[Ip-health] India - Change in FDI norms in pharma - a critical issue

leena menghaney leenamenghaney at gmail.com
Wed Jun 22 04:01:34 PDT 2016

By allowing 74% FDI in pharma under the automatic route and by
progressively removing the conditions that FDI be linked to technology
transfer and local production (greenfield investments) India has undermined
a key component that contributed to the development of the generic

74% FDI will result in a pincer strategy to take over the pillars of Indian
pharma industry - known as the pharmacy of the developing world. Companies
like Cipla - that contributed not only to employment but significantly to
the availability of medicines to tackle public health challenges - could be
taken over with no prior approval.

Relaxing the norms on ‘brownfield FDI in pharma’ will not contribute to
tech transfer or R&D facilities but only to capital flow from India to
developed countries whose pharmaceutical industry is taking over key Indian
companies to enter the generic branded business in high and middle income

It is important to distinguish between ‘brownfield’ investments basically
mergers and acquisitions (“M&As”) and  “greenfield” investment. Greenfield
FDI in the pharma sector should therefore have a stronger impact on growth
as foreign investors will have to build a new manufacturing unit and/or R&D
facility from scratch contributing to jobs and technology transfer to the

By encouraging brownfield investments e.g. when a Japanese or US pharma
company for example purchases a generic pharma company, essentially
consisting of the brands and existing production facilities that go with
it. It is essentially a transfer of ownership with huge profits accruing to
the firms’ previous owners without resulting in additional investment.

Ranbaxy is a classic example. The owners of the company (the Singh
brothers) sold their stake in the company (its brand and production units)
and earned huge profits but the company itself and its brand has all but
disappeared. Ranbaxy’s phenomenal growth stagnated after it was acquired by
the Japanese company Daiichi and finally it was resold to Sun Pharma in
India, which was one of its competitors. From one of the leading generic
competitors who took the lead in the production and supply of affordable
HIV and cancer medicines like zidovudine and imatinib  – Ranbaxy has all
but disappeared.

It should be also noted that there is no shortage of domestic funding for
this sector.


Leena Menghaney
Mobile: 9811365412

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