The group set up by the department of economic affairs in the finance ministry to frame rules for approval of foreign investment in the pharmaceutical sector through the Foreign Investment Promotion Board (FIPB) has proposed some leeway for acquisition of companies with low turnover.
It has suggested a turnover threshold for pharma companies below which the government could consider foreign direct investment (FDI) in the automatic route for investment in expansion of existing units. The group has also observed that restrictions on research& development (R&D) expenses could be burdensome for a foreign player acquiring a medium or a small pharmaceutical company. The recommendations are part of a draft report prepared by the panel.
The group’s last meeting was on Thursday and it is expected to meet again on Tuesday to discuss the proposals before preparing a final report.
To address concerns that foreign entities acquiring companies in India usually use it as a low-cost manufacturing hub and do not invest on R&D of medicines, the health ministry and other agencies have been demanding monitoring of expenditure in this regard of these companies even after buyout.
The draft report also says transfer of technology by the foreign investor to the target company should not be mandatory for the FDI proposal to get an FIPB nod. The group fells technology transfer has its merit but it could also be difficult for foreign partners taking up minority stake in an Indian company to comply with such norms.
Besides, the group has suggested permitting FDI up to 49 per cent in the automatic route for expansion investment where control of the company would continue in Indian hands. All investments beyond that cap would be referred to the FIPB.
The group was formed after there were delays in the clearing of pharma FDI proposals due to inter-ministerial differences. While the health ministry favoured stringent norms, various other ministries were keen on a liberal regime. Proposals from many foreign pharma companies are still stuck in the absence of FIPB nod over lack of clarity in the FDI policy. These include proposals of Mitsui & Co, Pfizer and B Braun.
Sources suggest it would take a couple of more meetings for the government to streamline the whole process and fast-track the FDI proposals. On the other hand, FIPB is still a stop-gap arrangement till the government amends the relevant provision of the Competition Act. While the commerce ministry wants FIPB to continue clearing pharma FDI proposals, the Prime Minister’s Office wants the Competition Commission of India to take over the job, in line with the original plan of the ministerial group.
