Competition check for FDI in pharma will help consumers: CUTS

IANS News, October 11. 2011

The government’s decision to keep a check on the flow of foreign direct investment (FDI) and mergers and acquisitions in pharmaceutical sector will benefit consumers, a leading think-tank and advocacy group CUTS International said Tuesday.

‘Brownfield investments in not only pharma sector but any similar sensitive sector should be discouraged even though they can be beneficial by bringing in new technology, management techniques and alliances,’ CUTS International said in a statement.

Brownfield investment is referred to purchase of existing production or business facilities for the purpose of starting new production activities.

It said the competition watchdog should ensure that after mergers or acquisitions by multinational, companies should not stop manufacture of low-cost generic medicines, which had existed in the product line before the takeover.

An inter-ministerial group headed by Prime Minister Manmohan Singh Monday evening decided against putting any limit on the FDI in pharmaceutical sector.

However, the investment would not be under automatic route any more. It will have to be cleared by the Foreign Investment Promotion Board (FIPB) and the Competition Commission of India.

The Competition Commission of India has the authority to order a demerger under Section 28 of the Competition Act, 2002, if the merged entity is abusing its dominant position.

This means if the merged entity engages in any form of exploitative or exclusionary practice, the CCI can take suitable action, including asking the merged firm to break up.

The advantage with a merger review provision is that the CCI can allow a merger with conditionalities and undertakings, which could include either divestiture of a product line or division if the merger can lead to concentration. Undertakings can also be taken up to ensure that less profitable product lines are not shut down. This is a standard practice in all countries.

In recent years, several Indian drug makers, including Ranbaxy Laboratories and Piramal Healthcare, have been taken over by multinational firms.

Japan’s Daiichi Sankyo bought majority stake in India’s largest pharmaceutical firm Ranbaxy Laboratories for $4.6 billion in 2008. Piramal Healthcare was recently acquired by an American firm Abbott Laboratories.

India attracted nearly $9 billion foreign direct investment during the last 10 years, almost half of it has come through mergers and acquisitions.

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