FDI Inflows Increase in January as Pharmaceutical FDI Remains Steady

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DELHI – New data indicates foreign direct investment (FDI) inflows into India increased this January, growing 1.5 percent to US$2.18 billion compared with US$2.15 billion during the same period last year.

This number was nearly double the December 2013 inflows of only US$1.1 billion, which were consistent with inflows during the same period in 2012.

January FDI into India brings total investment inflows during the April-January period to US$18.74 billion.

The data released by the Department of Industrial Policy and Promotion (DIPP) indicates that the majority of FDI inflows during the 10 months of this financial year originated in Mauritius, which accounted for US$4.11 billion, or 37 percent, of the total, followed by Singapore (US$3.67 billion), the United Kingdom (US$3.18 billion) and the Netherlands (US$1.7 billion).

By sector, the highest FDI inflows were directed towards services (US$1.8 billion), followed by pharmaceuticals (US$1.26 billion), automobiles (US$1 billion) and construction development (US$966 million).

Pharmaceutical Inflows

Despite complaints from many foreign pharmaceutical companies that India is difficult or impossible to conduct business in, new statistics indicate a flood of FDI into the industry over the past decade.

According to the DIPP, India’s pharmaceutical sector attracted INR559.86 billion (US$9.225 billion) in FDI between 2000 and 2013 – with more than US$4.5 billion of that total in the past three years alone.

Overall, the pharmaceutical sector is the fifth biggest sectorial recipient of FDI since the year 2000, ranking after financial services, construction, telecom and IT.

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This year, GlaxoSmithKline Plc’s investment of INR64 billion (US$1.054 billion) in its Indian unit between February and March 2014 increased its overall stake from 50.7 to 75 percent, and provided a significant boost to overall FDI inflows in the sector.

Other notable investments in the country’s pharmaceutical sector include a US$1.7billion acquisition of Strides Arcolab Ltd’s formulation export business by U.S.-based Mylan Inc, French-based Sanofi SA’s US$100 million acquisition of Universal Medicare Ltd, and other investments by U.S.-based Abbott Laboratories and Japan-based Daiichi Sankyo Co. Ltd in 2008 and 2009.

A major concern for many in India’s pharmaceutical industry remains intellectual property rights (IPR) protection, however.

The Indian patent office’s decision to grant India-based Natco Pharma Ltd a compulsory license to manufacture and sell Bayer AG’s patented cancer treatment drug Nexavar in March 2012 notably triggered a wave of panic among pharmaceutical companies with operations in the country, and resulted in the U.S. International Trade Commission (USITC) moving to launch a probe into India’s trade and investment practices.

In light of this move, the U.S. Chamber of Commerce ranked India among the lowest 25 countries in its Global Intellectual Property Rights Center Index last month – placing further pressure upon the United States to advocate for India to strengthen its IPR regime.

The Persistent FDI Cap Question

While Pharmaceutical FDI inflows have been strong in recent years, many analysts believe liberalizing the country’s tight FDI restrictions will be necessary to achieve FDI inflows comparable to those of the early 2000s.

At a conference organized by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) last Friday, Minister of State for Commerce and Industry EM Sudarsana Natchiappan called India’s FDI caps necessary to protect domestic industry.

“Ours is a democratic country and we have to respond to the fears expressed by the public regarding money from abroad. FDI inflow has to be monitored by the government… the sharp surge in FDI flow into India during the first quarter of the fiscal year at US$5.9 billion, which was double the amount in the same quarter last year, is a reflection of the growing confidence of the global investor’s in the country’s long-term growth story,” he said.

While 100 percent FDI is permitted in pharmaceuticals, education and infrastructure (despite mulling an investment cap in pharmaceuticals late last year), a number of key sectors remain off-limits to foreign investors, including business-to-consumer e-commerce, railways and the construction industry.

With elections approaching, it is anyone’s guess how FDI cap changes will pan out in the near future.

In order to successfully fund infrastructure projects outlined in its 12th Five-Year Plan, India will need to attract upwards of US$1 trillion in FDI between 2013 and 2017.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam in addition to alliances in Indonesia, Malaysia, Philippines and Thailand as well as as well as liaison offices in Italy and the United States.

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