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No Clear Picture On Pharma FDI

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Thanks to the fierce pulls and pressures from civil society groups, domestic pharmaceutical industry and the global drug multinationals in different directions, uncertainties surrounding India's policy outlook on foreign direct investment (FDI) in domestic pharmaceutical sector is far from over.

Nine months after Prime Minister Manmohan Singh and his senior cabinet colleagues decided to give Competition Commission of India (CCI) the key responsibility of monitoring foreign direct investment (FDI) inflow in brown-field pharmaceutical projects, India's policy outlook on pharma FDI is back to the drawing board.

A new committee set up by the government to understand the progress of the implementation of the proposed changes in the pharma FDI policy has now favoured the Foreign Investment Promotion Board (FIPB) of the commerce ministry over CCI to clear brown-field investments in pharmaceuticals. The earlier decision was to ask CCI to approve all brown-field FDIs in pharma sector irrespective of its size. The new proposal is to allow investments up to 49 per cent without any restriction.

Though the proposal to allow FDI up to 49 per cent in brownfield projects through automatic route was seen as a relaxation of the government's more stringent plan, the drug industry is awaiting the conditionality attached to this decision to understand its real implication.

Ranjit Shahani, president, Organisation of Pharmaceutical Producers of India (OPPI) said that any policy which restricts freedom of trade and investment will further restrict capital flows. He felt that the current position of the committee "will not only have a chilling effect on FDI flows to the Pharma Industry but will also have a serious knock-on effect in other Industries – particularly since it is a reversal of a policy liberalisation which took place only 10 years ago".

"Today, when the world is looking at India to kickstart the economy following changes at the centre this certainly is a retrograde step. We are seeing ghosts where there are no ghosts", Shahani said in an emailed response.

According to officials, even when up to 49 per cent investment in domestic drug companies get cleared automatically, the foreign partner that will gain substantial shareholding in the company will have to assure the government that none of the essential drugs produced by the Indian company will be discontinued after the foreign investment. "They may also be asked to invest 5 per cent of their turnover in research and development relating to drug that address India specific health problems", the official said.

The representatives of the domestic industry, who have been actively lobbying to restrict FDI in pharma – and thereby resist takeover attempts by foreign drug companies – expressed happiness over the government move, despite an apparent attempt to retain control only on transactions that result in majority stake sale.

"This is a good development because any restriction on brown field pharma projects will result in more Greenfield investments. It will create new assets in the country", D G Shah, secretary general, of Indian Pharmaceutical Alliance, the association of domestic drug firms, said.

In a letter to Prime Minister on July 24, civil society thinktank, the Centre for Trade and Development (Centad), wanted the pharmaceutical sector to be considered as a strategic sector. It wanted a ban on all FDI investments in brown-field pharmaceutical sector.

FDI in pharmaceuticals used to be unrestricted for almost a decade until the government decided to limit 100 per cent FDI to Greenfield investments and roping CCI to clear all brown field proposals last year.

A six-month transition period was provided to CCI to equip itself and until then, FIPB was asked to clear all  brownfield investments in the pharma sector. It was expected that during this period, CCI will put in necessary enabling regulations for effective oversight on mergers and acquisitions to ensure that there is a balance between public health concerns and attracting FDI in the pharma sector.

CCI is yet to be empowered to do this job and FIPB continues to handle the task of clearing brown-field pharma investments even today.


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