Allow only 49% FDI in critical brownfield pharma units: DIPP

Nov 20 2013, 08:25 IST
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SummaryIndustry department has also proposed that while 100% FDI could be allowed in brownfield projects, one-fourth of investment should be used in R&D.

The Union Cabinet is likely to consider the revised policy on foreign direct investment (FDI) in the pharma sector this week with the industry department proposing that one-fourth of investments in brownfield projects be used in research and development activities.

While maintaining that 100 per cent foreign direct investment should be allowed in brownfield projects, the Department of Industrial Policy & Promotion (DIPP) has, however, stated that if the projects deal with rare facilities and critical verticals, only 49 per cent FDI should be allowed with the government approval, an official told The Indian Express.

The stipulation is to ensure accessibility and affordability of drugs, the official said, adding that “The definition of critical and rare has been already provided by the health ministry. The department will go by the same definition. Our intention is that in such cases the ownership and control should not go to a foreign company.”

The proposal is in line with the recommendations of the departmental standing committee, which had said that FDI in the brownfield pharma sector has “encroached upon generics base and adversely impacted the pharma industry”.

In fact, the committee had gone to the extent of recommending that a blanket ban must be imposed on any FDI in brownfield projects. It had also suggested that the department should take measures to stop any further takeover or acquisition of domestic pharma units.

According to the DIPP proposal for the Cabinet, when an Indian company is acquired by a foreign company, there should be no “non-compete clause” so that the production of generic medicine is not impacted.

“This will to some extent ensure the flow of generic medicines in the country,” the official said.

So far, brownfield pharmaceutical projects are being cleared by Foreign Investment Promotion Board (FIPB) on the basis of recommendations given by an inter-ministerial group constituted by Prime Minister Manmohan Singh.

The IMG had suggested that the FIPB should approve a proposal of brownfield investment only when the foreign company, buying more than 49 per cent stakes in an Indian pharma company, increases the level of investment in R&D by 5 per cent each year.

Such a company will also have to ensure that quantity of drugs listed under National List of Essential Medicines should increase by 5 per cent each year and not fall below the last 5-year average.

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