For the economic development of any sovereign country, investments are certainly required in different key sectors. At the same time, governments cannot open up all areas of the country’s economy to FDI as such decision could turn out to be against the interest of the nation and the people of the country. The government of India has been clamoring for foreign direct investments into the country in several sectors probably with no consideration of the ground realities. Allowing FDI in retail sector and in pharmaceuticals has been an issue seriously debated for some time now as indiscriminate investments in these sectors already led to an undesirable impact on prices of these two essential group of products. Now after several months of meetings between various departments of the government and objections from certain public interest groups, the government announced continuation of the policy of allowing 100% FDI in the brownfield pharmaceutical projects subject to approval from the Foreign Investment Promotion Board. The non-compete clause provided in the policy would not apply for mergers and acquisitions of existing projects except in cases where the FIPB feels it is needed. This provision may be a small relief to the national sector of the pharmaceutical industry. Under a non-compete clause, existing promoters who sell out their companies cannot re-enter the same line of business for some number of years or never in certain cases. This condition can limit competition in some cases for the buyer and not in all cases. The government should have been clear about this rule in the FDI policy so that discretionary power vested with the FIPB will not go against the interest of the patient community.  

The very objective FDI policy in pharmaceutical sector should be to attract foreign capital into high technology space and 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. Ever since the introduction of product patent regime in 2005, there has been a steady rise in the import of large number of patented products for marketing in the India’s vast domestic market. 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 Department of Industrial Policy and Promotion has been pressing to tighten the flow of FDI into the sector by incorporating some key conditions in the policy including provisions like a cap of 49 per cent on brownfield projects and mandatory investments in R&D by the acquiring company. Now with the PMO, the Finance Ministry and Planning Commission voting against DIPP’s stand,  Indian pharmaceutical sector and the patient community will have a tough time ahead. The provision of mandatory investments in R&D may not be of much help as the MNCs would readily agree to that condition. And it is not that easy to track how genuine is the drug research in India and assess their actual costs incurred by pharma companies in this area.