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Deep divide delays drug decision

New Delhi, Nov. 28: A discussion on buyout norms in the pharmaceuticals sector was deferred today by the Union cabinet amid disagreements between the finance ministry and the Planning Commission on one side and the commerce and chemicals ministries on the other.

The department of industrial policy along with the health ministry and the department of chemicals want to restrict foreign investment in generic drug makers critical to India’s health care system to 49 per cent.

However, the finance ministry and the Planning Commission consider the restriction as hostile to foreign investment, besides going against the spirit of several bilateral investment treaties signed by India.

The matter will now be taken up after the winter session of Parliament, said officials.

“Because of this (difference of opinion) pharma mergers and acquisitions will remain routed through the Foreign Investment Promotion Board (FIPB),” said top officials.

Officials said the FIPB was currently following a rule of thumb that barred a foreign takeover if it led to the acquirer gaining monopoly not only in India but also in other developing countries through export.

A compromise between the stands taken by the two sets of ministries is to allow status quo in earlier takeovers, while following a dual strategy for new proposals — impose a cap of 49 per cent on existing pharma firms, while allowing 100 per cent FDI in new companies.

However, the finance ministry has argued that this too may not be compatible with World Trade Organisation (WTO) norms on cross-border investments.

The current FDI norms allow foreign firms to buy up to 100 per cent stake in Indian drug companies.

However, this has been a contentious policy for long with politicians across party lines attacking it as a flawed policy, which could see multinational companies taking over cheap Indian generic makers to raise prices or kill off supplies to push their own costly medicines.

The latest outcry came after US giant Mylan took over India’s Agila, which makes antibiotics.

The deal was agreed to by the FIPB as Agila did not hold any large share of the market but only after placing stringent conditions, including maintaining research and development spending and production levels of certain drugs.

Several high profile takeovers of Indian pharma firms have taken place over the last five years — these include the $3.6-billion buyout of India’s largest drug firm Ranbaxy Laboratories by Japan’s Daiichi Sankyo in 2008.

Other high profile takeovers include French giant Sanofi-Aventis SA buying a majority stake in Shanta Biotech two years back for euro 550 million and US-based Abbott Laboratories’ $3.72 billion takeover of Piramal Healthcare Ltd’s domestic drug formulation business.

Meanwhile, the Cabinet Committee on Economic Affairs (CCEA) has approved mandatory packaging of 90 per cent of food grains produced and 20 per cent of sugar produced in jute bags over the period July 2013 to June 2014.

 
 
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