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Facing strong opposition from the Finance Ministry and the Planning Commission, the Government has decided against revising the foreign direct investment (FDI) limit for the existing pharmaceutical companies.
The Union Cabinet, which met here on Thursday, has rejected a proposal in this regard.
“We are not reducing (the FDI cap in brownfield pharmaceuticals) for the moment,” Commerce and Industries Minister Anand Sharma told reporters on Friday.
The proposal before the Cabinet was to prescribe three broad categories.
New projects will continue to have 100 per cent FDI. Existing projects producing non-rare/non-critical drugs will also have 100 per cent FDI.
However, a third category for existing projects producing critical or rare drugs was created. This category will have 49 per cent foreign equity and it will be combination of FDI and FII (Foreign Institutional Investors).
Currently, the FDI limit for both, the new or greenfield pharmaceutical projects and existing or brownfield projects, is 100 per cent. However, the approval route is automatic for the new ones, while for existing projects, the proposal needs clearance from the Foreign Investment Promotion Board (FIPB).
The Cabinet proposal was prepared in the backdrop of increasing number of mergers and acquisitions of existing pharmaceutical companies. The proposal also talked about tightening some norms such as mandatory investment in R&D and doing away with non-compete clause.
However, not only change in FDI provisions, but also many of the stringent norms barring one was rejected. Sharma said the non-compete clause would be done away with. Such a clause prevents the acquired entity from producing similar products by the acquirer.
RBI data show that during April 2012 and June 2013, brownfield pharmaceutical projects got $2,034 million worth of FDI while greenfield ones attracted just $90 million.
It means over 96 per cent of total FDI in pharmaceutical projects are merely substituting domestic capital by foreign capital rather than adding new capital.
shishir.s@thehindu.co.in
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