The Government is expected to soon take a call on slashing the foreign direct investment (FDI) limit in the pharmaceutical sector in order to bring down the prices of drugs, chiefly essential drugs. It is mulling capping the FDI in the sector at 49 per cent and routing it through the government. Currently, the FDI limit in the sector stands at 100 per cent through the automatic route.
The government fears that 100 per cent FDI will lead to uncontrolled mergers and acquisitions (M&A) by foreign drug firms, which could lead to further increase in drug prices and also cartelisation. "There is a clear indication from the PMO (Prime Minister's Office) and the health ministry to control the escalating drug prices. State governments have also complained about it. We expect to take a call on it soon. May be around the (time of) annual budget," said a senior official at the ministry of commerce and industry requesting anonymity.
The acquisition of Indian pharma companies by multinational corporations (MNCs), according to an official, was impacting the availability of low-cost medicines. The commerce ministry had proposed tightening the rules so that Indian acquisitions by MNCs flow through it and not through the automatic route.
Last year, in the second biggest acquisition of an Indian drug firm, Piramal Healthcare sold its domestic formulations business to US-based Abbot for Rs17, 353 crore ($3.7 billion) deal. In 2008, the country's largest drug maker Ranbaxy Ltd was acquired by Japan's Daiichi Sankyo for Rs21,574 crore ($4.6 billion).
India's Rs35, 175 crore ($7.5 billion) drug industry is among the world's top five bulk drug producers. It is also among the world's 20 top pharmaceutical exporters, with exports growing at 17.8 per cent per annum. India currently ranks third in terms of the volume of production (9.3 per cent of global share) and 14th in terms of value (1.5 per cent of global share).
