No change in pharma FDI policy

Currently, the govt allows 100% FDI in both greenfield projects and brownfield drug-manufacturing companies

The government has decided to continue with the current foreign direct investment (FDI) policy for the pharmaceutical sector, brushing aside the long-drawn proposal of the commerce ministry. The Anand Sharma-led ministry has been advocating a lower FDI cap in brownfield, or existing ,drug making units, along with various safeguards for acquisition of domestic critical care pharma companies by multinational firms.

While there is no change in the FDI cap, the Cabinet decided to bring in a breather for domestic players in the sector by doing away with any non-compete clause in such agreements. This may mean that domestic companies divesting stake in their drug manufacturing business can continue to compete with separate ventures in the sector.

After the Cabinet meeting on Thursday, government representatives indicated a decision on the pharmaceutical FDI policy was deferred, following objections from the finance ministry and the Planning Commission. But in a statement on Friday, the government said the current pharma policy would continue.

"The Cabinet decided that the current policy in brownfield and greenfield projects in the pharmaceutical sector will continue, subject to the additional condition that in all cases of FDI in brownfield pharma, there will not be any non-compete clause in any of the inter-se agreements," the government said in a statement on Friday.

Currently, the government allows 100 per cent FDI in both greenfield projects and brownfield drug-manufacturing companies. While investments in greenfield are allowed through the automatic route, those in brownfield or existing facilities must be approved by Foreign Investment Promotion Board.

The Department of Industrial Policy and Promotion (DIPP), under the commerce ministry, had proposed a lower cap of 49 per cent for foreign investment in rare or critical pharma verticals.

The contentious policy was stuck for long, primarily between four key entities- the health ministry, the commerce ministry, the finance ministry and the Planning Commission. While the ministries of health and commerce were pushing for stringent rules and a lower cap on FDI in brownfield or existing pharmaceutical companies, their proposal met strong opposition from various other stakeholder ministries, including finance ministry and the Planning Commission.

Earlier this year, various FDI proposals in pharma sector, seeking approval from FIPB were delayed because of inter-ministerial differences. Later, with the intervention of Prime Minister Manmohan Singh, the government, to bring down the its current account deficit, decided to clear the pending proposal which included a whopping $1.8 billion investment proposal by US generic drug maker Mylan Inc to acquire Strides Arcolab's injectible unit - Agila Specialities.

However, the government had then decided to create safeguards for future foreign investment proposals in the pharma sector in the wake of concerns that acquisition of existing critical drug-manufacturing facilities could lead to a significant hike in prices of medicines, while also creating a shortage of some drugs.

But, the latest decision of the Cabinet appears to have been backed by the government's immediate financial needs.

Apart from seeking a lower cap of 49 per cent, DIPP had also sought to bar foreign investors from divesting manufacturing, and research and development (R&D) facilities in case of transfer of ownership of an existing pharma firm and sought to impose a three-year lock-in on investment. The proposal also sought to mandate foreign investors direct 25 per cent of their total investments into research. The proposed policy also defined 'rare and critical' as those drug segments that had just five or limited Indian manufacturing units. Besides, a company with 40 per cent or more share in the domestic market for any particular drug, would also be classified as rare and critical.