Commerce ministry bats for limiting pharma FDI at 49%

The ministry of commerce and industry has proposed tightening of foreign direct investment (FDI) norms for the pharmaceutical sector by pruning the limit of FDI allowed in "critical" brown field pharma companies to 49 per cent.

The proposal prepared by the Department of Industrial Policy and Promotion (DIPP) has called for incorporating conditions like mandatory investment in R&D and non-compete clause in the shareholder agreements, in a bid to halt the rush of multinationals to acquire Indian pharma firms.

The DIPP, in a draft cabinet note, has proposed a number of steps for tightening foreign direct investment (FDI) in existing domestic pharmaceutical companies, the report said.

Under the proposal, the foreign company would not be allowed to close down the existing R&D centre and would have to mandatorily invest up to 25 per cent of the FDI in the new unit or R & D facility, reports quoting sources said.

The total investment, as per the conditions proposed, will have to be incurred within 3 years of the acquisition.

They added that, with comments of some ministries coming late, the DIPP was moving a supplementary note on the matter.

According to sources, there was a feeling in government circles that with MNCs taking control of Indian firms, there could be reduction in supply of vaccines, injectables, particularly for cancer and active pharmaceutical ingredients.

The move follows the department's failure to block the Mylan-Strides Arcolab deal, which it felt, was not in the interest of the health security of the nation. DIPP wants to block such deals in future through the proposal.

The DIPP line enjoyed the support of the other departments like health and pharma. However, with the finance ministry, the Planning Commission and even the PMO opposed to it, the DIPP had to fall back on public health and affordability issues to push its case.

The DIPP says, the takeover of Indian pharma companies by foreign entities, if unchecked, would block the potential windfall from the huge number of blockbuster drugs that would go off-patent from 2015.

To back its case, DIPP has pointed out that while FDI inflows into greenfield pharma stood at a paltry $90 million from April 2012 to June 2013, a whopping $2 billion were invested in brown field deals. It would be for the cabinet to balance the need for attracting investment with the need for affordability and India's position as a leading generics exporter.