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The conditions imposed on Foreign Direct Investments (FDI) in brownfield projects need to be made more stringent as they are insufficient to counter the dangers posed by take-overs of domestic companies, a report by the Parliamentary Standing Committee on Commerce has proposed.
Pushing for a study group to investigate the consequences of such FDI, the Committee said if the trend of acquisition of large domestic drug companies was not checked, local industry will soon not be able to produce the desired level of low-cost quality generics or comply with requirement of compulsory licenses.
“The operation of the pharma industry under foreign hands would then be guided with additional motive for profit than before,” according to the report on FDI in pharmaceutical sector presented to the Rajya Sabha on Monday.
The Department of Industrial Policy & Promotion (DIPP), under the previous UPA Government, had tried to restrict FDI in brownfield projects stating that it could affect availability of key drugs.
It had even made the Foreign Investment Promotion Board defer decisions on proposals such as US-based Mylan’s bid to take-over Indian company Agilla. But, its arguments were ignored by the Prime Minister’s Office (PMO), and the FIPB subsequently cleared the proposal and many more.
The BJP-led Government, too, has continued on a similar track and has approved several FDI proposals for brownfield pharma in the last few months. The Parliamentary Committee suggested that the condition for R&D expenses imposed on FDI in brownfield sector should not be in value terms and should instead be re-modelled to ensure that at least 5 per cent of the combined turnover of the acquired and acquiring company be earmarked for R&D expenses.
A certain portion of the R&D expenses should be earmarked for tropical diseases affecting India. The Committee added that the non-compete clause for any brown field acquisition should be completely prohibited without exceptions.
Urging that a study group to look at implications of such FDI be set up at the earliest, the Committee suggested that the issue be taken up at the Cabinet level and a proposal may be prepared to enable the relevant Cabinet Committee to take a considered view on its recommendations.
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