New Delhi: The commerce ministry is believed to be against capping of FDI in the pharmaceutical sector, suggesting that the concerns over MNCs acquiring dominant position through takeovers of domestic firms can be addressed through alternate routes.
Currently 100% foreign direct investment (FDI) through automatic route is allowed.
“It may not be the right thing to reduce FDI cap in the sector... we can consider other ways to do away with the concerns of acquisitions,” sources said.
The industry has witnessed several high profile acquisitions, including that of Ranbaxy Laboratories and Piramal Healthcare by overseas companies.
Following concerns over the impact of these takeovers on the Indian healthcare sector, the commerce ministry had commissioned a study by consultancy firm Ernst & Young (E&Y).
The E&Y’s report is being examined by the commerce ministry and its recommendations would be given to the Department of Industrial Policy and Promotion (DIPP), the nodal arm for FDI related matters.
“In the next 7-10 days, we will firm up our views and send our recommendations to the DIPP,” a senior official said.
Sources said while the report has favoured continuation of the 100% FDI in the sector, it has suggested that certain vulnerable segments can be taken away from the automatic route. In these cases, the Foreign Investment Promotion Board (FIPB) would be empowered to give case-by-case clearances.
Last week, chemicals and fertilizers minister Srikant Kumar Jena said in the Lok Sabha that recent takeovers of Indian companies by MNCs could increase the possibility of other takeovers of domestic firms.
Such takeovers would have an impact on the Indian health care scenario as well as on pricing and availability of medicines in the country, he added.
It was on the recommendation of the pharmaceutical department, the commerce ministry had commissioned the E&Y study.
The official said that the ministry has few differences on the recommendations, which it is examining.
The ministry does not fully agree with the study’s finding that MNCs are acquiring the domestic companies only to gain entry into the lucrative Indian market.
“It is not just the charm of our market but once they get here they can get easy access to Latin America and Africa, after all Indian firms have established themselves in those markets,” the official said.
Besides, the global pharma major can have cost advantage in India.