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