The Health Ministry has supported restrictions proposed by the Industry Department on foreign direct investment (FDI) in existing pharmaceutical projects.
In an official response to a draft Cabinet note floated by the Department of Industrial Policy & Promotion (DIPP) on FDI in the pharma sector, the Health Ministry has backed its bid to check takeovers of local drug companies by foreign majors, a DIPP official told Business Line .
The DIPP is apprehensive that without adequate restrictions on takeovers, the availability of cheap life saving medicines in the country could be affected.
The Health Ministry’s formal support has come as a shot in the arm for the DIPP that has received adverse comments from the Finance Ministry on the proposed restrictions.
The Finance Ministry wants uninterrupted flow of FDI into the country to keep the current account deficit in check.
The DIPP, in its draft Cabinet note, has proposed to restrict FDI in “critical” sectors at 49 per cent for existing projects. It also suggested that foreign investors be mandated to create at least 25 per cent additional capacity and generate additional employment in the critical pharma projects they invest in.
These “critical” sectors are yet to be finalised but may include oncology (cancer-related) drugs, injectibles and vaccines, the official added.
“We were indeed disappointed by the response our Cabinet note received from the Finance Ministry. We will nonetheless go ahead and place it before the Cabinet as we have received ample support from other Ministries like Science & Technology and now Health,” a DIPP said.
Like the Finance Ministry, the Planning Commission, too, is not in favour of restrictions on FDI. Planning Commission Deputy Chairman Montek Singh Ahluwalia has opposed the move to restrict FDI in brownfield pharma in inter-ministerial meetings, but is yet to send an official response to the draft Cabinet note.
A response is also awaited from the Department of Pharmaceuticals.
The current FDI policy allows 100 per cent foreign investment in the pharmaceutical sector.
Current rules
While investments in greenfield projects are automatic, those in brownfield or existing projects have to be routed through the Foreign Investment Promotion Board (FIPB).
Despite FIPB scrutiny, most of the FDI coming into the pharma sector has been in the brownfield area. RBI data show that in the past year, existing pharma projects received FDI worth $2.023 billion, while new projects attracted just $87.35 million.
The DIPP fears that in the absence of restrictions on buy-outs, facilities in critical verticals will be taken over which would adversely impact supply as product mix could change to cater to developed country needs.
“Further, there may remain no suitable manufacturing facilities to work a compulsory licence in case of need,” a DIPP note circulated to other Ministries and Departments and the Prime Minister’s Office states.
Earlier this year, ignoring the DIPP’s protests, an inter-ministerial panel headed by the Prime Minister, cleared US-based Mylan’s proposal to acquire Indian generic manufacturer Agilla for Rs 5,168 crore.
Agilla is one of the few companies that produce Oncology injectibles in the country.