Despite concerns over a series of takeovers of Indian pharmaceutical companies by international ones, the government on Wednesday kept the existing policy, allowing up to 100 per cent foreign equity in the sector.
Notifying the decision, taken by the Cabinet Committee on Economic Affairs (CCEA) in November, the department of industrial policy and promotion (DIPP) under the ministry of commerce and industry stated 100 per cent foreign direct investment (FDI) would be allowed in both greenfield (new) and brownfield (existing) segments.
As earlier, FDI in brownfield will be subject to approval by the Foreign Investment Promotion Board (FIPB).
However, as a rider, DIPP said a ‘non-compete clause’ “would not be allowed except in special circumstances with the approval of FIPB”. There had been speculation that any takeover or sale agreement would be forbidden from having such a clause.
While both the health and commerce & industry ministries had proposed more restrictions for new entrants into the sector, the finance ministry felt putting various riders on new investment would hurt the flow of foreign exchange.
FDI in the pharma sector grew 86.5 per cent to $1.08 billion (Rs 6,750 crore) during April-October of the current financial year over the same period last year.
The commerce and industry ministry had suggested lowering the FDI cap to 49 per cent in the brownfield segment, keeping in mind the affordability of medicines and takeovers of domestic drug making companies by multinational giants. Commerce and Industry Minister Anand Sharma had felt the present FDI policy in the sector had not yielded tangible benefits. He said investments in new areas had not displayed value addition in terms of additional infrastructure or the research and development segment. While, FDI in brownfield investment had resulted in acquisition of domestic manufacturers by multinationals.
However, it was later decided the CCI Act would not be amended and till such time another mechanism was worked out, all FDI proposals in existing companies would go to FIPB.
Even a finance ministry committee, headed by economic affairs secretary Arvind Mayaram, hadsuggested government control on proposals seeking to invest beyond 49 per cent.
Last year, the government cleared as many as seven investment proposals in existing domestic drug manufacturing units. These included those of Singapore’s GlaxoSmithKline, USA’s Mylan, Mauritius-based Castleton Investment, Mumbai-based Ferring Therapeutics and Hyderabad-based Verdant Life Sciences.
In 2008, the country’s largest drug maker, Ranbaxy, was taken over by Japanese firm Daiichi Sankyo for $5.45 billion, followed by another large-scale takeover, of Piramal Healthcare’s medicine business by US’ Abbott Laboratories for $3.72 billion.