A Push for FDI against National Interest

The Draft Pharmaceutical Policy - 2017

(Article-2)

The Department of Pharmaceuticals (DoP) under the Ministry of Chemicals & Fertilizers recently released the 18 page Draft Pharmaceutical Policy – 2017 which has been circulated among various stake-holders of the pharmaceutical industry and civil society. 

In an attempt to understand the draft, I have decided to present a series of articles portraying my own interpretations on this draft policy. This is the second of the series.

FDI in Pharmaceutical Sector and
The Experience with MNC Drug Cartels in India

While explaining the “Need for a New Policy” the Draft Pharmaceutical Policy – 2017 mentions (probably in deep grief): “Since the FDI in pharmaceutical sector was liberalised, investment in only one green field project has been received. Rest all have come in brown field projects.” [Para:3.6; Page:7 of the draft]. Since Foreign Direct Investment (FDI) is a much touted issue, therefore, in absence of Greenfield FDI the government of India is out for outright sale of its self-reliant pharmaceutical sector to the foreign multinationals through the Brownfield FDI route endangering nation’s health and country’s economic independence. However, pharmaceutical sector in India attracted 5 per cent of the total FDIs inflows during April, 2000 to September, 2016. Cumulative FDI inflows worth USD14.49 billion were made during April, 2000 to September, 2016. [Source: India Brand Equity Foundation; www.ibef.org].

As we know, Greenfield investment (FDI) is an investment in new plants. It is establishing new production capacity by an investor or company. Greenfield FDI in India is investment by a foreign investor in fresh production facilities. It is a situation where an MNC starts a new venture in India by constructing new operational facilities. This new production capacity creation will bring new physical assets (like plants and machinery), creates fresh employment and adds to more production of the concerned good. Often Greenfield FDI has a merit that it brings superior technology by the MNC. [Source: IndianEconomy.net; Economy & Finance].

On the other, Brownfield FDI is an investment made by a foreign company in existing production arrangements. Brownfield investment is mainly made through merger and acquisitions by foreign MNCs in India. Here, a domestic company is taken over by the MNC. Brownfield FDI is just a transfer of ownership of existing firm from a domestic entrepreneur to a foreign one. It doesn’t create expansion of production capacities or employment generation etc. [Source: IndianEconomy.net; Economy & Finance]. The differentiation between Greenfield and Brownfield FDI is very important in the context of developing countries like India.

The government on 20 June, 2016 allowed up to 74 per cent foreign direct investment (Brownfield pharma) in the existing pharmaceutical companies through automatic route, with an aim to promote the sector. The decision was taken at a meeting chaired by Prime Minister Narendra Modi. [Source: The Economic Times]. Earlier, 100 per cent FDI was permitted through government approval route.  Earlier, 100 per cent FDI was allowed in Greenfield pharma under automatic route and up to 100 per cent in Brownfield pharma under government approval. As per estimates, over 96 per cent of the total FDI in pharma sector between April 2012 and April 2013 flowed into Brownfield pharma companies.

The Pharmaceutical sector of India is very competitive globally and the country is known as the pharmacy of the developing world. Takeover of Indian firms by foreign MNCs will reduce competition for them and, at the same time, they can also influence the domestic market by pursuing their own policies. The trend of foreign MNCs making Brownfield investment in India has initiated public policy debate. Once, the Department of Industrial Policy & Promotion (DIPP) has sought restrictions on foreign direct investment (FDI) in existing pharmaceutical projects in specific areas, such as vaccines, injectables and oncology medicines. [Source: IndianEconomy.net; Economy & Finance]

Still, the government of India is hell bent upon the Brownfield FDI in pharmaceuticals. While sketching its “New Policy Initiatives”, the Draft Pharmaceutical Policy – 2017, therefore, narrated: “As far as FDI in brownfield pharmaceutical companies is concerned, the FDI approvals would be subject to continuance of (i) manufacturing of NLEM drugs by the entity in which the FDI is being made; (ii) expenditure on R&D; and (iii) transfer of technology.” [Para:5.15; Page:14 of the draft]. Why Narendra Modi government is relying so much upon the foreign multinational drug cartels is not very clear. While going through the history of multinationals’ activities in India’s pharma sector, it would be difficult to get convinced about the actions taken by the Modi-government.

