»The Honest Truth by Ajit Dayal

FDA bans, India crowns

The US government's Food and Drug Administration (FDA) recently issued a "import ban" on Ranbaxy's medicines causing a 30% drop in the price of Ranbaxy' stock. The FDA is responsible for ensuring that US consumers get access to medicines that comply with certain quality standards. Indian generic drugs account for over 40% of all generic drugs sold in the US.

Business Standard carried an article asking whether Indian pharmaceutical companies are being selectively targeted by the FDA who plan to add 7 inspectors to their existing team of 12 inspectors based in India

I hold no brief for Ranbaxy which, the article noted, has new owners (the Japanese company, Dai-ichi Sankyo but "experts say taking shortcuts is in the DNA of the company". A DNA that is common to many of the illustrious business houses in India - but that is another story.

A quote in the article ascribed to Ranjit Shahani, the CEO of Novartis India, describes how the FDA works: "in god we trust, the rest we audit."

Now, being in the greatest of the god-fearing nations that is India, one would expect the RBI and SEBI to apply those same FDA-type principles to the foreign and local financial firms doing business - or wishing to do business - in India.

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Toxic products
Medicines kill. The FDA is right in searching the world to prevent bad stuff from finding its way into the bloodstream of US citizens.
And, as President Obama has outlined, regimes that use chemicals and gas to kill their citizens are also a danger to the US people and humanity at large: those regimes need to be eliminated.

But five years after the great Lehman bust of September 2008 which sent the global economy into a tailspin, the financial firms are more powerful than ever. The great Change agent, President Obama, has indeed proven himself to be a deliverer of change: he has overseen a set of policies that have made them stronger and more powerful.

Like bad medication sold by drug companies, the bad advice, bad products, or mis-sold products of many of the global financial firms can cause long term pain and have lasting side effects. Fortunately for the financial firms, this level of pain and damage is not easily measured. Do we know how many people committed suicide because of the financial crisis? Do we know how many families ended up with mental depression or physical challenges due to the aftermath of the global financial crisis? There are no statistics on this. But we know there was pain and dislocation. This fuzziness of data allows the pain to be diffused and forgotten.

But maybe government and regulators should have solid, institutional memories and do the policing.
Did the RBI, SEBI, or Ministry of Finance issue any kind of public "warning letters" FDA-style to these financial firms who are doing business in India?
Anyone heard of any import ban on their products?
Rather, we flock to them for inputs, advice and help.
A photo-op at their global conferences makes everyone purr and smile.

But it's not the "system" that is solely to blame. Society is willing to forget - the financial firms pay great salaries to win loyalty. Ever heard any Indian parent feel embarrassed that their children still work for these firms - whether in India or abroad? There is no shame in having money - no matter what the source may be.

And before we get all emotional about "foreign" financial firms being bad, recognise that there is a long list of Indian financial firms with products that can wipe out investors. The NSEL is only one recent name in a long list of financial accidents that have kept the savings of Indians sheltered in fixed deposits of banks and in gold.

A US consumer of medicines has the FDA for protection.
The consumers of financial products - globally - are on their own: Buyer Beware.

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Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site. To write to Ajit, please click here.