4 Jul 2012

FDI In Pharmaceutical Companies Producing Life Saving Drugs In India

Mergers and acquisitions (M&A) and foreign direct investments (FDI) in pharmaceutical sector of India are on hot list. Even the consolidated FDI policy of India 2012 has liberalised many concepts regarding these areas. However, with these flexibilities and permissions, India must take care of all anti competitive and anti national activities as well.

For instance, it has been anticipated that multinational companies may slow down production of essential medicines after they acquire Indian pharmaceuticals companies. This may affect the national interest of India in general and public health in particular. Now Indian government has decided to build stringent safeguards to ensure availability of life-saving drugs even after such acquisition.

An inter-ministerial group set up by the finance ministry to consider new norms for clearing foreign direct investment (FDI) proposals in the 60,000-crore pharmaceutical sector has recommended incorporation of a stringent clause that mandates that the Indian companies shall continue to make and sell the essential drugs in India even after they are acquired by a foreign company.

The current policy allows 100% FDI in the pharmaceutical sector, but after a spate of acquisitions in the sector that raised fears of MNCs neglecting Indian interests, the government has decided to put brownfield investments in the sector on the automatic route.

Till now foreign investment promotion board (FIPB) of India is only empowered to examine proposal from the stand point of the Foreign Exchange Management Act and the FDI policy. The new guidelines will help it scrutinise foreign investments in existing companies from a public health perspective.

There is a chance that the government could also require that FIPB continue to look at the FDI proposals in the sector even after the oversight on mergers and acquisitions in the sector passes over to the Competition Commission of India.