“From the early days of our independence, the government of India have been endeavouring to persuade the multinational units to produce bulk synthetic drugs in this country and share these with other formulators. Response of the multinationals during the early years was negative, or, poor. However, in recent years some of the multinational units did enter the field of bulk drug production obviously because of the emergence of the public sector.” [Source: Hathi Committee Report; Chapter-III; Para:60; Page:60]. This is the character of the multinational drug firms since beginning which the Narendra Modi and his cabinet colleagues intend to overlook due to the reasons bet known to them.

Inviting the multinationals for producing the drugs enrolled in National List of Essential Medicines (NLEM) is not a wise decision of the Modi government. Multinationals might not prefer to produce the medicines essential for the people of India. On the contrary, they would prefer to produce medicines for garnering maximum profit. Such conclusions can be drawn through experience: “The multinational units of the drugs and pharmaceutical industry have dominated in this country….. Most of these multinational units, both in small and large sector, have concentrated their activities on the products marketed by their overseas parent organizations and have almost completely cornered the Indian market for their respective products. They have also built up enormous markets on the sale of a large variety of other formulations e.g. tonics, combinations of vitamins etc…… purely Indian units….. facing high pressure and costly sales practices of the latter.” [Source: Hathi Committee Report; Chapter-III; Para:58; Page:60].

Therefore, the “policy initiative” favouring the multinational drug cartels through Brownfield FDI route is not at all beneficial for the country and its people. The experience teaches us to draw such conclusion.

(To be continued....)

@pradipsinterpretations

The Draft Pharmaceutical Policy - 2017

Injurious to National Interest

(Article - 1)

The Department of Pharmaceuticals (DoP) under the Ministry of Chemicals & Fertilizers recently released the 18 page Draft Pharmaceutical Policy – 2017 which has been circulated amongst various stake-holders of the pharmaceutical industry and civil society. A Conference on Draft Pharmaceutical Policy is scheduled to be held at New Delhi on 30 August in presence of the Ministry of Health, the Ministry of Environment and the Ministry of Commerce for discussion and consultation before finalizing the policy. Though, it is a matter for future prediction as to what extent the proposals would be accommodated in the final policy.

A policy, by and large, should declare the objectives in pursuit of both short-term as well as long-term goals. A government policy, in particular, should be designed with enough prudence to achieve and preserve the best interest of the country and its people. The Draft Pharmaceutical Policy – 2017, however, fails to raise any hope on both short-term and long-term objectives through its “New Policy Initiatives”. Five “key objectives” set in the draft policy, though, are laudable but the “policy initiatives” adopted in achieving them are flimsy and paradoxical. A close study on different aspects of the draft makes it clear why we should term it as fallacious, anti-people, anti-national and pro-corporate.

I have decided to present a series of articles portraying my own interpretations on this draft policy.

Disjoining Public Sector Drug Units from “Make in India”

is an imprudent move

The draft policy concluded with expectations that “the ‘Make-in-India’ programme would also get an impetus by the actions”. [Para:5.20; Page:18 of the draft]. Without the participation of the public sector drug units (PSUs) in manufacturing drugs and pharmaceuticals, this would remain as day-dream which can never be fulfilled. But, the draft policy observes absolute silence on the question of the revival of PSU drug units.

