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Unabated takeovers of Indian drug companies and negligible investments in greenfield or new projects have prompted the Centre to relook the foreign direct investment (FDI) policy in the pharmaceutical sector. It is examining if there is a need for imposing restrictions.
The Department of Industrial Policy & Promotion (DIPP) is working on a review of the FDI policy which will be placed before the Cabinet Committee on Economic Affairs (CCEA) after discussions with other Ministries and Departments concerned, a government official told BusinessLine .
“We are examining if FDI in the pharmaceutical sector has affected production and availability of cheap generics,” the official said.
The current policy allows 100 per cent FDI in both Brown-field (existing) and Greenfield pharma projects, but in the case of the former, the approval has to come from the Government and is not automatic.
Moreover, the non-compete clause is not applicable in case of takeovers, allowing the seller to enter into a similar trade after the sale.
But the existing safeguards do not seem to have helped bring about a balance in the kind of foreign investments coming into the sector.
New projects get little FDI More than 90 per cent of FDI in pharmaceuticals has gone into Brown-field projects and less than 10 per cent into new ventures, the DIPP has pointed out in an internal draft.
“This has resulted in takeover of key pharmaceutical companies and those with rare facilities and critical verticals, including Ranbaxy, Piramal, Shantha Biotech, Agila Specialities and Dabur,” the official said.
Most of the takeovers have been by global giants such as Japan’s Daiichi Sankyo, US-based Mylan and Pfizer and France’s Sanofi. The draft warned that the takeovers may result in India not being able to take advantage of blockbuster drugs going off patent in 2015.
A key producer India is one of the key producers of generics or off-patent drugs in the world and, apart from meeting the needs of its population for low-cost critical medicines, also a large exporter.
Echoing a concern made in a Parliamentary Committee report on the pharmaceutical sector, the draft talks about the possibility of change in the product mix of acquired domestic companies.
“There are apprehensions that production of drugs important to Indians will get curtailed as some acquirers have divested certain manufacturing facilities,” the official added.
India attracted FDI worth $1.25 billion into the pharmaceuticals sector (5 per cent of total FDI) in the first 10 months of 2014-15, against $1.26 billion in entire 2013-14.
Interestingly, the DIPP had tried to restrict FDI in existing pharmaceutical ventures during the UPA regime as well. Its initiatives were, however, turned down by the Finance Ministry and the Prime Minister’s Office.
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