India will continue to permit 100% foreign direct investment (FDI) in new ("greenfield") pharmaceutical industry projects, but foreign takeovers of Indian drugmakers will come under tighter scrutiny, the cabinet agreed yesterday.
FDI proposals for mergers and acquisitions of Indian drugmakers - known as "brownfield" investments - will in future have to be channelled through the Foreign Investment Promotion Board (FIPB) for a period of up to six months, during which time the Competition Commission of India (CCI) will examine the proposed deal. The powers of the CCI are to be strengthened.
The meeting, which was chaired by India's Prime Minister Manmohan Singh, and also included the ministers of health, commence and finance, was called to discuss concerns expressed by health officials and the domestic drug industry that India's liberal FDI regime for the pharmaceutical sector, which was introduced in 2001, is making medicines less affordable for the population by forcing up prices. They are particularly concerned about up to 61 top-selling drugs worth around $80 billion which are due to go off-patent by 2013, warning that the prices of these products will be unlikely to drop if they are still owned by multinationals.
The foreign takeovers are also harming local access by diverting Indian-made drugs into more lucrative markets elsewhere in the world, say the critics, who also point out that the generous public funding for research made available by the government should be used to provide benefits for the Indian population, rather than going into the coffers of foreign owners.
Moreover, they note that since the FDI policy was introduced 10 years ago, only 10% of such investments have gone into greenfield investments.
The government set up a committee chaired by Arun Maira, a member of the Planning Commission, to investigate these concerns, which had been growing as a result of the total or partial takeover of six large Indian drugmakers during 2006-2010. One of the panel's areas of scrutiny was whether the CCI should still be the official watchdog for the sector or whether that responsibility should move to the FIPB. Mr Maira and his colleagues decided that the CCI should retain its responsibilities in this area but with increased powers, and yesterday the ministers agreed with this advice.
The Finance Ministry had opposed any proposals to restrict foreign investment in the sector. Officials have in the past been reported as saying that arbitrary price rises could be tackled through the use of compulsory licensing and the Drug Price Control Order (DPCO), and that the CCI could dismantle any attempts to construct industry cartels.