Reports that the government is likely to impose restrictions on portfolio investments by foreign institutional investors (FIIs) in the domestic pharmaceutical sector have been welcomed as a move that will help both the domestic industry and the Indian consumer, feel experts.
The Department of Industrial Policy & Promotion (DIPP) wants any increase in foreign institutional investment in the listed pharmaceutical companies beyond the 24 per cent threshold to first get permission from the Foreign Investment Promotion Board (FIPB).
As things stand, the 24 per cent limit can be raised through a board resolution and special resolution of shareholders of the companies. India had opened its pharmaceutical sector to foreign direct investment (FDI) in 2002 but drew a distinction between Greenfield (new) projects, where still a 100 per cent automatic route exists and brownfield acquisitions.
Speaking to this correspondent, D.G. Shah, Secretary General, Indian Pharmaceutical Alliance (IPA), said, “It would certainly make a difference because some companies use FIIs as a vehicle for acquisition of controlling stake.”
Karvy Stock Broking Research Head Rahul Sharma told The Hindu that were it to happen, the restrictions would be a “proactive measure by the government to protect not only the interests of the domestic industry but also of consumers as India still makes arguably the cheapest medicines in the world”.
Fears still remain that if they acquire a significant share of the market, MNC pharma could end up dictating prices.
Indian companies still present an attractive case for acquisition. Typically, international players acquire the domestic companies for their established marketing and distribution networks or for brands and restricting brownfield acquisitions could encourage Greenfield projects.
More recently, Indians buying domestic assets have increased. Sun acquiring Ranbaxy and Torrent buying Elder Pharma are examples of this. Mr. Shah felt these cases “are more straight-forward as a MNC acquisition is fraught with complexity and takes much longer”.
“Acquisitions must bring in technology and create assets. The change in ownership should not only benefit Indian promoters who stand to make a windfall but also the Indian public,” Mr. Shah said.