Govt prefers status quo on pharma FDI

New Delhi, Dec. 3: The government today decided to continue with the existing approval policy on foreign direct investment in pharma.

The move comes a day before the crucial voting on FDI in multi-brand retail in Parliament. Like retail, pharma FDI is controversial over questions on the affordability of essential drugs in the wake of multinationals acquiring local companies.

"All FDI for merger and acquisition (MandA) in brownfield projects will be routed through the Foreign Investment Promotion Board and will be vetted by the Competition Commission of India (CCI) after six months," official sources said after a meeting chaired by Prime Minister Manmohan Singh to resolve inter-ministerial differences on the issue. Brownfield projects are existing ones as opposed to greenfield projects, which are new.

Officials said, "The amendments to the CCI act are pending in Parliament and the existing arrangement of FIPB clearance will continue till changes are made to the act. The law ministry will also give its views on the CCI mandate to vet pharma MandAs."

While the finance ministry favours FIPB clearances only for FDI beyond 49 per cent in brownfield projects, the commerce ministry wants all foreign investments to go through the FIPB route.

The meeting also intended to clarify the role of the Competition Commission in all mergers and acquisitions.

The Planning Commission felt that the Competition Commission was the right authority, but the commerce and health ministries maintained that the FIPB was better suited to take an immediate call on health matters.

In October last year, a ministerial group headed by the Prime Minister had put foreign investments in brownfield pharma on approval route for six months, changing a 10-year-old policy of automatic clearance. Overseas investor will have to seek FIPB permission for any merger or acquisition. After six months, monopoly watchdog CCI will vet such deals.

However, for new projects, 100 per cent FDI under the automatic route is still allowed, with clearances from the Reserve Bank of India and market regulator Sebi.

In 2002, the government had allowed foreign drug companies to own 100 per cent in domestic ventures. However, a spate of acquisitions of local drug makers by foreign companies in the recent past have raised concerns.

Some of the high profile takeovers include the buyout of Ranbaxy by Japan's Daiichi Sankyo, French giant Sanofi-Aventis SA's majority stake in Shanta Biotech and US-based Abbott Laboratories' of Piramal Healthcare Ltd's formulation business.