Indian Government ordered constitution of IMG to review India's FDI norms in the Pharma Sector

The Indian government on 21 April 2011 ordered constitution of an inter-ministerial group (IMG) to review India's foreign direct investment norms in the Rs 47,000-crore pharmaceutical sector. The directions were issued during the Cabinet Committee of Economic Affairs (CCEA) meeting chaired by the Prime Minister Manmohan Singh.

The inter-ministerial group will be set up to examine all concerns related to foreign direct investment (FDI) in the pharmaceutical sector as well decide on whether any form of restriction is required to curb FDI in this sector.

The acquisition of Ahmedabad-based Paras Pharmaceuticals by British consumer goods and healthcare firm Reckitt Benckiser triggered the decision to form the inter-ministerial group. Although the CCEA had approved the deal on 29 March 2011 it directed constitution of the IMG as certain sections within the government had expressed reservations on the investment. The reservations were raised largely on account of a proposal that was suggested by the department of industrial policy and promotion to restrict FDI in the pharma sector.

India had opened its pharmaceutical sector to 100% FDI via the automatic approval route back in 2002. Lately however there has been a spate of big ticket takeovers of Indian pharma companies by global drug majors that prompted a rethink on the FDI policy in some sections of the government.

The pharma sector saw six big-ticket takeovers in the past five years. The most important of the takeovers included the 2008 acquisition of the country's largest drug maker, Ranbaxy by Japanese firm Daiichi Sankyo for $ 4.6 billion. Piramal Health Care's domestic business was recently acquired by US-based Abbot Laboratories for $3.7 billion.

In wake of such major takeovers the DIPP proposed to cap FDI in the sector at 49% and bring it on the approval route so as to ensure that all FDI proposals in the sector secure the nod of the Foreign Investment Promotion Board. The Indian Drug Manufacturer's Association sought checks and balances, in this sector although it is in favour of a 74% cap on FDI.