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In what would come as a relief to foreign investors in the pharmaceutical sector, the Department of Industrial Policy and Promotion (DIPP) is ready to take back its proposal of making Government approval mandatory for portfolio investments crossing 24 per cent in drug companies.
DIPP is willing to treat the sector the same as all others where the suggested threshold for such approvals is 49 per cent.
“Since the Finance Ministry had not supported the proposal to put additional conditions for foreign portfolio investments in pharmaceuticals, we have decided to treat the sector the same as others in our final note on composite foreign investment caps. The note is now awaiting internal clearance (from the Commerce and Industry Minister) after which it will be placed before the Union Cabinet,” a DIPP official told BusinessLine .
Compostite capDIPP’s note proposes that instead of separate limits for different categories of foreign investments, there should be a composite cap encompassing foreign portfolio investment, NRI investment, depository receipts, foreign currency convertible bonds and fully and mandatorily convertible preference shares or debentures.
The idea is to weave in more flexibility in the policy regime and give companies the freedom to choose from the different types of foreign investment.
In sectors with caps, approval from the Foreign Investment Promotion Board will be required where a foreign owned or controlled company is being set up, or control or ownership of Indian firm is being passed into foreign hands. However, in the original note, the DIPP had also suggested that for FDI in existing pharmaceutical projects, the threshold limit for FIPB approval should be 24 per cent instead of 49 per cent set for others.
The Department of Economic Affairs (under the Finance Ministry) had opposed the move to single out the pharmaceutical sector. In its comments to DIPP, it said the precaution was unwarranted as the Government should only be worried about companies where ownership could move to foreign hands, and this would happen only when portfolio investments cross 49 per cent.
While the present policy allows 100 per cent FDI in new pharmaceutical projects through the automatic route, for the existing projects, the approval of the FIPB is required.
ExceptionDIPP’s argument of making an exception for brownfield pharma projects by keeping the threshold lower was based on the fact that the sector was responsible for making available domestic drugs at affordable prices to the masses. Foreign portfolio investments, which take place when foreign investors buy shares of Indian companies in the equity market, are considered to be short term.
India allows up to 24 per cent portfolio investment in all sectors that can be raised to the sectoral cap with a special resolution by company board and shareholders. It is monitored by the RBI.
The Government is careful about takeovers in the pharmaceutical sector as there have been several high profile acquisitions of Indian companies over the last few years, including recent ones such as Bangalore-based pharma firm Agila Specialties by US-based Mylan Inc and Piramal Healthcare by US company Abbot Lab.
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