Cabinet to review FDI in pharma, realty sectors

Will also decide on India's Stand at WTO

The Cabinet is likely to take up later today a host of issues ranging from relaxing of FDI norms in realty and pharma sectors to setting up an innovation fund to create enterprises for the poor. It will also decide on India's stand at the upcoming Bali meeting of the World Trade Organisation (WTO).     

As multinational companies (MNCs) make a beeline to acquire Indian pharma firms, the Cabinet will consider a proposal by the commerce and industry ministry to tighten the FDI policy for the sector. The proposal would incorporate conditions such as mandatory investment in research and development (R&D) and a non-compete clause in the shareholders pact.

The proposal asks that a foreign company not be allowed to close an existing R&D centre and to mandatorily invest up to 25% of the FDI in the new unit or an R& D facility. The total investment would have to be within three years of the acquisition.   

The proposal also  moots reducing the FDI cap to 49% in rare or critical pharma segments. There is a feeling in government circles that with MNCs taking control of Indian firms, there could be a reduction in supply of vaccines and injectables, particularly for cancer and active pharmaceutical ingredients.

A parliamentary committee recently suggested a blanket ban on FDI in pharma, saying policy for the sector should be dictated by the public good. Currently, the government permits 100% FDI in pharma through the automatic approval route in new projects but only after approval of the Foreign Investment Promotion Board in existing companies.

FDI in the pharma sector had more than doubled over a year to $1.07 billion during the April-August period.

The cabinet might also decide on relaxing the riders for FDI in the construction development sector. The move comes as FDI in the realty sector declined 57% in 2012-13 over a year before. At present, 100% FDI is permitted thorugh the automatic route in real estate. The sector has been defined to include townships, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional built-up infrastructure.

The proposal, from the department of industrial policy and promotion, has sought to ease the conditions for exit of foreign entitities before the present three-year lock-in. They could, it is proposed, exit on receipt of the occupancy or completion certificate issued by the competent local authority or by sale to another non-resident investor, subject to a lock-in of three years from the date of the purchase by the other foreign investor.

However, the transfer from one foreigner to another will be permissible only once, with no possibility of waiver of the fresh lock-in period.  

The proposal also seeks to reduce the stipulated minimum to be built to a carpet area of 20,000 sq metres in all class-1 cities (population of more than 100,000), against the present criterion of 50,000 sq metres of built-up area. Carpet area, goes the argument, can be more objectively measured.

Meanwhile, the Cabinet Committee on WTO Matters, under Prime Minister Manmohan Singh, will firm up a strategy on India's stand at the Bali summit to be held in the first week of next month.

The government has decided not to accept the proposed ‘peace clause’ until a permanent safeguard measure is provided to give it the freedom to extend to its farmers subsidies prohibited under the World Trade Organization (WTO).

At the coming ministerial conference in Bali, India will not give its consent to the agreement on trade facilitation, which was primarily backed by developed countries, until it is assured of a permanent solution on farm support, one that would form the basis of the negotiating mandate, an official said.  

For countries providing subsidies prohibited under the WTO, the ‘peace clause’ ensures immunity from trade disputes for a stipulated period.

Even as India firms up its strategy on the controversial peace clause, the Geneva-based WTO has already finalised a negotiating draft text, based on which trade ministers from 159 member countries will discuss the road ahead.

In 2008, the G-33, a coalition of developing countries, floated a proposal on food security, wherein it demanded public food programmes for supporting the livelihoods of small farmers and food consumption of the poor should be allowed without limits by changing the existing Agreement on Agriculture under WTO.

However, developed countries have rejected all the suggestions in the proposal from being considered in Bali except for the peace clause.

After being stuck for three years, a proposal to set up a Rs 5,500-crore Indian Inclusive Innovation Fund (IIIF) migh also come up at the Cabinet meeting.

The fund will be under the Ministry of Micro, Small and Medium Enterprises (MSME). Officials said though the Planning Commission wanted the fund to be set up under the Department of Science and Technology, not MSME, the issue had now been resolved.

It is MSME which floated a Cabinet note in this regard.

The fund proposes to invest in a new generation of Indian entrepreneurs who are either building or will build world-class enterprises that focus on the problems of the poor, without compromising on economic success. It will operate as a for-profit entity, with a focus on social investment.