DIPP proposes restrictions on FDI in parts of pharma sector

The Department of Industrial Policy and Promotion (DIPP), which is the nodal body for FDI policy in India and part of commerce and industry ministry, has proposed lowering of foreign direct investment (FDI) limit and other restrictions to discourage foreign companies from taking control of Indian drug companies which produce critical drugs, according to media reports.

The government has been cautious on giving green signals to FDI proposals related to pharma sector over the last few years. Although many significant inbound deals have been cleared, various government authorities have voiced their opinion of restricting foreign investments in the sector.

In the latest instance, DIPP has circulated a draft cabinet note to limit brownfield investment by foreign firms in certain areas such as companies engaged in vaccines, injectables and oncology medicines.

The current policy allows up to 100 per cent FDI in Indian pharma companies. The government is not against blocking greenfield ventures but seeks to limit investments which are akin to acquisition of existing operations of Indian firms.

The government has been looking to limit the FDI in such cases to 49 per cent.

The note also seeks to bar foreign buyers from enforcing any non-compete clause, which will allow the Indian promoter selling their businesses to venture into the same line of business again.

This proposal comes even as the government is desperately looking for capital flows to fund the country's record high current account deficit that triggered the rapid depreciation in the value of rupee. Indian pharma industry has also been looking to raise capital to especially grow SME sized companies.

The genesis of the proposal lies in a growing trend where a number of promoters of Indian generic drugmakers sold their businesses to foreign firms. Some of these deals include Ranbaxy Labs being acquired by Daiichi Sankyo, Fresenius Kabi acquiring Dabur Pharma, Mylan acquiring Matrix Labs, Abbott acquiring domestic formulation business of Piramal Healthcare (now Piramal Enterprises) among others.

In another big-ticket deal US-based Mylan Inc acquired Agila Specialities, a company largely engaged in the manufacture of oncology drugs. The $1.6 billion proposal was put on hold after the DIPP and the health ministry raised fresh concerns, arguing critical care facilities were falling in foreign hands.

The proposal was cleared recently after Prime Minister Manmohan Singh reportedly intervened. But it was decided that the DIPP would come up with its suggestions that the cabinet could consider.

(Edited by Joby Puthuparampil Johnson)

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