FDI cap unlikely in pharmaceuticals sector: Finance Ministry

27 Sep 2011 Evaluate

The ministry of finance is firm in its decision to impose any kind of limits on foreign direct investment (FDI) in the Rs 47,000 crore pharmaceuticals sector, as against the department of industrial policy and promotion (DIPP), which is pushing for a more restrictive policy. The DIPP is pushing for more restrictive policy, in order to restrict the domestic pharma firms takeover by international firms, as it doubts that the increased ownership of the sector will increase the prices of medicine in the domestic market.

As per finance ministry official, any such move would be retrograde and detrimental to the India’s image as an investment destination. Presently, foreign investors are allowed to invest 100% in country without the Foreign Investment Promotion Board's (FIPB) prior permission. The planning commission also shares the similar view, which also considers that the restricting foreign investment may affect the investment in the sector.

The ministry of finance and planning commission are of the view that there are alternative mechanisms to ensure the competitiveness in the sector and the competition regulator can address those concerns. On September 27, an expert committee headed by Arun Maira, Planning Commission Member, will discuss the recommendation. The committee will also consider the view expressed by the all stakeholders, including the health and finance ministries and pharmaceutical companies.

The panel was set up following directions from the cabinet committee of economic affairs (CCEA), chaired by Prime Minister Manmohan Singh. The recommendation came after anxieties were expressed within some sections of the government and the civil society on the issue of increasing price of generic drugs after a spate of acquisitions of the domestic companies by foreign companies.

However, the DIPP suggestion has the backing of the Council for Scientific and Industrial Research (CSIR) and the health ministry. The DIPP, which does not mind 100% FDI in new projects, had earlier suggested that all investment applications in the pharmaceuticals sector be sent for approvals by the FIPB. ‘Foreign investments should not act as mere substitution for the sector and should bring additionality resulting in net capital formation.’

The DIPP is of the view that permitting brownfield investment through automatic route will dent the access of generic drugs to common people. From 2006, around 6 big domestic drug companies have been taken over by the foreign firms. Around $4.73 billion or 50% of the recorded FDI into sector from 2000 has been in the form of Mergers and Acquisitions. This kind of brownfield investment affect pricing and product mix of generic drugs, as most companies tend to collude and work in unison.

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