent.

Foreign interest

2006 - American generic firm Mylan buys Matrix Lab for Rs 3,424 cr  in cash and stock

2008 - Daiichi Sankyo of Japan buys Ranbaxy for $4.6 bn (Rs 27,600 cr at current value)

2008 - German pharma major Fresenius Kabi buys 73% of Dabur Pharma for Rs 872 cr

2009  - US-based Abbott Laboratories buys Piramal Healthcare's domestic formulation business for $3.7 bn (Rs 22,200 cr at current value)

2009  - French company Sanofi Aventis buys 80% of Shanta Biotech for Rs 3,000 cr

Past 7 years have seen Rs 50,000 crore of FDI in the sector, making it one of the top five preferred by foreign investors

Nayanima Basu in New Delhi
Source: