GoM to decide on CCI filter for FDI in pharma sector

Written by Soma Das | Timsy Jaipuria | New Delhi | Updated: May 17 2012, 09:06am hrs
A decision on whether and how the Competition Act can be amended to empower the Competition Commission of India (CCI) to vet brownfield FDI proposals in the pharma sector has been referred to a Group of Ministers. The decision to send the matter to GoM was taken by the Cabinet at its meeting last week. This has happened after the competition watchdog CCI informed that it cannot take up the task of clearing pharma deals until the law is modified to expand its mandate. A role such as this would also necessitate special technical wing and more resources for CCI.

As of now the Foreign Investment Promotion Board (FIPB) is deciding on the approval of proposed brownfield deals in the pharma sector on a case to case basis. We have made our stand clear that an amendment would be required for us to take on and perform this task of clearing FDI in brownfield deals of pharma sector. This proposal was taken up by the Cabinet last week, which has referred it to a GoM, a CCI official told FE. The issue of regulation of pharma FDI in the country has already traversed a circuitous route through multiple inter-departmental and inter-ministerial committees before the Prime ministers Office (PMO) intervened in the matter October last year.

The PMO agreed with a Arun Maira headed inter-ministerial committee to rule that the government would continue to allow 100% FDI in pharma sector, but along with a caveat.

The government decided to make an exception for the pharma sector by introducing a distinction between greenfield and brownfield ventures.

While 100% FDI in greenfield projects would be allowed through automatic route, FDI in existing (brownfield) ventures in the pharma sector would eventually have to pass through the filter of the competition watchdog.

However, till the CCI braces up for its new role, the PMO said that the brownfield proposals would have to get a FIPB nod.

At that time, this temporary arrangement was expected to last for a six month period, which was understood to be sufficient for the competition commission to prepare and assume its new role. This six month period lapsed in April.

This issue of regulating FDI in pharma remains a bone of contention between ministries. The inter-ministerial group headed by Maira which was mandated to decide on restricting FDI in pharma sector witnessed a near vertical split among ministries.

The group had representatives from health ministry, ministry of finance, DIPP, commerce ministry, department of pharmaceuticals, department of biotechnology, and CSIR on board.

While half of the panel members from ministry of finance, planning commission and department of pharmaceuticals were favouring status quo, arguing against the need to impose any ceiling on FDI in the pharma sector. The other half of health ministry, department of industrial policy and promotion (DIPP), ministry of commerce along with department of biotechnology are strongly pitching for selective curbs.

The issue was first raised by top domestic drug makers, who wanted a cap on FDI in pharma at 49%. They said the serial takeover of generic drug firms by foreign multinational companies may lead to prices of medicines shooting up and threaten affordability of drugs in the country.

Last few years have seen a slew of acquisitions of Indian pharma firms by MNCs fuelling concerns about tilting balance of market share in favour of latter in future. While Piramal Healthcares acquisition by US-based Abbott and Ranbaxy Labs acquistion by Japans Daiichi Sankyo led the pack in terms of size of the deal, many others buys such as Matrix Lab by US-based Mylan, Dabur Pharma by Singapores Fresenius, Shanta Biotech by Frances Sanofi Aventis, Orchid Chemicals by US-based Hospira followed the government decision to allow 100% FDI in pharma sector under automatic route.