India’s attempt to regulate increasing inflow of foreign direct investments into the pharmaceutical sector does not seem to yield the desired result as yet. Although government allows 100 per cent FDI in pharma sector through automatic approval route in new projects and investments in the existing companies only through the Foreign Investment Promotion Board approval, there has been a steady rise in the number of acquisitions of large Indian pharmaceutical companies over the last ten years. The first major acquisition in pharma sector was in 2008 when the Japanese giant, Daiichi Sankyo, took control of India’s largest pharma company, Ranbaxy Labs for $4.6 billion. Another major acquisition was of Shantha Biotechnics by the French pharma company Sanofi-Aventis. And the most recent FDI investment was for acquiring Indian generic drugs company, Agila Specialties, by the US based MNC Mylan Inc for a sum of Rs. 5,168 crore. The government had cleared this deal a couple of months ago. Now, Sanofi is understood to be planning to acquire a medium size company, Elder Pharmaceuticals. FDI in the pharma sector has more than doubled to $1.07 billion during April-August period of this year as against an FDI of  $487 million during April-August 2012, as per the latest data of the Department of Industrial Policy and Promotion. Over 96 per cent of the total FDI in the sector between April 2012 and April 2013 has come into brownfield pharma projects. The situation is scary as MNCs already control 35 per cent of the domestic pharmaceutical business.

The very objective FDI policy in this sector should be to bring some check on unrestricted takeovers of Indian companies by MNCs. India’s huge domestic market with no price control on patented products and availability of cheap manufacturing facilities is a great attraction to MNCs. Public interest groups and patient organizations have been expressing serious concerns over this dangerous trend as MNCs usually start launching highly expensive patented drugs after the acquisitions. Introduction of product patent regime in 2005 helped the MNCs to import large number of patented products for marketing in the domestic market. This trend is continuing and these drugs are being sold at exorbitant prices as the National Pharmaceutical Pricing Authority did not try to bring them under price control as yet. Most of the patented drugs are highly expensive on account of excessive profiteering, loading of huge trade commission and promotional costs. It is in view of this trend, the commerce & industry ministry is proposing to further tighten the flow of FDI in the sector by incorporating some major changes in the policy including conditions like a cap of 49 per cent on brownfield projects and mandatory investments in R&D by the acquiring company. The provision of mandatory investments in R&D may not be of much help to curb this trend as the MNCs would readily agree to that condition. It is not that easy to track how genuine is the drug research in India and actual costs incurred  by pharma companies. It is rather unfortunate that divergent views on the issue by various Central ministries and departments are holding up taking such a critical decision.