Thursday, December 01, 2011: 06:12:37 PM

Retail Trend

FDI in pharma retail: fears and hopes

Fear of foreign players acquiring Indian production facilities and creating monopoly, high hopes on investment in back end infrastructure

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The removal of the 51% cap on single brand retail is expected to impact a large number of industries that include the pharma retail sector. Considering that the sector is extremely sensitive and has huge consequences on the common man, it is likely that a good deal of regulation will come into the sector with the advent of more foreign investment.

 
Srikanth Kumar Jena, Union minister of Chemicals and Fertiliser voiced his opinion about the removal of the cap on single brand retail at the recently concluded Pharma Summit 2011. He said in his statement to the press that there is a possibility that 5-10 pharma companies may take over production bases in India and create a sort of monopoly in the market. This may allow them to dictate prices. He also said that if the price of common drugs was increased, the poor may not be able to afford them.
 
On a positive note
 
The 51% allowance of FDI in multi-brand retail has however received more positive responses from the pharma retail sector. This is mainly because pharma retailers are fall under the category of multi-brand retailers and some of the mid and small sized players now have a better chance of acquiring foreign investment with the raising of the ban.
 
Ashutosh Garg, CMD of Guardian Pharmacy, one of the leading pharma retail chains in the country, explains, “Guardian Pharmacy strongly supports the government decision to open up FDI in multi brand retailing.”
 
“As a major player in the organised pharmacy retail in our country, we have been making significant investments in our supply chain and retail stores to provide the consumer with a much higher level of service in our pharmacies. With access to more capital, we hope to continue to strengthen this further across the country. In addition, by bringing in efficiencies into the procurement process and managing inventory levels, Guardian hopes to drive down prices of key medicines for the overall benefit of the consumer” adds Mr Garg.
 
The perception of the foreign players about the Indian market will become clearer as when the investors begin to arrive. Though there are restrictions about the investment in back end and front end, it is likely that there will be more modification in the rules when the policy is in practice. It is also likely that state governments may impose some new regulations and the scenario of FDI in retail may differ from state to state.
 
While some experts have shown concern about foreign players taking over Indian firms and creating monopoly, some feel that the market is large enough to accommodate more players and there is also a possibility of reduction in prices. Also investment in the back end infrastructure will benefit small, mid and large players in the pharma sector alike.
 
Be it in pharma or the general retail sector, the reduction of prices and the protection of the pharmacies and medicine manufacturers should be the biggest concern of the government before allowing foreign investment to flow somewhat freely into the retail sector.
 
Tias Chakraborty
 

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