Given that the Planning Commission has now joined the finance ministry in opposing the Department of Industrial Policy and Promotion (DIPP) proposal to put curbs on pharma FDI, presumably the policy will die a natural death. While the DIPP had put up a big fight to prevent the $15 billion Mylan Inc from taking over Agila Specialities for $1.8 billion on grounds that facilities in ‘critical verticals’ like oncology, vaccines and injectables should not be sold to foreigners, this was turned down by both the prime minister as well as the finance minister on grounds the policy could not be changed with retrospective effect—right now, the policy allows 100% FDI without any restrictions. It is in response to this that the DIPP then came out with a proposal to, in the future, ensure that each FDI proposal to buy out local firms in select pharmaceutical categories is sent to the health ministry for a case-by-case approval. But since the DIPP was never able to make a convincing case as to why FDI should not be allowed in the sector—between 2006 and 2010, 6 Indian pharma firms were bought by MNCs—the finance ministry had said that the new policy should be left in place for a few years before any decision was taken to change it. In other words, if the DIPP’s objection was that Indian firms being bought over by MNCs would lead to a cut in production of certain drugs or their prices rising, the finance ministry’s view was that leaving the policy in place would allow us to find out whether this was indeed true—after all, with so many manufacturers for each drug and the maximum market share of any player not more than 5-10%, the chances of this happening look a bit remote.
Apart from there being little danger of prices rising—India also has all manner of price controls on the sector—the other important point that needs to be kept in mind is that pharmaceuticals are a significant area as far as FDI is concerned. Between April 2000 and August 2013, $11.4 billion of FDI inflows took place in pharmaceuticals, making it the fifth largest sector for FDI flows. Equally important, as FE has pointed out before, there is little evidence to show MNCs are doing less research than Indian firms—the success ratio in terms of patents got to those applied for is higher for MNCs. In which