[Ip-health] New India Govt regulations on FDI in pharma - holding of over 49% in an Indian pharma company will require approval

Jamie Love james.love at keionline.org
Tue Jul 24 23:41:46 PDT 2012


Govt takes call on FDI in pharma - Investments resulting in holding of
over 49% in an Indian pharma company will require approval from FIPB
Tue, Jul 24 2012. 11:55 PM IST

Vidya Krishnan & Asit Ranjan Mishra

New Delhi: India has finally taken a call on rules governing
acquisition of domestic pharma companies by multinational firms, and
it is not one that foreign companies like.

An inter-ministerial group on foreign direct investment (FDI) in
pharmaceuticals has decided that investments resulting in an equity
holding higher than 49% in an Indian pharma company will have to apply
for the approval of the Foreign Investment Promotion Board (FIPB), a
part of the ministry of finance.

Investments resulting in an equity holding lower than 49% as well as
those made in subsidiaries will not need approval and will go through
what is called the automatic route.

The group has also decided that a multinational firm buying a stake
higher than 49% in an Indian pharma company will maintain the same
level of investment in research activities and production of essential
medicines for five years.

A finance ministry official, who spoke on condition of anonymity, said
a consensus had been reached on the contentious issue. The ministries
of health and commerce were earlier in favour of routing all proposals
for foreign investment in Indian pharma companies through FIPB, while
the finance ministry insisted that FIPB should only scrutinize
proposals for investment that would result in an equity holding above

The decision will adversely affect FDI, said Ranjit Shahani, president
of the Organisation of Pharmaceutical Producers of India, the lobby
group representing multinational firms. “In a climate where India is
already FDI-starved, any policy which restricts freedom of trade and
investment will further restrict capital flows. This will not only
have a chilling effect on FDI flows to the pharma industry, but will
also have a serious knock-on effect in other industries—particularly
since it is a reversal of policy liberalization which took place only
10 years ago. Today, when the world is looking at India to kick-start
the economy following changes at the Centre, this certainly is a
retrograde step,” he added.

Still, the decision is likely to clear the logjam at FIPB.

Proposals from foreign pharma companies such as Arch Pharmalabs Ltd,
Pfizer Inc. and B Braun Singapore Pte. Ltd are stuck at the board due
to a lack of clarity in the policy. A second finance ministry
official, who also spoke on condition of anonymity, said FIPB will try
and clear the pending proposals at its meeting on Friday.

A commerce ministry official, who is a part of the inter-ministerial
group, had said on Monday that the group is likely to take a final
decision on Tuesday. “On 27 July, FIPB will take up some proposals, so
before that, we would like to finalize the things,” he added.

The group also asked the department of industrial policy and promotion
(DIPP), the commerce ministry arm that oversees FDI policy, to decide
on a cap, in terms of size of the company in which the investment is
being made, above which FIPB approval would be required. A senior
health ministry official, who was a part of the group and did not want
to be identified, said, “Imposing norms on smaller investments would
not be proper as it would make the (business) environment hostile to

The group also agreed to impose conditions on the continued production
and sale of essential medicines by the companies in which the
investments are made. Its draft report said, “Production level of
National List of Essential Medicines drugs and their supply to
domestic market at the time of induction of FDI (to) be maintained
over the next five years.” It placed a similar condition on research
and development spending.

India has seen a number of big-ticket pharma deals in recent years. In
June 2008, Japanese drug maker Daiichi Sankyo Co. Ltd acquired New
Delhi-based Ranbaxy Laboratories Ltd for nearly $5 billion (Rs 28,000
crore today). Two years later, US-based Abbott Laboratories bought the
healthcare solutions business of Piramal Healthcare Ltd for $3.72

Alarmed by such acquisitions and their possible impact on the
availability of low-cost medicines, the health and commerce ministries
demanded that foreign investment in domestic pharma companies be
routed through FIPB.

A panel set up under the chairmanship of Planning Commission member
Arun Maira at the behest of the cabinet committee on economic affairs
suggested a status quo in the FDI policy for the sector while
recommending oversight by the Competition Commission of India (CCI) on
pricing and competition issues.

That recommendation was opposed by both DIPP and the health ministry.
Finally, a meeting called by Prime Minister Manmohan Singh in October
last year to resolve the differences decided that while 100% FDI in
greenfield investments through the automatic route will continue to be
allowed, brownfield investments in Indian pharma companies will be
routed through FIPB for six months (from October) and that CCI will
then take over the job. That decision, however, left several
unanswered questions that Tuesday’s decision by the inter-ministerial
group has addressed.

vidya.krishnan at livemint.com

James Love.  Knowledge Ecology International
http://www.keionline.org, +1.202.332.2670, US Mobile: +1.202.361.3040,
Geneva Mobile: +41.76.413.6584, efax: +1.888.245.3140.

More information about the Ip-health mailing list