FDI in pharma resumes

Last Updated: Tue, Aug 28, 2012 04:05 hrs

The government has again resumed clearing proposals for foreign direct investment in the pharmaceutical sector, after it was taken off the automatic route and the government figured out how exactly to go about the task. At a time when the balance of payments situation and the need to revive foreign investor confidence are paramount, this is to be welcomed. But the latest clearances are ad hoc in nature and the country is nowhere near evolving a rational policy that addresses both domestic healthcare concerns and attracts more foreign direct investment (FDI). A policy proposal finalised by an inter-ministerial group has been sent to the Prime Minister’s Office for approval and its contents are not known; but, going by media reports, it is necessary to ask what all this has been in aid of. After much deliberation to take care of inter-ministerial wrangling, the end result may only delay and thereby restrict FDI inflow without creating necessary healthcare safeguards.

The change in policy came when foreign takeovers of several leading Indian pharmaceutical companies created a fear that the future manufacture of cheap drugs by quality-conscious Indian companies was threatened by foreign ownership, as cheap medicines were not the new owners’ priority. In fact, this is a bit of a red herring, as there are several public sector drug companies that are moribund, and there is no reason why the government cannot galvanise and expand them to produce quality generics to feed the public healthcare system. The second red herring was to consider, as suggested by a committee headed by a Planning Commission member, that the Competition Commission be allowed to clear FDI proposals. The role and expertise of that organisation are in promoting competition and going after anti-competitive actions by business. The one problem that the Indian drug industry does not face is concentration of market share. The key issue the policy should address and which lies at the root of the growth and success of the Indian pharmaceutical industry is its willingness to challenge patents and fight legal battles the world over so that patent life is not extended by the dubious actions known as “evergreening”. Without this, the global space for generics cannot be preserved and expanded. A global drug major, with a dwindling drug pipeline, can hardly be expected to do this via its Indian acquisition. This mindset, which sees an entrepreneurial opportunity and pursues it with scientific capability, can hardly be ordained by law. You cannot administratively order or preserve the pioneering spirit of a Ranbaxy or Dr Reddy’s.  

The reported decision to let the Foreign Investment Promotion Board do the clearing itself appears flawed. It is the health ministry that should be the final arbiter in determining how important the portfolio of a takeover candidate is in manufacturing essential medicines. Instead, what is being deliberated upon is whether the FDI limit should be 49 per cent or 51 per cent, and whether an undertaking should be obtained to continue with the production of essential medicines for five years and to achieve a stipulated level of investment in research and development (R&D). The enforceability of such commitments and players’ ingenuity in getting round them are well known. Also, can you drive fruitful R&D work by administrative fiat?

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