Pitching in favour of any kind of cap on foreign direct investment (FDI) in the pharmaceutical sector, the Commerce Ministry has suggested that alternative means could be considered to address the issue of MNCs acquiring dominating nature through the takeover route in domestic firms.
At present, 100 per cent FDI through the automatic route is allowed in the pharma sector. Concerns were raised in some quarters over the recent takeover of domestic pharmaceutical companies by MNCs and some kind of measures were sought to counter this position. In the recent past, the industry has witnessed several high profile acquisitions, including that of Ranbaxy Laboratories and Piramal Healthcare by overseas companies.
“To put any kind of cap would not be the right thing to stop such takeovers. The Government can consider other ways to do away with the concerns of acquisitions,” a senior Ministry official said.
Following these concerns over the impact of these takeovers on the Indian healthcare sector, the Commerce Ministry had commissioned a study by consultancy firm Ernst & Young (E&Y). The E&Y's report is being examined by the Commerce Ministry and its recommendations would be forwarded to the Department of Industrial Policy and Promotion (DIPP) for appropriate consideration.
Ministry officials said while the report was understood to have favoured continuation of the 100 per cent FDI in the sector, it has suggested that certain vulnerable segments can be taken away from the automatic route. In these cases, the Foreign Investment Promotion Board (FIPB) would be empowered to give case-by-case clearances. The Chemicals and Fertilisers Minister, Srikant Kumar Jena, had also stated in the Lok Sabha that recent takeovers of Indian companies by MNCs could increase the possibility of other takeovers of domestic firms. Such takeovers would have an impact on the Indian healthcare scenario as well as on pricing and availability of medicines in the country, he added. The official said that the ministry had few differences on the recommendations, which it is examining.
The Ministry does not fully agree with the study's finding that MNCs are acquiring the domestic companies only to gain entry into the lucrative Indian market. “It is not just the charm of our market but once they get here they can get easy access to Latin America and Africa, after all Indian firms have established themselves in those markets,” the official said. Besides, the global pharma major can have cost advantage in India, it has been argued.