Report of the Hathi Committee  [mentioned in Para:2.6; Page:3 of the draft] noted: “The advent of the public sector undertakings marked an important milestone in development of the drug industry”. [Chapter-V; Page:87; Para:6 of the Hathi Committee Report]. The PSU drug units obviously deserve such appreciation. However, various factors like corruption, conspiracy, and government’s spree for privatization have attributed to make them vulnerable over a period of time and their very purpose also gradually got diluted. Despite the deficiencies, difficulties and disabilities from which the PSU drug units are suffering today, it is necessary to adopt effective measures to make them more efficient in respect of organizational set-up and management patterns so that, they can effectively serve the objectives – (i) to make the country self-sufficient in drugs and pharmaceuticals; (ii) to free the country from foreign exploitation; and (iii) to provide cheaper medicines in adequate quality to the people. [Adopted from the Hathi Committee Report; Page:17; Para:10]. Reviewing the history of PSU drug units would clarify such statement.

Hindustan Antibiotics Ltd. (HAL) was the first public sector company established in 1954 with the help of WHO and UNICEF to produce essential and life saving drugs from the basic stage. It was the first drug company to produce antibiotics on Indian soil. Later, in April, 1961, Indian Drugs and Pharmaceuticals Ltd. (IDPL) was established with technical and financial assistance from the then Union of Soviet Socialist Republics (USSR) with an objective to achieve self-reliance by manufacturing bulk drugs, formulations, surgical equipments etc. Both HAL and IDPL played a catalytic role in shaping the country’s health care system not only by producing high quality medicines but also effectively reducing their price.

In the early 70s, the US based multinational company Schering used to sell its brand of Gentamycin injection (Garamycin) at Rs.32 per 2ml vial. The introduction of Gentamycin by HAL forced Schering to bring its price down to Rs.5 per 2ml vial. Another US multinational drug company, Pfizer, used to sell Terramycin (the brand of Oxytetracycline, a broad spectrum antibiotic) @Rs.1.75 per capsule. IDPL launched its brand Tetraculine @Rs.0.50 per capsule which compelled Pfizer to reduce the price of Terramycin. Another US based multinational drug firm Johnson&Jhonson had to reduce the price of its Mebendazole (used to treat a number of parasitic worm infestations) from Rs.14 per six tablets when IDPL introduced the same @Rs.1.60 per six tablets. [Source: Paper presented on “Development and Role of the Public Sector in the Drug Industry” at the National Seminar on Present Trends and Future Prospect of Drug Industry, New Delhi, 14-16 May, 1998].

Therefore, it is appropriate that the draft policy acknowledges the role of PSU drug units while explaining the “Need for a New Policy” by mentioning: “The Public Sector Undertakings in the pharmaceutical sector have served their purpose. The robust formulation industry that has spawned and captured world’s imagination is on the solders of the giant PSUs that gave the initial push in material manufacturing as well as provided the manpower in the initial phases. They were very useful at the initial stages of the building up of pharmaceutical sector”. [Para:3.14; Page:9 of the draft].

 Ironically, in the same breath the draft policy also mentions that “today however their (PSUs) utility is very limited”. The tune has been set in its very introduction as the draft policy mentions that the pharmaceutical industry in India “is a private enterprise driven industry and the contribution of the Public Sector Undertakings (PSU) are negligible.” [Para:1.2; Page:2 of the draft policy]. Such denial, can never belittle the rich contribution of PSU drug units (as stated above) in making the Indian pharma sector “robust and thriving”. The point, however, is how yesterday’s giant has turned into a dwarf, and, who are to be held responsible for that. But, the most important point is whether the country can attain the desired commanding heights in “end to end indigenous drug manufacturing including that of APIs and their precursor intermediates”, as described in Para:5.1; Page:10 of the draft, without effective participation of the public sector drug units? The history doesn’t permit us to say so.

In the name of “New Policy Initiatives”, the bewilder government at the centre is probably eyeing to sell-off the landed assets of the drug PSUs since it has mentioned: “an enabling environment will be created for setting up mega bulk drug parks …… which the state governments would be encouraged to set up in a Public Private Partnership mode. Such mega parks should provide for clearances for plants with minimum interface/single window clearance of various agencies by placing an official of the concerned department ….. within the mega park itself.” [Para:5.1; Page:10 of the draft]. Such endeavour would be much detrimental in a scenario where the country is virtually left with no public sector manufacturing capability.

(To be continued....)

@pradipsinterpretations