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Red flag in front of FDI in pharma too-Pranab Dhal Samanta
-The Indian Express

At a time when the government is struggling to get past objections from its coalition partners to attract investment in certain sectors such as retail, aviation and pensions fund management, a grim internecine ministerial battle has applied the brakes on foreign direct investment flow into one of the more attractive and lucrative sectors — pharmaceuticals.

Clearances for over Rs 1,000 crore FDI in this sector, the second largest in terms of attracting FDI, have been unresolved for about a year now. A new-look Finance Ministry is slated to hold a meeting on Monday and take a fresh look at this problem, which has been complicated by an anti-FDI stance of the Commerce and Industries Ministry.

On paper, these proposals have not been cleared because the government is caught up in an unending exercise of identifying preconditions after concerns were raised that foreign control would automatically translate into drugs becoming unaffordable with generics drying up from the market.

It all started with high-value acquisitions of Ranbaxy by Japan’s Daiichi Sankyo in 2008 and Piramal’s formulations business by US-based Abbott Laboratories in 2010.

While no such alarming trend has been observed so far as a result of the takeovers, the argument was taken on board with the matter going to the Prime Minister’s desk where it was decided last October that all brownfield pharmaceutical FDI proposals will be put through the FIPB (Foreign Investment Promotion Board) route. This arrangement was for six months only, until the time regulatory provisions were put in place to enable the Competition Commission of India (CCI) to oversee the sector.

The plan, however, did not work. An otherwise FDI-friendly voice, Commerce and Industry Minister Anand Sharma proved the surprise package by shooting off a strong protest letter to the Prime Minister against the idea of shifting the responsibility to the CCI in the long run. This was followed by a letter from Health Minister Ghulam Nabi Azad, who demanded that norms be made for FDI in brownfield pharma to ensure availability of generic drugs.

This snowballed into a public health concern as it dovetailed with the government’s idea on access to universal health-care, the first step for which is a scheme for making essential medicines available free through the National Rural Health Mission.

Soon enough, the PM’s idea ran into trouble with objections being raised within the cabinet against arming the CCI, especially by ministries that have independent regulators and which felt this would set a precedent. While that issue is now to be resolved by a group of ministers, FDI proposals kept piling up before the FIPB. Some of them were not even big FDI infusions, just some extra capital for small and medium companies. Eventually, an inter-ministerial group was set up under a Finance Ministry official to address the FDI issue and streamline the process. It came up with these key recommendations:

* Oversight of “generics” was too “broad and sweeping” and so, monitoring should be narrowed down to the recently updated National List of Essential Medicines (NLEM), which now has 348 drugs. “The availability of these drugs should be ensured,” the report said, adding that the NLEM will be a “proactive and dynamic list” that will be constantly updated. A company receiving FDI will have to maintain the same level of NLEM drugs production that it had kept before the foreign funds came. In fact, the best production figure in the last three years of the FDI flow will act as a benchmark. These levels will have to be maintained for the next five years before they come up for review.

* There was a demand for ensuring funds for research and development of drugs specifically for India-related diseases. This was rejected on the grounds R&D areas cannot be specified in such a manner. The group concluded that the only “measurable yardstick” would be to monitor R&D expenses. The same method as adopted in monitoring NLEM production has been recommended for this.

* On the issue of transfer of technology, it was reasoned that “no objective yardsticks” could be found to gauge technology transfer. This criteria would have to be dropped, though details could be sought along with the FIPB proposal as a matter of record.

* As for the FDI limit, it was agreed that the automatic route would be followed unless there was an ownership change, which means proposals involving FDI beyond 49 per cent would have to go through the FIPB route.

This group had representatives from all relevant ministries including the Industry Ministry. The report was finalised on July 24 and an FIPB meeting was slated on July 27, where pending pharma FDI proposals were to be taken up. But on that day, insiders say, the Commerce and Industry Ministry again sought deferment of all pharma FDI proposals quoting the instructions of its minister.

From what has emerged, the Health Ministry is now inclined to move forward with this plan, leaving the Commerce and Industry Ministry as the only holdout.