The Department of Industrial Policy and Promotion (DIPP) said however that as far as the contentious issue of non-compete clause is concerned, the Foreign Investment Promotion Board (FIPB) will take a view on it on case-by-case basis.
"The government has reviewed the position in this regard and decided that the existing policy would continue with the condition that 'non-compete' clause would not be allowed except in special circumstances with the approval of the FIPB," the DIPP said in a Press Note.
Faced with a rush of multinationals (MNCs) acquiring Indian pharma firms, the DIPP had earlier proposed stringent norms to tighten the Foreign Direct Investment (FDI) policy for the sector.
It had said the continuous acquisition of Indian pharma companies will severely impact availability and affordability of generic medicines in the country, and asked for a reduction in the FDI cap to 49 per cent from 100 per cent in rare or critical pharma verticals.
However, the Union Cabinet at its meeting dismissed the DIPP concerns.
In September, the government cleared the Rs 5,168-crore deal of the US-based Mylan Inc for acquiring Bangalore-based pharma firm Agila Specialties, a subsidiary of Strides Arcolab.
In 2008, Japanese firm Daiichi Sankyo had bought out the country's largest drug maker Ranbaxy for USD 4.6 billion.
US-based Abbot Laboratories had acquired Piramal Health Care's domestic business for USD 3.7 billion.
DIPP had said that over 96 per cent of the total FDI in the sector between April 2012 and April 2013 has come into the brownfield pharma, or existing projects and companies.
India permits 100 per cent FDI in pharma through automatic approval route in the greenfield, or new projects.