Government to review FDI policy in pharma, realty

The government plans to review its foreign direct investment (FDI) policy in pharma and realty sectors as it sought to allay fears regarding the investment environment in the country.

The Cabinet Committee on Economic Affairs, is due to meet on 25 November to consider the contentious issue of FDI in the pharma sector, which had seen three ministries tangle over letting foreign players in the country in the sector.

While the health and commerce ministries wanted additional restrictions over takeovers of existing companies by foreign players, the finance ministry was for foreign players gaining a free hand to improve the investment environment in the country.

The Parliamentary Committee on Commerce on FDI in the pharmaceutical sector had called for clamping a blanket ban on foreign investment in existing pharma projects.  

At present, 100-per cent FDI is allowed in new projects through the automatic route in the pharmaceuticals sector, while 100 per cent was also allowed in existing facilities, subject to government's permission, according to the committee.

In the real estate sector, the government planned to ease lock-in period norms for foreign investors.

The Department of Industrial Policy and Promotion, in a note had sought letting investors withdraw their investments from projects before three years of their investment.

Contrary to what the UPA government is trying in other sectors, in the pharma sector the government wants to bring down FDI and on Monday, the cabinet could initiate the process of reducing FDI limits to 49 per cent from the existing 100 per cent, in existing pharmaceutical companies producing critical medicines.

NDTV, which claims to have accessed the cabinet note, said according to the note, the objective was two-fold - one to prevent hostile take-overs of Indian pharma companies by MNCs and two to keep prices of critical medicines affordable.

By way of example, the note cited the case of Piramal Healthcare, where prices of medicines had increased in the range of 20 to 121 per cent over a two-year period.

According to the cabinet note, while FDI was desirable, if it led to hostile takeover of Indian companies, it was not. The government had been forced to review the policy following a number of takeovers between 2005 and 2011.

The note further argued that while foreign companies had taken over big Indian brands like Ranbaxy, such takeovers had not created substantial physical assets.

For instance MNCs had created assets valued at Rs3,022 crores only as against Rs54,000 crores worth of assets built by Indian companies.