The government is planning to further relax the foreign direct investment (FDI) regime in the drugs & pharmaceuticals industry by permitting automatic approval for 100 percent FDI in this sector. The department of chemicals & petrochemicals (DC&P) and the ministry of industry have concurred on this and both are keen to move the Cabinet with the proposal soon.
Though both the departments have readied the Cabinet notes to this effect, the one from the industry ministry would reach the Cabinet first, since it has already got the consent of the Group of Ministers (GoM) that ponders on FDI policies, top government sources informed.
The 100 percent automatic FDI will however be subjected to the conditions stipulated in the industrial policy of the government which implies that in areas where industrial licences are required and trading restrictions are in existence, there will be bars on FDI.
The current drug policy allows automatic nod for foreign equity proposals up to the limit of 74 percent. From thereon, the proposals are routed through the secretariat of Company Affairs and the Foreign Investment Promotion Board.
The FIPB then judges the proposals case by case. It was only last year that the 74 percent upper limit for automatic FDI was granted to drug industry. Prior to that, the maximum FDI allowed through the automatic route was 51 percent as was stipulated in the 1994 drug policy. Following the Cabinet clearance, the policy was amended to affect the 74 percent automatic okay in March 2000.
Obviously, there is no division between the two departments on the current proposal. This is important since DC&P had earlier been seen objecting to the proposals for setting up 100 percent subsidiaries in India by MNCs who already had partly owned company or companies incorporated in India. The proposals to this effect from Pfizer of the US and Bayer AG of Germany have seen problems due to the dissentient notes from DC&P, even while the FIPB apparently wanted the proposals gone through.
Speaking to Pharmabiz.com, Ananya Ray, director, DC&P said: "The original draft on 100 percent automatic FDI was prepared by us. Now that the industry ministry has included the same proposal in its Cabinet note, there is no question of we opposing it. In fact we have concurred with that note."
However, she said that most probably, it would be the industry ministry proposal that would reach the Cabinet for clearance.
The government's decision to permit automatic FDI with no limit is in the light of the perceived need to deregulate knowledge-driven industries. Transnational drug companies have been keen to have enhanced ownership of their Indian ventures and often put this condition for releasing their technologies and putting up basic manufacturing units and R&D setups in India.
However, according to sources in the department of industrial policy and promotion (DIPP), which tracks the FDI inflow into various sectors, the situation in the drug industry has not shown any significant change since the government okayed 74 percent automatic FDI last year. This is perhaps the reason for the government's decision to remove the ceiling now. Obviously, the intent is to send the signal to the MNCs that the unshackling of the FDI regime is done with purpose.
In fact, the liberalization of FDI approvals is on in most of the sectors, and the Cabinet note vetted by the GoM contains liberal prescriptions for other sectors too. It must be recalled that the industry minister Murasoli Maran has already said that the government was considering dismantling of the FIPB as such, and relax FDI rules as much as required. Bars and restrictions would remain only in certain sectors identified by the government as "strategic."