Says pharma FDI norms need tightening to limit foreign firms buying out domestic units.
Saying it opposed indiscriminate takeovers and mergers in the domestic drug sector, the ministry of commerce and industry has put its foot down on the recommendations made by the Arun Maira committee on foreign direct investment (FDI) policy in the pharmaceutical industry, by issuing a dissent note.
The committee, headed by the Planning Commission member, had issued its final report to the Prime Minister and deputy plan panel chief Montek Singh Ahluwalia on September 28. It had recommended no change in the current FDI norms.
The dissent note was given by R P Singh, secretary, department of industrial policy and promotion (Dipp). It would be made part of the report, to be considered by Prime Minister Manmohan Singh, who has convened a stakeholders’ meeting on the issue on October 10.
“We are worried that a stage may come when we may not have a company ready to manufacture drugs on behalf of the government, even if the provision of compulsory license is invoked. The fact that acquiring companies are paying huge valuations which are many times the cost of setting up greenfield (new) projects does raise a question on their motivation. The (Maira) committee should have appreciated this position,” says the Dipp dissent.
Presently in the pharmaceutical sector, the government permits 100 per cent FDI via the automatic route. The ministry of health had raised serious concerns on the impact of the series of takeovers since 2006 on the domestic drug industry. Subsequently, it had urged the ministry of commerce and industry to change the policy.
“We are of the view that while we can permit 100 per cent FDI in greenfield projects without any restrictions on the automatic route, a scrutiny for FDI in brownfield (expansion of existing unit) projects through the FIPB (Foreign Investment Promotion Board) route is required. To see that the FIPB adopts objective criteria, a checklist can be declared upfront, so that the rules of the game are known to investors,” a senior Dipp official told Business Standard.
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However, in its report, the Maira committee, created on June 30 by the Cabinet Committee on Economic Affairs (CCEA), recommended giving more teeth to the Competition Commission of India (CCI) in allowing mergers and acquisitions (M&A) in the pharmaceutical sector. And, for not changing the FDI rules.
The Dipp note has raised a serious question mark over the roles and powers of the CCI, which it says were approved recently. It would take substantial time before those are effectively implemented. “While the laws may be sophisticated, the ultimate test of their efficacy lies on their implementation...The urgency of the issues at hand do not permit us the luxury of waiting for such capacities to be built up,” the official said.
Dipp has also said CCI is mandated to work on anti-competitive practices and, thus, it would not be able to address issues concerning the public interest. Dipp says CCI would fail to ensure “adequate availability of essential drugs, adversely affecting the production capacity and supply of low-priced generic drugs”.