'Panel proposes 49% FDI in brownfield pharma projects under automatic route'

A special group set up by the Department of Economic Affairs on Tuesday suggested the government consider allowing up to 49 per cent foreign direct investment (FDI) for brownfield investments in the pharmaceutical sector under the automatic route, government sources said.

A brownfield investment means acquiring stake in an existing company. Investments of more than 49 per cent would be referred to the Foreign Investment Promotion Board (FIPB). The panel said a final decision on the matter would be taken by the Prime Minister’s Office (PMO).

The group, set up on May 29 to streamline approvals for brownfield foreign direct investment in the sector through FIPB, on Tuesday concluded its meetings, after deliberating on various proposals. “We have reached a final consensus on approvals to FDI proposals in the pharma sector. The recommendations would now go to the PMO for approval,” a finance ministry official said after the meeting of the inter-ministerial group. The meeting was attended by officials from the Department of Pharmaceuticals, the Ministry of Health, the Department of Industrial Policy and Promotion and DEA, a wing of the finance ministry. “The DIPP has been advocating FIPB clearance for all brownfield investments in the sector, while the finance ministry feels investment of up to 49 per cent can be allowed through the automatic route,” an official said.

BOOSTER DOSE

• Group concludes meetings, after deliberating on various proposals
• Final decision to be taken by the PMO
• If the PMO approves, the FDI policy could be substantially relaxed
• FIPB clearance is a stop-gap arrangement till the govt amends relevant provision of the Competition Act

If the PMO approves the recommendations of the special group, the FDI policy could be substantially relaxed. Earlier, a ministerial group headed by Prime Minister Manmohan Singh had put foreign brownfield investments in the sector under the approval route to address the health ministry’s concern on a series of acquisitions in the sector.

The special group has also recommended after the foreign investment, the company maintain its production of essential medicines for a certain period of time. Besides, foreign entities acquiring companies in India may be required to invest five per cent of their sales on research and development, the source said.

The recommendations of the special group come in the wake of the PMO seeking a progress report on implementation of changes in the FDI policy in the pharmaceutical sector. Differences between various departments had led to delay in finalising a policy on mergers and acquisitions in the sector.

The FIPB clearance is a stop-gap arrangement till the government amends the relevant provision of the Competition Act. Foreign companies would soon be required to seek the Competition Commission of India (CCI)’s permission for brownfield pharmaceutical investment. Though the commerce ministry wants FIPB to continue clearing FDI proposals in the sector, the PMO wants CCI to take over the job.