Testing the new FDI norms

The Modi government’s reforms have tinkered with FDI norms twice, first in November 2015 and more recently in June this year. As a safeguard against price escalation and monopolies, the previous FDI policy for pharma allowed 100 per cent FDI under automatic route in new (greenfield) pharma projects but investors needed government approval for existing (brownfield) projects. In June this year, the government allowed FDI in existing pharma facilities up to 74 per cent under the automatic route, with government approvals required beyond this level.

The new FDI norms will now be tested for the first time, as the recently announced Fosun Pharma-Gland Pharma deal goes for approval. Chinese Fosun Pharma announced it would buy a controlling 86 per cent stake in the Hyderabad- based Gland Pharma for approximately $1.26 billion. With the transaction pegged to be the largest acquisition of an Indian company by a Chinese firm, the deal has multiple layers of complexity.

Firstly, all engagements with China need to be scrutinised from a security point of view. While this could well play out to be a modern take on the Hindi-Chini bhai bhai story, past history does not allow us to take anything for granted.

Secondly, the Indian pharma industry is dependent on China for key APIs but this deal will not raise the same concerns as a majority of Gland Pharma’s revenues come from exports. Thus the deal should not impact supplies in the domestic market, according to industry observers. In fact, the deal could expand Gland Pharma’s reach and export revenues, say market observers. Fosun Pharma’s interest in the Indian company is easy to explain, given the global shortage of injectables and the chase to acquire reliable injectable manufacturing facilities. Gland Pharma was in fact the first injectable drug manufacturer in India to be approved by the US FDA and also has GMP certification from other global regulators. In other words, it has built up considerable brand value globally and is a prize catch.

The Fosun Pharma-Gland Pharma deal will now have to vend its way for further clearance to the Foreign Investment Promotion Board (FIPB) and the Competition Commission of India. As industry insiders point out, the process could continue for a few months, even till October, as most of these Boards, like the FIPB, meet just once a month.

Will the Narendra Modi government use this FDI transaction to burnish its brand image as a truly ‘liberalised’ nation, firmly on the path of economic reforms? This deal could see the government provide clarity on its evaluation criteria for acquisitions over 74 per cent and a host of other nitty-gritties which were left ambiguous.

Policy makers obviously need to keep a much larger picture in mind: balancing the socio-economic realities of Bharat with the corporate aspirations of India. All in all, while Brand India Pharma has proved its sterling worth, it is now the turn of policy makers to follow through.

Viveka Roychowdhury
Editor

viveka.r@expressindia.com