Government incentives to promote pharma investments and exports
July 14, 2016: The government has been undertaking several proactive measures to promote investments and exports in the pharmaceutical sector. Important reforms have been introduced with respect to FDI norms, setting up pharmaceutical zones and promotion of ease of doing business for pharmaceutical firms.
The government has increased Foreign Direct Investment (FDI) to 74% for existing pharmaceutical companies through the automatic route. FDI beyond 74% will continue through the government approval route while 100% FDI under the automatic route in Greenfield investments is already allowed. The measures are expected to promote Mergers and Acquisitions (M&As) and private equity investments in the sector FIPB (Foreign Investment Promotion Board) approvals usually take a lot of time and huge uncertainty persists in case of approvals. So, changing the FDI in Brownfield investments to 74% is expected to bring lot of PE investments.There were 18 private equity deals worth US $792 million in 2015, according to data by Venture Intelligence data.
The government is also considering setting up specified pharmaceutical zones to increase domestic production of Active Pharmaceutical Ingredients (APIs), to reduce the country’s dependence on China for the raw materials used to produce drugs. “In India, the bulk drugs industry depends on China largely for most of its APIs. So we have been working on it. Now there is an interest for us to set up specified pharmaceutical zones where API manufacturers will be invited to set up units,” was stated by the Commerce Minister, Ms Nirmala Sitharaman. India’s dependence on China for APIs, is to the extent of 90-100% for more than 10 types of drugs, including crucial drugs such as antibiotics and anti-diabetic medicines. Experts feel it is a good move as it will reduce import dependency. Single-source dependency for API import is not beneficial for any country as it creates supply shortage due to developments in the source country.
The government's Ease-of-Doing business drive would be beneficial to drug manufacturers, including companies such as Sun Pharmaceuticals, Wockhardt, Ranbaxy Laboratories, Dr Reddy's Laboratories and Cipla, who are exporting their products to highly regulated markets. The government has done away with the requirement of obtaining a 'No Objection Certificate' (NOC) from the Ministry of Heath for drugs exported to developed countries including the US, Canada, Japan and Australia and the European Union. Clearances of consignments usually take long due to delays by regulatory agencies in providing approvals. As per the relaxation, the waiver is applicable for drugs, medical devices and cosmetics meant for export to developed countries. Around 55% of India's pharmaceutical exports are directed to these regulated markets. The move is in agreement with the recommendations of Directorate General of Foreign Trade Report 2014 which specified all agencies to review whether NOCs and clearances were still required.
The pharmaceutical sector in India is expected to register a high growth rate of (22%) during the course of the next five years in comparison to a Compound Annual Growth Rate (CAGR) of about 14% registered by the sector during 2010-14. Also export of pharmaceutical products from India is likely to exceed the US $14 billion mark in 2016 and has the possibility of reaching about $20 billion by 2020, clocking a CAGR of about 8%*. Looking at such promising contributions by the sector, the above incentives undertaken by the government to promote investments, exports and improve ease of doing business are definitely concrete steps in the right direction.
*According to the ASSOCHAM-TechSci Research study