Curing FDI fears

Oct 29 2013, 05:15 IST
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SummaryApprehensions that pharma FDI will hurt domestic industry are misplaced, the government should go with the finance ministry view of retaining the current policy for at least two years

Apprehensions that pharma FDI will hurt domestic industry are misplaced, the government should go with the finance ministry view of retaining the current policy for at least two years

Despite the fact that India needs a strong dose of foreign direct investment (FDI), the policy domain is still replete with those prophesying apocalypse for the domestic industry if FDI is allowed in a particular sector. There is no evidence yet of FDI ruining the domestic industry but the argument continues. The attention is now on the pharma sector and the government is slated to take a final call soon on whether the existing pharma FDI policy should bring in restrictions to protect the domestic industry and keep prices in check (the reason being cited by those supporting changes).

The finance ministry, however, has a different take, and rightly so, as the foreign investor sentiments have already taken a severe beating because of the policy flip-flops in retail and other areas. The ministry is against any change in the pharma FDI policy for brownfield projects (existing projects) before at least December 2014. It is also not in favour of the ministry of health and family welfare being made the deciding authority on the fate of such projects.

The logic is simple: any policy needs to be tested properly before making any changes and the current pharma FDI framework is not even a year old. And then, there has to be consistency also. In its opinion on the cabinet note floated by the department of industrial policy and promotion (DIPP), the ministry has said that the existing pharma FDI policy has been introduced only in December 2012, and at least two years should be given for a realistic analysis of the policy before making any changes.

The DIPP now wants the FDI in brownfield projects to be restricted in ‘critical verticals’ like oncology, injectables, and vaccines. It is also pushing for the ministry of health and family affairs to be in-charge of deciding which are the cases to be allowed. Finance ministry officials feel this will unnecessarily create confusion and delays, and that the FIPB should be deciding on which case should be approved, not the health ministry. Then there is not much clarity on what constitutes ‘critical vertical’ and this would lead to subjectivity, which should be avoided. The reality is, even now, there is case-by-case approval required for the brownfield projects.

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