Earlier this month, a Parliamentary Standing Committee tabled its recommendations on Foreign Direct Investment (FDI) in the pharmaceuticals sector. Surprisingly for a country that recently prided itself for unshackling its economy and pushing pro-growth reforms, the Committee recommended a blanket ban on FDI in brownfield projects which means it doesn’t want foreign pharmaceutical companies to invest in existing Indian ones.
This is surprising since it comes from a legitimate body that is mandated to think rationally and rule in the best interests of the Indian people. The committee however seemed more driven by public perception and chose to value Bollywood actor Aamir Khan’s judgement over those of veteran economists!
The argument central is that FDI poses a direct threat to the access and affordability of medicines and threatens to elbow out our pharmaceutical industry. This is purely stupid and shows a complete lack of understanding of how the global pharmaceutical industry operates.
Foreign firms are not acquiring Indian generic companies to stop generic medicines. With a huge number of products going off-patent globally, pharmaceutical companies are building their capabilities to sell generic drugs. They are acquiring Indian companies for their strength in generics, not to obliterate them. Hence, the concern that India’s pharmaceutical industry will die if foreign companies invest here is silly. Why would Mylan – a global generic company spend $1.6 billion to kill Agila Technologies?
Another argument (more moral than rational) is that FDI in the sector will hamper Indian medicine exports. Currently, India exports drugs to more than 200 countries and vaccines and bio-pharma products to about 151 countries. The export growth rate is around 10 percent per annum. And the major chunk of exports relate to generic drugs.
A third argument is that prices of medicines will rise in India due to FDI inflows. This despite a recent study by India’s own Department of Pharmaceuticals that found domestic drug prices to be immune to acquisitions. It is also interesting to point out here that the largest critics of the recent Drugs Price Control Order (DPCO) were Indian companies and not foreign firms. Indian companies were also guilty of over-charging Indian patients, an accusation levied against foreign firms.
If anything, economic literature suggests that inefficient firms will lose market share due to foreign competition, which in the long run should increase the overall efficiency of the Indian economy. Either ways allowing FDI inflows is only beneficial for India and its citizens. Paying heed to sound economics is a much better way of deciding what is good for us rather than letting some fools destroy our country.