Move after concerns raised over acquisitions of Indian pharma companies by multinationals

India will continue to allow Foreign Direct Investment (FDI) in the drugs and pharmaceutical sector under the automatic route for greenfield investments, while in the case of brownfield investment, it will be allowed through the Foreign Investment Promotion Board (FIPB) for six months, following which such acquisitions will be routed through the Competition Commission of India.

This was decided at a high level meeting convened by Prime Minister Manmohan Singh here on Monday evening with his Cabinet colleagues. This will facilitate addition to manufacturing capacities, technology acquisition and development, an official statement issued after the meeting said.

During the six months, when the FIPB will clear the acquisitions, necessary enabling regulations will be put in place by the CCI 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. Thereafter, the requisite oversight will be done by the CCI entirely in accordance with the competition laws of the country.

The meeting was attended by the Finance Minister Pranab Mukherjee, Health and Family Welfare Minister Ghulam Nabi Azad, Commerce Minister Anand Sharma, Chemicals and Pharmaceuticals Minister M.K. Alagiri and Deputy Chairman of Planning Commission Montek Singh Ahluwalia, to sort out concerns raised by the Health and Commerce Ministries over large scale acquisitions of Indian pharmaceutical companies by multinational companies. The meeting also discussed the report of the Arun Maira committee, constituted by the Planning Commission to review the government's policy of allowing 100 per cent FDI in pharmaceutical sector. Monday's decisions are based primarily on the recommendations made by the Committee.

Worried that the trend of multinational companies taking over Indian pharmaceutical firms will undermine the government's efforts at making the generic version of drugs available at affordable prices, the Health and the Commerce Ministries have been seeking safeguards to be built into the FDI process.

As many as 61 drugs worth $80 billion are likely to go off patent in the U.S. between 2011 and 2013, making it possible for Indian companies to produce cheaper generic versions. But the Health Ministry fears the takeover of these domestic companies by MNCs would lead to essential medicines becoming costlier, thus impacting public health programmes, including the universal immunisation programme and health emergencies.

Keeping in view the need to exercise a certain degree of supervision over takeovers, the Ministry had recommended that prior approval of the FIPB be made mandatory. While it has not asked for lowering the permissible FDIit wants steps to be taken to channel foreign investment to green-field projects.Between 2006 and 2010, six major Indian companies have been taken over by MNCs, including Matrix Lab by Mylan, Dabur Pharma by Fresenius Kabi, Ranbaxy Labs by Daiichi Sankyo, Shanta Biotech (Sanofi Aventis), Orchid Chemicals (Hospira) and Piramal Healthcare (Abbott). Since 2001, when 100 per cent FDI was allowed in the sector, only 10 per cent of foreign investment has gone to green-field ventures.

The Ministry of Commerce, too, supported the concerns raised by the Health Ministry, saying the companies taken over by multi-nationals could change the production profile of low priced generics vis-a-vis branded medicines, which could adversely affect the supply of low-priced generic drugs, which in turn, could make health care and life saving medicines out of reach of a large part of our population.