Govt weighs relaxing FDI norms in brownfield pharma cos

FDI in the sector is a contentious issue as concerns have been raised over some M&As of Indian pharma companies by foreign giants

The government is considering a proposal to relax foreign direct investment (FDI) norms in existing pharmaceutical companies with a view to attracting more overseas inflows.

According to a proposal of the Finance Ministry, FDI up to 49% should be allowed through the automatic route and anything beyond through approval of the Foreign Investment Promotion Board (FIPB), sources said.

The Department of Industrial Policy and Promotion (DIPP) and the Finance Ministry are discussing the proposal.

Currently, FDI up to 100% is permitted in new projects in the pharmaceutical sector, but in brownfield ones — the existing companies — the foreign investment is permitted through FIPB approval.

DIPP has already commissioned a study to assess the impact of foreign direct investment in existing pharmaceutical companies amid concerns over mergers and acquisitions of domestic drug manufacturers.

FDI in the sector is a contentious issue as concerns have been raised over some mergers and acquisitions of Indian pharma companies by foreign giants.

Analysts feel that it is impacting accessibility and growth of the generic industry in the country.

In fact, a report of the Parliamentary Standing Committee on Commerce had suggested that a study group be set up to examine the effect of FDI on brownfield pharma or operational firms.

The committee had even suggested that the government should impose a blanket ban on any FDI in brownfield pharma projects.

India is recognised as a major generic medicine hub of the world. The market size of the country's pharma industry is estimated at over $20 billion.

In 2008, Japanese firm Daiichi Sankyo had bought out the country's largest drugmaker Ranbaxy for $4.6 billion.

US-based Abbot Laboratories had acquired Piramal Health Care's domestic business for $3.7 billion.

Another US company Mylan bought Matrix Lab while Dabur Pharma was acquired by Singapore's Fresenius, France's Sanofi Aventis purchased Shanta Biotech and certain assets of Orchid Chemicals were acquired by the US-based Hospira.

As per estimates, over 96% of the total FDI in the sector between April 2012 and April 2013 flowed into brownfield pharma companies.