Pharma industry may see a rollback in 100% FDI

Business

oi-Shoaib

By Shoaib Md

Published: Thursday, September 22, 2011, 15:30 [IST]

The pharma industry has witnessed a spate of acquisitions. International pharmaceutical companies have acquired Indian counterpart like the Japanese Diiachi Sankyo's bought Ranbaxy Labratories. Then Abbot Laboratories of US took over Piramal Healthcare. Hospira acquired Orchid Chemicals, and the Singaporean Fresenius Cabi took-over Dabur pharma.

This has made the ministries of commerce & industry and health worry and hence they are requesting a rollback of 100% FDI via automatic route in the existing units.

According to a news-report in the Financial Express, 'separate letters to PM Manmohan Singh, the commerce & industry and health ministry have called for routing of overseas investments in existing pharma firms via the Foreign Investment Promotion Board (FIPB).'

This proposal has faced resistance from the finance ministry and also the Planning Commission; these two organization are of the view that imposing any such restrictions on the FDI proposals will affect the pharma sector and in turn it could send wrong signals to overseas investors.

However, supporting the automatic FDI inflow for the existing units, commerce minister Sharma told the Financial Express “FDI into existing companies may be placed under the government approval route while enabling oversight on possible takeovers." Sharma was of the opines that the FDI in greenfield pharma units can continue under the 100% automatic route.

Although the health ministry's view is that acquisition by MNC's could result in weak of India's stand in the generic medicines market, escalation of drug prices followed by short supply of essential medicines in the domestic markets. Also there is a possibility of reduced competition through creation of an oligopolistic situation. Oligopoly is where few players would dominate the market.

Approximately $9 billion worth of FDI has come into India through the FDI route over the last 11 years. Nearly 50% of this amount has come through the mergers and acquisitions route.

Apparently the health ministry brought to attention of Commerce Industry that the recent trend of acquisitions of Indian pharma companies by MNC's haS the potential to affect the government's objective of making generic drugs available at reasonable price.

VIEW: From investors perspective, it may not be the best thing to happen, as such an instance will not only affect the foreign investors sentiment but it will also stop local investors from realizing the value of the stock. It will also be detrimental to the entire sector.

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