The Cabinet is expected to take a decision tomorrow on relaxing FDI norms for the housing sector and reducing foreign direct investment cap to 49 per cent in critical areas of the pharma segment.
Several departments including the DIPP have raised serious concerns over continuous acquisitions of Indian drug makers by global multinational firms.
"The Cabinet will review the FDI policy in pharmaceutical and housing tomorrow," an official said.
The Department of Industrial Policy and Promotion (DIPP) has proposed to reduce FDI cap from 100 per cent to 49 per cent in the "rare or critical pharma verticals".
According to sources, three categories have been proposed to define "rare or critical". It includes companies with five or more manufacturing units, and companies with 40 per cent or more market share irrespective of the total number of manufacturing facilities.
"If an entity manufactures multiple products, it will be treated as critical if either of the above two conditions are satisfied for at least one third of the products," said a source.
The DIPP has also proposed to incorporate conditions for foreign firms like mandatory investment in R&D and non-compete clause in the shareholders pact.
The sources also said 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. The total investment, as per the proposal, will have to be incurred within 3 years of the acquisition.
There is thinking in the government that with MNCs taking control of Indian firms, there could be reduction in supply of vaccines, injectables, particularly for cancer and active pharmaceutical ingredients.
"MNCs which are acquiring domestic firms have spent less than one per cent of their total sales in R&D in India. They are doing only clinical trials in India and not actual drug development work," the source said.
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.
Currently, India permits 100 per cent FDI in the pharma sector