The Indian government is contemplating a move to dramatically reduce the cap on foreign direct investment (FDI) in the pharmaceutical sector from 100% to 49%. This comes as a result of government concern over the possible impact of a spate of recent acquisitions of Indian pharmaceutical companies, such as Ranbaxy Laboratories, Shanta Biotech, Dabur Pharma and Piramal Life Science, by foreign entities.
At present, 100% FDI is permitted in the drugs and pharmaceutical sector through the automatic route. This has paved the way for foreign players to easily enter the Indian market by acquiring Indian pharmaceutical companies. These activities have caused fears over whether low-cost drugs will continue to be available in India in the future.
The Department of Pharmaceuticals has expressed concerns about essential drugs falling under the control of foreign players and has asked the Department of Industrial Policy and Promotion (DIPP), which is responsible for fixing FDI caps, to reduce the cap to 49%. It has also asked the DIPP to allow FDI in the sector only through the government approval route, where Foreign Investment Promotion Board approval would have to be obtained by a foreign entity prior to any acquisition.
A decision on this issue is currently being awaited. However, if the FDI cap is reduced, as speculated, then multinational corporations would be unable to acquire control of domestic pharmaceutical companies. Foreign entities that still choose to invest in the sector would have to seek government approval before pouring money in, which could be unappealing. Such changes may result in lower levels of participation among foreign pharmaceutical companies in India and could negatively affect the Indian pharmaceutical industry.
