With an inter-ministerial group split down the middle on whether to change the FDI norms for pharmaceuticals, Prime Minister Manmohan Singh has stepped in to hammer out a solution to the vexed issue. Singh is set to review the matter with senior Cabinet colleagues here on Monday.
It is not only the Department of Industrial Policy and Promotion (DIPP), the nodal agency for FDI policy that has put in a dissent note to the group?s report which has already been firmed up, but the health ministry also has expressed reservations about the prominent view of the group. Platitudes notwithstanding, the prominent view in the group, anchored by the Planning Commission, is to continue with the current regime of 100% FDI in the sector through the automatic route.
The health ministry, apprehending that unbridled acquisitions of Indian companies by foreign players could lead to a spiralling of prices of essential drugs, has voted for a complete ban on brownfield acquisitions in the pharmaceuticals space, official sources told FE.
The group’s mandate was to find out whether there was a need to restrict or introduce controls on FDI in pharmaceuticals, given the incidents of foreign companies taking over Indian drug-makers, a trend which many expect could get buttressed if the current policy continues.
Planning Commission member Arun Maira who heads the group told FE, ?The health ministry, out of pure sentiments, have put in a dissent note saying that the health sector is very important and they want the best solution on the issue. They want a complete ban on the brownfield acquisitions. They, however, have also agreed that the Competition Commission of India (CCI) could be a safe and sure gatekeeper.?
Maria also said the committee has already submitted the draft report to the Prime Minister, including the health ministry?s dissent note.
Since 2006, there has been a spate of mergers and acquisitions (M&As) in the pharmaceuticals space.
However, differences had cropped up over the proposed filters on the FDI with various stakeholders of the high-level committee. The Planning commission and the Department of Economic Affairs in the finance ministry want the current regime to continue.
The DIPP in its dissent note has argued that instead of Competition Commission of India (CCI), Foreign Investment Promotion Board (FIPB) is the right gatekeeper for mergers and acquisitions in the pharma sector. Maira said the report recognised that affordability of medicines was very important for the country and ?health is a special and vulnerable sector?.
He said CCI has the requisite power and capacities to check if competition is marred and such bodies were the favored gatekeepers in mature economies like the US and EU. But, the DIPP has been saying that in context of India, the CCI needed to be strengthened if it has to act as a gate-keeping mechanism for acquisition in the drugs and pharmaceutical sector.
The recent buyouts of the Indian firms by multinational firms included takeovers of market leader Ranbaxy Laboratories by Daiichi Sankyo of Japan, Shanta Biotech by Sanofi Aventis of France, Piramal Health Care by Abbott Laboratories of US. Also, Matrix Lab and Orchid Chemicals were bought over by Mylan Inc and Hospira of the US, respectively. Dabur Pharma was acquired by Fresenius Kabi of Singapore.
Under the automatic route, a foreign company can invest in India without seeking prior approval from the FIPB. But RBI needs to be informed about the inflows.
During April-July this fiscal, India received FDI worth $2.99 billion (R13,426 crore) in drugs and pharmaceutical sector.
Indian pharmaceutical industry is expected to become a $20-billion industry by 2015, from its present turnover of $12 billion.