No Curbs on FDI in Pharmaceuticals Sector, Says Government Panel; DIPP & Health Ministry Are Unhappy.

NEW DELHI: A government panel has said there should be no restrictions on foreign direct investment (FDI) in the Rs 47,000 crore pharmaceuticals sector, evoking strong opposition from the department of industrial policy and promotion (DIPP) and the health ministry.

The panel, however, said all mergers and acquisitions in the sector should be cleared by the Competition Commission of India (CCI), the country's competition watchdog, as it fears that a spate of M&As in the sector may lead to increase in drug prices. The panel, headed by Planning Commission member Arun Maira, met on Tuesday to consider the views of all stakeholders.

A senior official of DIPP said, "We do not agree with the recommendations. We are going to stick to our proposal. We have backing from the health ministry as well." The DIPP, which formulates policy on FDI, wants foreign holding in existing pharmaceutical companies to be capped at 49% and that all FDI into such companies should be routed through the Foreign Investment Promotion Board (FIPB).

The health ministry, at whose behest a restriction on FDI in the sector was mooted, also opposed the panel's recommendation, a government official present at the meeting said. However, panel members from the finance ministry and the Planning Commission were in favour of clearance coming from the CCI and not the FIPB. They do not want any change in policy that was put in place 10 years ago.

"Such a move would send negative signals about India's overall policy formulation, that too at a juncture when the country is going all out to attract FDI," a government official said. The panel, set up by the Cabinet Committee on Economic Affairs (CCEA), will submit its recommendations by Friday.

Maira said M&A deals are crucial for the health sector and could not be left to the FIPB, since it "does not follow a transparent" process. "The CCI is a better body than the FIPB in this instance...We definitely need a filter to ensure that drug prices don't go out of control as a result of any monopolistic market," he said, adding that an oversight by an anti-trust body is in vogue in several countries.

"CCI is a transparent and sophisticated instrument," Maira added. The DIPP, however, says that the CCI is not competent enough to handle issues in the pharma sector. Both the DIPP and the health ministry are expected to continue pushing for curbs on FDI in the sector and take it up with Prime Minister Manmohan Singh next month. The CCI, on its part, is confident that it can handle issues related to M&A deals in the sector.

"CCI has shown in other instances that we are quick in handling cases. There is no issue whether we can handle it or not. We have adequate resources," a CCI official said. Under the present CCI dispensation, the watchdog's clearance is required only for M&As where the parties to the acquisition have assets of overRs 1,000 crore or turnover of over Rs 3,000 crore.

The recommendations of the Maira committee have the backing of the finance ministry. Since 2006, as many as six big Indian pharma companies have been taken over by foreign firms. The recent buyouts include takeovers of market leader Ranbaxy Laboratories by Daiichi Sankyo of Japan, Shanta Biotech by Sanofi Aventis of France, and Piramal Health Care by Abbot Laboratories of the US.

Source : economictimes.indiatimes.com