Wants foreign investors to create 25% additional capacity, generate jobs

Restrictions on Foreign Direct Investment (FDI) in existing pharmaceutical projects will apply on drugs that are identified as ‘critical’ by the Health Ministry.

The Industry Department, in its draft Cabinet note, has placed the responsibility of identifying the sectors where takeovers would not be permitted on the Health Ministry.

It has also proposed that foreign investors be mandated to create at least 25 per cent additional capacity and generate additional employment in the critical pharma projects they are investing in, a Department of Industrial Policy and Promotion (DIPP) official told Business Line.

The DIPP wants restrictions on FDI in brown-field or existing pharma companies as it is concerned that such acquisitions could shrink India’s capacity of producing low-cost generic drugs.

“We want to ensure that not only is FDI in critical pharma sector restricted to 49 per cent to prevent takeovers, the foreign investment is also used for increasing existing capacities by at least 25 per cent and generating more jobs,” the official said.

Taking FIPB route

The Government allows 100 per cent FDI in pharmaceuticals, but while investments in new projects are allowed automatically, those in brown-field have to be routed through the Foreign Investment Promotion Board since late last year.

The DIPP, however, feels that the FIPB route was not an adequate safeguard against indiscriminate take-overs and a policy change was required as the Board had approved almost all pharma proposals placed before it over the past year.

Interestingly, despite strong opposition from the DIPP, the FIPB-approved US-drug company Mylan’s Rs 5,168-crore proposal to acquire Indian company Agilla that produces oncology (cancer-related) injectibles, after intervention from an inter-ministerial group led by the Prime Minister last month.

“While we want FDI flow in critical areas to be restricted, we have left the identification of critical sectors entirely to the Health Ministry as it is in the best position to do so,” the official said.

Vaccines, injectibles, and oncology (cancer-related) injectibles were initially identified by the DIPP as critical areas that had to be protected from takeovers.

Brownfield projects

According to RBI data, FDI worth $2.02 billion came into brown-field pharma between April 2012 and April 2013, while greenfield projects could attract only $87.35 million.

Over 96 per cent of FDI during this period has been in brown-field, says an internal note prepared by DIPP adding that, it is thereby a mere substitution of domestic capital by foreign capital.

Global pharma companies invest a negligible amount on R&D which is less than the domestic pharma companies and even less than the public sector firms in India, the note adds.

amiti.sen@thehindu.co.in

(This article was published on September 18, 2013)
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