Getting it wrong on pharma FDI

Written by Saikat Neogi | Updated: Aug 15 2013, 09:14am hrs
At a time when the government is trying to attract foreign investment across sectors to bridge the widening CAD, the latest recommendations from the Parliamentary Standing Committee of Commerce on FDI in pharmaceutical sector comes as a dampener. The panel, headed by BJPs Shanta Kumar, has suggested that the government must impose a blanket ban on any FDI in brownfield pharma projects and measures must be taken to stop any further takeover or acquisition of domestic pharma units by MNCs.

It notes that out of 67 FDI in the sector till September 2011, only one has been in greenfield. In fact, the report comes at a time when the Centre is trying to clear pending FDI proposals, which includes various planned investment in the pharma sector.

The Indian pharma sector has been one of major attraction for FDI in the last decade. Between April 2000 and May 2013, the pharma sector has attracted FDI worth $11.3 billion, which accounts for 6% of the total FDI inflows into the country during the period. The sector now ranks fifth in terms of percentage of total inflows. Some of the big ticket acquisitions by MNCs were Japans Daiichi Sankyo which acquired Ranbaxy Laboratories for $4.6 billion in 2008 and Piramal Healthcare was bought by American drug maker Abbott for $3.7 in 2010.

The report has underlined that the government should take adequate and concrete steps to ensure substantial investment in research and development in the pharmaceutical sector with special thrust on tropical diseases. However, data on R&D expenditure as percentage of sales for domestic and foreign companies show that the gap is narrowing. For domestic companies, it fell from 4.78% in 2008 to 4.5% in 2010. And for foreign companies, it rose from 2.86% to 4.01% during the same period.