The issue of FDI by multinationals in Indian companies has been a subject of hot debate for the last couple of months. Forming an opinion on the same is a tough job for an apex association like the Indian Drug Manufacturers? Association, as IDMA consists of almost 800 members comprising micro, small, medium, large and very large manufacturers situated throughout the length and breadth of our country with five state boards, who have compelling reasons and divergent views on such a delicate issue.
However, a large section of IDMA is of the opinion that 100% FDI should be allowed as the Indian industry needs huge investments to meet research and development costs, brand-building costs, state-of-the-art production facility costs etc. There is another school of thought that is concerned that the takeover of Indian pharma companies by multinational companies will mark the end of the national sector pharma industry. Whilst we need to take care of these sentiments, let us not forget that there are over 10,000 manufacturing units churning out over 50,000 formulations. As against this, there are not many multinational companies that have the resources to buy or the appetite to invest in so many Indian companies. And at the same time, very few Indian companies would qualify as super candidates for 100% takeovers.
There is still another school of thought that says 100% FDI in Indian companies would lead to an increase in prices. This may not be true as the fact remains that:
There is no direct connection between FDI and pricing. Pricing of a pharma product is dependent on costs, competition, margin policy, business expenses, taxation etc. All prices vary within a range?both of Indian and multinational companies? products.
For most pharma products, fortunately, we have widespread competition. And prices in India are the lowest in the world. Additionally, we have government price control or monitoring, and an annual ceiling on all price increases.
Any regulatory restrictions on FDI could adversely impact competition, which is not in public interest. In fact, FDI investment could lead to increased competition, improved technologies, facilitate local research and development, support the building of Indian brands and also promote employment.
Restricting or reversing the current 100% FDI policy could be counter-productive for Indian businesses in general, as other countries could also adopt reciprocal restrictive practices against Indian businesses. It could also be against the WTO guidelines and could invite prejudicial actions in foreign countries where Indian businesses are fast expanding.
The Competition Commission of India could be directed to review all major M&A proposals to ensure and pacify our concerns that monopolies are not being created by takeovers, thereby influencing competition and price rises. This, along with constant price monitoring by the National Pharmaceutical Pricing Authority, would adequately protect consumer interest.
We also have a strong democracy and most parliamentarians are sensitive enough not to allow monopolistic situations??and consequent abnormal price increases?especially in pharma products. However, the government should allow 100% FDI only with certain safeguards and riders such as (a) all such takeovers should be vetted by the Competition Commission of India, (b) manufacturing at the plants thus taken over should continue for a minimum of 5 to 10 years and no import substitution of such formulations should be allowed, and (c) existing staff must be retained.
The national sector pharma industry has come a long way and grown from strength to strength over the last five decades. It is, in fact, poised for greater growth despite all odds and will continue to be the ?mecca? of affordable quality generics for the people of both India and other nations.
The industry need not be overtly perturbed by the takeovers as this a natural flow of investments due to globalisation. Our pharma industry has developed sufficient strength to continue its growth and development.
The author is Secretary General, Indian Drug Manufacturers? Association