Planning Commission deputy chairman Montek Singh Ahluwalia on July 11, authorized allowing 100% foreign direct investment (FDI) in the pharmaceutical sector. He said, 'I endorse the view that there should be no case for rollback from 100% FDI, while addressing a press conference.
Earlier, the Department of Industrial Policy and Promotion (DIPP), a nodal agency responsible for FDI-related matters, had also raised concerns over the growing dominance of multinationals in the sector. On the other hand, domestic pharma companies, headed by the Indian Drug Manufacturers Association and Indian Pharmaceutical Alliance, had also raised concerns that the takeover of Indian companies by foreign firms could lead to a situation of over-pricing of drugs and marginalization of homegrown firms.
To tackle the situation, an inter-ministerial panel comprising senior officials from the health ministry, department of industrial policy and promotion, the pharmaceuticals department and the finance ministry was tasked with the consent of suggesting measures that could help retain India's competitiveness. And the panel on July 5 recommended that the FDI cap for brown-field pharma projects, which would include expansion and mergers and acquisitions (M&As), be cut to 49%, while the ceiling for green-field ventures be retained at 100%.
'I don't think there is any move anywhere to prevent expansion of existing 100% foreign-owned pharmaceutical companies or green-field investment by foreign companies,' Ahluwalia said.
Following the inter-ministerial panel’s recommendation, the government had set up a group under Planning Commission member Arun Maira to look at the ideal policy regime for the sector. On this matter, deputy chairman said 'The expert group appointed under Arun Maira will see whether there is any problem relating to merger and acquisition rules of pharmaceutical companies in the country.'
In 2008, Japan's Daiichi Sankyo acquired a majority stake in Ranbaxy Laboratories, whereas in 2010, Abbott Laboratories acquired Piramal Healthcare’s domestic formulation business. With the growing dominance of MNCs into the sector, industrial organizations backed by domestic companies are seeking limitations on M&As arguing that India would turn into a contact manufacturing center and would lose its advantage, also other concern is that prices of medicines will increase due to lack of generics and rise of imported patented drugs.
In 2001, when the government issued a press note allowing 100% FDI under the automatic route, it had put in place two conditions related to transfer of technology and investment in manufacturing, said Indian Pharmaceutical Alliance secretary general D G Shah. "Both conditions have not been met. On the contrary, what we are seeing is several companies are shutting down manufacturing facilities in India, are winding up R&D and are importing patented medicines while not producing drugs or vaccines for the local market. If this continues, we will only be involved in contract manufacturing," he added.
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