The Foreign Investment Promotion Board will now start scrutinising takeovers by foreign players in the pharmaceutical sector – for the next six months. Thereafter, the Competition Commission of India (CCI) will take over the role of watchdog.
The Government has found this solution to resolve the inter-ministerial differences in framing M&A rules in the “sensitive” pharma sector. A statement issued after a meeting chaired by the Prime Minister, Dr Manmohan Singh, said that FDI will be allowed through the FIPB route for the next six months in the case of brownfield investments.
During this period, the 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, the statement added.
It said that that there will be status quo on FDI without any limits (100 per cent) under the automatic route for greenfield investments in the pharma sector. This will facilitate addition of manufacturing capacities, technology acquisition and development.
This issue came up for discussion after a spurt of M&A activity in the sector. In the recent past there have been six major foreign takeovers of large Indian pharma companies, including Daiichi Sankyo's majority stake buyout of Ranbaxy.
Out of the $8.99 billion received as FDI in the sector between April 2000 and June 2011, about 50 per cent amounting to nearly $4.73 billion were through the M&A route.
With the Health Ministry demanding stricter norms, fearing an increase in drug prices, a Government committee chaired by Mr Arun Maira, Member, Planning Commission, was constituted to look into the issue.
Speaking to Business Line , Mr Maira said, “We were all in complete agreement that the pharma sector is a sensitive one and we need to be more careful. Therefore, the recommendation was that there must be a screening. This was accepted.”
Criticising the decision, Mr D.G. Shah, Secretary General of the Indian Pharmaceutical Alliance, said, “This scrutiny by FIPB is just a cover up and will do nothing to check the acquisition by MNC pharma of Indian companies.”