In a major relaxation of foreign investment rules in the pharma sector, a special group set up under the finance ministry has suggested it could consider permitting up to 49 per cent FDI (foreign direct investment) in the automatic route for brownfield investments in case the company’s control remained in Indian hands.
Investments beyond that cap would be referred to the Foreign Investment Promotion Board (FIPB) for clearance. A brownfield investment means acquiring or buying a stake in an existing company.
The move could mean substantial liberalisation of the current FDI policy, which was tightened in October last year. Under the policy, 100 per cent FDI in brownfield investments would be allowed but only after FIPB clearance. For the last 10 years, FDI in the sector has been under the automatic route.
| POLICY HEADACHE | |
| Aug-2010 | DIPP and commerce ministry float draft discussion paper on compulsory licensing, express concern at foreign takeovers of domestic pharma firms; health ministry joins bandwagon |
| Jul-2011 | Govt asks Planning Commission member Arun Maira to examine if acquisitions by foreign firms would hit drug availability |
| Oct-2011 | Maira committee submits report; govt accepts, saying 100% FDI through automatic route to continue in greenfield projects |
| Dec-2011 | Corporate affairs ministry tells PMO there’s a need to amend Competition Act to empower CCI to scrutinise all pharma M&As |
| May-2012 | Govt sets up a special group to streamline the approval process |
The proposed change would be a bonanza for many foreign pharma companies, whose applications in the FIPB worth over Rs 3,000 crore have been stuck due to a lack of clarity in the policy. The companies include Mitsui & Co, Pfizer and B Braun, based in Singapore, among others.
In discussions a few days ago, members of the special group have opined that since public health concerns arise out of foreign control or ownership of companies, the DIPP (department of industrial policy and promotion) could examine whether FDI up to 49 per cent may be allowed in the automatic route. DIPP officials in the meeting said the matter would be considered further.
The health ministry has been pushing for more stringent FDI rules and has raised concerns on the impact of foreign companies acquiring Indian pharma outfits at high prices. However, other departments have taken a more liberal view, leading to serious differences.