With the Union government keen to create an industry-friendly environment, it went on to retain its 100 percent foreign direct investment (FDI) in the pharma sector through automatic approval route in new projects and investments in the existing companies only through the Foreign Investment Promotion Board (FIPB) approval.
The FDI in the pharma sector jumped by 86.5 per cent to US$1.08 billion during April-October, 2013 with several mergers and acquisitions of domestic drug makers by multinationals. These included Strides Arcolab, Torrent and Elder Pharma. In December 2013, GlaxoSmithKline Pte Ltd, the Singapore based subsidiary of GlaxoSmithKline Plc., decided to increase its stake in GlaxoSmithKline Pharma (GSK), India by 24.33 per cent by acquiring 20,609,774 equity shares from the public through voluntary open offer.
According to the data from the Department of Industrial Policy and Promotion (DIPP), FDI in pharma was at US$ 580 million during April-October 2012.
While, the DIPP had planned tightening of rules for foreign investors in existing Indian pharmaceutical companies, including reducing FDI cap to 49 per cent from 100 per cent, because it intended to stall the multinational companies acquiring the domestic units which produced rare and critical drugs, the government of India abandoned the proposal.
According to DIPP, over 96 per cent of the FDI in pharma between April 2012 and April 2013 has come into Brownfield pharma projects.
The government had recently cleared a Rs.5,168 crore proposal of US-based pharma firm Mylan Inc to acquire Indian generic drugs company Agila Specialties.
“Government's decision of not reducing FDI in the pharmaceutical sector is a welcome step and would reinstate foreign investor confidence in the pro-reform foreign investment policy of the Government of India. The decision will also help remove the state of uncertainty over future investments by strategic and portfolio investors in the pharmaceutical sector. Government should consider addressing concerns relating to rare/critical facilities through appropriate and targeted policy intervention at the NLEM level and under the drug licensing regime,” Dhiraj Mathur, executive director, PwC India told pharmabiz in an email interaction.
According to Dr Arun Chandavarkar, chief operating officer (COO), Biocon Limited, FDI will bring in competition among Indian pharma companies and this should bring down cost of drug and make it affordable for the patients in the country. However, there is actually no impact on the 100 per cent foreign equity into the pharma sector as long as there is a fair contest among companies.
“FDI for greenfield projects is beneficial because it will bring in advanced manufacturing technology into the country. But it is better that FDI is kept out of brownfield projects. However, there are two schools of thought for the pharma industry on this. While one school of thought sees robust growth prospects manifest out of FDI, the second views that foreign stake could hamper the future development of indigenous pharma companies, noted Kaushik Desai, immediate past chairman, Industrial Pharmacy Division, Indian Pharmaceutical Association (IPA).