FIPB has no case for stopping brownfield pharma FDI
While the industry ministry is yet to come up with a final policy on whether foreign pharmaceuticals firms are to be allowed to buy existing pharmaceutical producers (brownfield acquisition, in jargon), the case for not doing so is getting weaker by the day—and, by continuing to defer the $1.6 billion takeover of Strides Arcolab’s injectables unit by the US Mylan, the FIPB is sending out the wrong signal to potential investors waiting to bring in money into the country. When the debate first began some months ago, the industry ministry argued that allowing such takeovers would result in local production getting curtailed and prices of drugs rising. Why this would happen was never clear since, after paying good money, the foreign buyer would be interested in maximising value, not lowering it. More important, given how there are an average of 100 producers for most medicines, and the price controls India has on essential medicines—30% of the industry is under price controls—the evidence never supported the charge of supplies being curtailed and prices getting raised. FE published data on the change in prices of the drugs supplied by various MNCs and this was similar to that for Indian firms.
The ministry later changed its tack and argued, in a letter to the Prime Minister, that such takeovers were leading to a surge in imports and dividend payments. In this case, too, the reality was somewhat different. While pharma imports had risen faster than exports in the last 5 years, India’s FY12 imports were R14,385 crore versus exports of R58,480 crore. And the dividend payouts were, understandably, a small fraction of the amounts invested. The latest, in this saga of keeping away foreign pharmaceuticals firms from buying Indian pharmaceuticals firm is that, thanks to the current policy, India is steadily losing out on critical verticals, like vaccines for instance, and is getting increasingly dependent on China for critical raw materials. Given the import-export balance, it does seem odd to focus on the China factor and, in any case, there is little doubt China is making big inroads in other sectors as well. In the case of vaccines, as FE reported on Wednesday, it is the public sector units primarily that are supplying less each year. In the case of DPT vaccines, for instance, PSU units supplied 920 lakh doses in FY07 and this fell to 745 lakh doses in FY13—during this period, however, the total government purchases of such vaccines for immunisation purposes doubled. In the case of BCG vaccines, PSU production fell from 895 lakh doses to nil in the same period. India has amongst the lowest pharmaceuticals prices in the world but if the government still wants to cut them further, or increase production in certain verticals, it cannot achieve this by banning FDI in brownfield pharmaceuticals—it has to find ways to make the PSUs perform.