India drops plans to limit foreign ownership of production capacity

The boom years of the Indian pharmaceutical industry saw overseas businesses snap up Ranbaxy, Piramal Healthcare and a host of other firms, but consternation about the trend led some to try to curb such deals. Now though, with the Indian economy slowing, the government has thrown out the proposals.

A debate about who should own India's pharmaceutical manufacturing capacity--and the implications of this--is at the heart of the issue. Many fear foreign ownership of Indian companies will cause production plants to focus on expensive patented medicines for Western markets, instead of the cheap generics local people need. The Department of Industrial Policy and Promotion (DIPP) proposed limiting foreign investment in these "rare and critical" drugs, but Finance Ministry objections have torpedoed the plan.

The decision has divided India. D.G. Shah, secretary-general of the Indian Pharmaceutical Alliance, called it a missed opportunity, but others have welcomed the news. "It's a big positive. India is a big enough market for multinational companies coming in as investors," Kapil Bhatia, head of healthcare at investment bank Systematix Capital Services, told The Wall Street Journal. For now, foreign companies can continue to buy Indian drug manufacturers outright and also avoid many of the planned stipulations.

DIPP wanted to cap foreign ownership of critical drug producers at 49% and force buyers to comply with certain restrictions. The proposals would have prevented companies from divesting acquired production and R&D facilities. In fact, buyers would have been compelled to strengthen their manufacturing and R&D infrastructure. The now-abandoned clause called for buyers to commit 25% of investments in the first three years of ownership to building new plants and research centers.

- read the WSJ article (sub. req.)
- here's The Economic Times' take