Size of the deal no criterion for pharma FDI scrutiny

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SummaryIn an interview with FE, commerce and industry minister Anand Sharma expounds on the philosophy behind the Cabinet decisions.

A high current account deficit – which could potentially grow further given the difficult external situation — and a disturbing degree of volatility in the foreign exchange market have left the government with no choice but to resort to decisive policy action. Compressing certain kinds of imports — especially those deemed as “non-essential” — and a big push to exports are the obvious solutions to the high CAD. Promoting capital inflows — especially of the non-debt-creating variety — is imperative too, as there are concerns about how to safely finance the CAD, projected at $80 billion for 2013-14 by policymakers, and a good bit higher than that by some analysts. Last week’s Cabinet decisions liberalising the foreign investment policy concerning a host of sectors including multi-brand retail, telecom and defence were based on proposals put up by the department of industrial policy and promotion (DIPP), a wing of the ministry of commerce and industry. In an interview with FE’s Kirtika Suneja and KG Narendranath, commerce and industry minister Anand Sharma expounds on the philosophy behind the Cabinet decisions and clarifies on certain aspects of the liberalisation. FDI is essential because “domestic capital has limitations” and the former can also facilitate technology transfer to Indian industry, the minister says, but defends his oft-articulated view that brownfield FDI in pharmaceuticals, though allowed up 100%, would need be scrutinised above the level of 49% for its potential to adversely impact certain production verticals like vaccines, injectables and anti-cancer drugs. The scrutiny criteria won’t be size of the (takeover) deal (or that of the target Indian company), but the impact on these verticals, the minister explains. In Sharma’s view, any curbs on imports (quantitative or by way of taxes) would have to imposed carefully. In areas where the difference between the bound tariffs (under the World Trade Organisation) and the actual level of duties (applied tariffs) is large, the latter could be hiked a bit, albeit selectively, he says. Edited excerpts:

How confident are you about the recent easing of FDI norms impacting inbound capital flows and making a difference to the FDI number for 2013-14? Last year, we saw a 38% decline in FDI flows — $22.4 billion against $35 billion in the previous year — and the question has really been about the overall investment climate in the country rather than a prohibitive FDI policy. You may be concerned that last month ArcelorMittal

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