FDI in pharma : another punch

The issue of controlling foreign direct investment (FDI) in the Indian pharmaceutical sector continues to make headlines with various arms of the government putting forth their own formulas to tame the grasping foreign hand.

The Indian Express reports that the ministry of commerce under Anand Sharma would like all FDI proposals – including where foreign ownership is limited to 49 per cent – to be routed through the Foreign Investment Promotion Board (FIPB). This is at odds with the recommendations made earlier by an inter-ministerial group to the Prime Minister’s Office that proposals seeking 49 per cent foreign ownership in a homegrown company should be granted automatic approval even as FIPB approval is sought beyond that limit.

Foreign investment in pharma is beginning to look like a convenient punching bag that anyone can feel free to take a swipe at.

In an earlier post, I went into the reasons why this is wrong.  In this post, I’d like to dwell on alternatives available before the government that could potentially do more for pricing and availability than tampering with long-standing foreign investment rules.

Consider the core premise behind this relook at FDI controls- that the acquisition of Indian pharma companies by foreign ones will directly impact pricing and availability of essential medicines.  This seems to suggest that the current situation where there is a multiplicity of domestic drug companies in the market is a favourable one since it encourages both availability and pricing.

This is ironic because some parts of the government have currently locked horns with the drug industry alleging that the excessive competition has done nothing much to keep prices affordable.  This argument is behind the health ministry’s resistance to revamping India’s drug price control norms from cost-based to market-based pricing.

It is clear that India’s price control regime needs a revamp. Fewer and fewer companies are making drugs that are governed by cost-based price control, anyway. But it is noteworthy that a government that has moved rather swiftly to control FDI (less than four years after India’s Ranbaxy was sold to Japan’s Daiichi Sankyo), has dilly-dallied most shamefully in giving the country a fair and workable solution for affordable pricing. In a 2009 post, I wrote :  “This is the third government in the last decade that will be attempting to give India a progressive and, I hasten to add, “inclusive”, drug pricing policy. It’s predecessors – the NDA government and the UPA (Part One) – failed.”

There’s also the question of availability. There is a always a danger of drugs disappearing from the market. For instance, common drugs such as aspirin and vitamin C have, in the past, known to be in short supply after government-imposed price cuts. Even a free market such as the US, recently experienced an acute shortage of life-saving cancer drugs.  But there are ways to require companies to inform the government in advance of imminent shortages of essential medicines that could be caused by any reason. This helps to prepare for shortage with alternative arrangements which is what the US is now resorting to (including shipping from India). Importantly, it also allows the government and public to exercise moral suasion on specific companies that are withdrawing for no reason other than insufficient profit.

A workable pricing mechanism and a system to prevent shortages can go much further than hamfisted controls on FDI.

Of course, it’s easier to just punch the bag. And apparently, more fun.

Postscript : I am willing to bet that more companies will fold up with greater regulatory oversight on quality and marketing practices than can be achieved in the same period by foreign acquisitions.  It is still not clear whether the hyper competition in India – tens of brands of a single molecule etc – is really necessary and not in fact, counterproductive for the strain it puts on oversight. Here, I’d like to quote Nata Menabde who is the head of the World Health Organisation’s India office.  At a recent conference on access to medicines in Mumbai, Menabde held out Norway’s example. The country, before it became part of the European Union, required companies to establish “need” for a product prior to marketing. (Does the market really need a sixth brand of paracetamol, for instance).  Yet, said Menabde, they were no less healthier than the French. Food for thought, that.

Pic courtesy racetraitor on Flickr.

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