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The Commerce Standing Committee of Parliament has expressed concern at the way the foreign direct investment (FDI) in pharmaceutical sector operates.
Asking the Government to regulate brownfield FDI in the pharma sector, the committee, in a report adopted here, said FDI had ended as a cover-up for mergers and acquisitions.
The panel said out of the 67 FDIs till September 2011, only one is greenfield, the remaining 66 are brownfield, which has been predominantly used to merge and take over domestic pharma companies.
The panel, headed by veteran Bharatiya Janata Party leader V. Shanta Kumar, said the Reserve Bank of India’s data on FDI does not distinguish between greenfield and brownfield investments.
It urged the Government to stop behaving like an ostrich and take cognisance of the problem. “Absence of such a mechanism is a handicap for the Government while framing policies for the sector,” the report said, adding that concerns of acquisitions and mergers need to be addressed through proper regulatory oversight.
The panel recommended that brownfield investments should come with conditions such as assured social responsibility, inventions, increase in manufacturing firms, job generation, new product generation and new technology generation.
The panel wanted the Centre to establish a suitable mechanism to keep track of the nature of FDI coming into the country.
It noted with concern that six companies -- Matrix lab, Dabur Pharma, Ranbaxy Labs, Shanta Biotech, Orchid Chemicals and Piramal Healthcare -- had been taken over at valuations much higher than their actual value.
Pitching for more greenfield FDI, the report said if the domestic companies could start from scratch and it was lucrative them, there is no reason as to why a foreign pharma company cannot come and similarly do business. The panel said the real danger of the 100 per cent FDI and the selling or takeover of Indian companies is the decimation of competition by buying over local units.
“An old rule for monopolists is if you do not want to offer lower prices, buy the competition. The competition, unfortunately, is selling gladly,” the report said.
It said serial acquisitions could incapacitate the domestic industry and slow down their new investments and employment generation.
It added that FDI in R&D was less than satisfactory and asked the Government to increase public funding in R&D.
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