Tapan Ray

Recent media reports indicate that the Department of Industrial Policy and Promotion (DIPP) is contemplating to modify the FDI policy in the brownfield sector of the pharmaceutical industry.

This rethinking has probably been prompted by the following apprehensions as expressed in a ?discussion paper? earlier circulated by the DIPP:

Oligopolistic market will be created with an adverse impact on ?public health interest?: Indian pharmaceutical market (IPM) has over 23,000 players and around 60,000 brands. Even after all the recent acquisitions, the top ranked pharmaceutical company of India?Abbott?enjoys a market share of just 6.6%. The top 10 groups of companies (each belonging to the same promoter groups and not the individual companies) contribute just over 40% of the IPM. Thus, the IPM is highly fragmented. No company or group of companies enjoy any clear market domination. In a scenario like this, the apprehension of ?oligopolistic market? being created through brownfield acquisitions by the MNCs is indeed unfounded.

Will limit the power of the government to grant compulsory licensing (CL): With more than 20,000 registered pharmaceutical producers in India, there will always be enough skilled manufacturers available to make needed medicines during any emergency; for example, during H1N1 influenza pandemic, several local companies stepped forward to supply the required medicine for the patients. The idea of creating a legal barrier by fixing a cap on the FDIs to prevent domestic pharma players from selling their respective companies at a price, which they would consider lucrative otherwise, just from the CL point of view sounds unreasonable and highly protectionist in a globalised economy.

Lesser competition will push up drug prices: Equity holding of a company has no bearing on pricing or access, especially when medicine prices are controlled by the NPPA guidelines and competitive pressure.

In an environment like this, the very thought of any threat to ?public health interest? due to irresponsible pricing would be imaginary in nature, especially when medicine prices in India are the cheapest in the world, cheaper than even Bangladesh, Pakistan and Sri Lanka.

Positive fallouts

Mergers and acquisitions, both ?greenfield? and ?brownfield?, and joint ventures contribute not only to the creation of high-value jobs for Indians but also access to high-tech equipment and capital goods. Technology transfer by MNCs not only stimulates growth in manufacturing and R&D spaces of the domestic industry but also positively impacts patients? health with increased access to breakthrough medicines and vaccines.

Any restriction to FDI in the pharmaceutical industry could make overseas investments even in the R&D sector of India less inviting.

As listed in the United Nations? World Investment Report, the pharmaceutical industry offers greater prospects for future FDI as compared to other industries. Thus, restrictive policies on pharmaceutical FDI could promote disinvestments and encourage foreign investors to look elsewhere.

While the government of India is contemplating modification of pharma FDI policy, other countries have stepped forward to attract FDI in pharmaceuticals. Between October 2010 and January 2011, more than 27 countries and economies have adopted policy measures to attract foreign investment.

It is worth mentioning that the government has also publicly expressed its views against the concept of ?protectionism? in business.

?Protectionism is harmful?, was very aptly commented by Pranab Mukherjee, the former Union finance minister and now the President of India. This was in context of the US moving to hike visa fees and clamping down on outsourcing.

Partnering with the MNCs, local drug companies have begun to gain access to international expertise, resources and good manufacturing practices. A number of local companies have already entered into alliances with MNCs to leverage these opportunities.

Very importantly, any possible adverse impact of mergers and acquisitions on competition will now be effectively taken care of by the Competition Commission of India (CCI). In addition, apprehension for any unreasonable price increases will be appropriately addressed by the NPPA, as is the current practice. The DPCO 2013 has also taken enough measures to avoid shortages of essential medicines.

Thus, limiting FDI in the brownfield sector of the pharmaceutical industry at this stage, when the government is, in fact, debating to open up the telecom, defence, insurance and other sectors to foreign investments, will indeed be a retrograde step for the country.

The author is director general, the Organisation of Pharmaceutical Producers of India (OPPI)