Ministers' panel to look into FDI in pharma sector

NEW DELHI: The government has ordered constitution of an inter-ministerial group to review India's foreign direct investment norms in the Rs 47,000-crore pharmaceutical sector. The directions were issued in a meeting of the Cabinet Committee of Economic Affairs ( CCEA), chaired by prime minister Manmohan Singh.

"The inter-ministerial group will examine all concerns related to foreign direct investment ( FDI) in the pharmaceutical sector and take a final call on whether any form of restriction is required," a government official told ET.

The immediate trigger for the move was the acquisition of Ahmedabad-based Paras Pharmaceuticals by British consumer goods and healthcare firm Reckitt Benckiser. Although the CCEA approved the deal on March 29 it directed constitution of the IMG as sections with the government had expressed reservations on the investment. The reservations were largely on account of a proposal that has been moooted by the department of industrial policy and promotion to restrict FDI in the pharma sector.

"The group will be constituted soon under the chairmanship of a Planning Commission member," said a DIPP official. DIPP is the nodal FDI policy-making body.

India had opened its pharmaceutical sector to 100% FDI via the automatic approval route in 2002. However, concern over spate of big ticket takeovers of Indian pharma companies by global drug majors prompted a rethink on the FDI policy in some sections of the government such as the health ministry.

The pharma sector has seen at least six big-ticket takeovers in the past five years. Among them was the 2008 acquisition of the country's largest drug maker, Ranbaxy, by Japanese firm Daiichi Sankyo for $ 4.6 billion. Piramal Health Care's domestic business was recently acquired by US-based Abbot Laboratories for $3.7 billion.

In line with the concerns, the DIPP proposed drastic changes in the policy. It has proposed to cap FDI in the sector at 49% and bring it on the approval route to ensure that all FDI proposals in the sector secure the nod of the Foreign Investment Promotion Board.

The Indian Drug Manufacturer's Association, which largely represents local pharmaceutical companies, is also seeking checks and balances, although it is in favour of a 74% cap on FDI.

Some experts say takeover of Indian pharma companies will eventually lead to expensive drugs in the country.

The health ministry has endorsed the concerns over access to drugs, but the finance ministry, however, has opposed the move saying a rollback of the open FDI policy regime would be retrograde and dent India's image as an investment destination at a time when the country is witnessing a decline in FDI flows.