The Centre’s decision to allow 74 per cent foreign direct investments in brownfield pharmaceutical projects in automatic route will have serious implications in this critical sector and to the people of the country. The current government policy already allows 100 per cent FDI in greenfield pharmaceutical projects through automatic approval route. But, that has not attracted much foreign investments into the country so far. To set up a totally new manufacturing or trading company in pharmaceuticals can take time and may have to face some regulatory hurdles. For the powerful multinationals and investors, therefore the better option is to acquire an existing Indian company that can facilitate much easy way to capture the market share and dominate in any segment. Now, the target of the investors will be large and medium scale pharmaceutical companies which are either family owned or individual controlled. It is well known that 20 large and middle level Indian companies control more than 80 per cent of Indian pharmaceutical market. To acquire these companies will not be that difficult and may not require huge capital considering the past acquisitions of companies like Ranbaxy, Shantha Biotechnics and branded generics of Piramal Healthcare.
MNCs and foreign investors have been campaigning and waiting for a drastic change in the FDI policy in pharmaceutical and food processing sectors for some years. Now that is happening. Some Indian entrepreneurs may be happy with the new policy as they can sell their companies at never expected valuations. But, it is naïve to expect that MNCs and other investors have genuine interest in developing India and provide employment to its people. Their sole intention is to make investments in the country and reap huge profits in a short time and take back the capital. And it is easily possible in a country like India with a huge illiterate, hungry and sick population. The very objective FDI policy in the pharmaceutical sector should be to bring some checks on unrestricted takeovers of Indian companies by MNCs. India’s huge domestic market with no effective price control on patented products and availability of cheap manufacturing facilities has been a great attraction to MNCs. Public interest groups and patient organizations have been expressing serious concerns over this dangerous trend of acquisition of large Indian companies as MNCs usually start launching highly expensive patented drugs after the acquisitions. Most of the patented drugs are highly expensive on account of excessive profiteering, loading of huge trade commission and promotional costs. Introduction of product patent regime in 2005 helped the MNCs to import large number of patented products for marketing in India with no government control on their prices. The same trend will continue in a much bigger scale now with the change in the FDI policy. In short, Indian pharmaceutical sector may go back to a scenario existed in fifties and sixties when multinational drug companies dominated the domestic market.