Finance ministry seeks PMO’s intervention in FDI row.

The row over foreign direct investment (FDI) in the pharma sector has once again reached the Prime Minister’s Office (PMO). After the industry department opposed the clearance of nine FDI proposals in the pharma sector at the last meeting of the Foreign Investment Promotion Board (FIPB), the finance ministry has sought the PMO’s intervention.

“Now the PMO will take a final view on the matter,” a finance ministry official said on condition of anonymity. The file was sent to the PMO before the new finance minister P. Chidambaram took charge last week, he said.

“Proposals pending with the FIPB will be processed and decisions taken expeditiously,” Chidambaram said in a statement issued on Monday, without naming any sector or proposal.

FIPB, the nodal body under the finance ministry responsible for clearing foreign investments into the country, on 27 July considered pending proposals from foreign pharma companies, including Arch Pharmalabs Ltd, Pfizer Inc. and B Braun Singapore Pte Ltd. The finance ministry official said the proposals could not be cleared because the Department of Industrial Policy and Promotion (DIPP) didn’t give its consent although the health and pharmaceutical departments had done so.

The possible impact of acquisitions of Indian pharma companies on the availability of low-cost medicines persuaded the health and commerce ministries to demand such investment be routed through FIPB.

India has seen a number of big-ticket pharma deals in recent years. In June 2008, Japanese drug maker Daiichi Sankyo Co. Ltd acquired New Delhi-based Ranbaxy Laboratories Ltd for nearly $5 billion (around Rs.27,750 crore today).  Two years later, US-based Abbott Laboratories bought the healthcare solutions business of Piramal Healthcare Ltd for $3.72 billion.

A panel set up under the chairmanship of Planning Commission member Arun Maira at the behest of the cabinet committee on economic affairs suggested status quo in the FDI policy for the sector while recommending oversight by the Competition Commission of India (CCI) on pricing and competition issues.

That recommendation was opposed by both DIPP and the health ministry. Finally, a meeting called by Prime Minister Manmohan Singh in October last year to resolve differences decided that while 100% FDI in greenfield investments through the automatic route will continue to be allowed, brownfield investments in Indian pharma companies will be routed through FIPB for six months (from October) and that CCI will then take over the job. However, it was not clarified whether all FDI in brownfield investments need to go through FIPB.

DIPP held that this suggests all such investments in Indian pharma companies need to be routed through FIPB, while the finance ministry suggested that only the cases in which ownership of an Indian company passes into foreign hands should be referred to the body.

After DIPP stalled the clearance of pharma FDI proposals in FIPB, the finance ministry formed an inter-ministerial group under additional secretary in the finance ministry Shaktikanta Das. While the group decided last month that investments resulting in an equity holding higher than 49% in an Indian pharma company will have to seek FIPB approval, the group asked DIPP to decide on a cap, in terms of size of the company in which the investment is being made, above which FIPB approval would be required.

The group also agreed to impose conditions on the continued production and sale of essential medicines by the companies in which the investments are made and placed a similar condition on research and development spending.

D.G. Shah, secretary general of the Indian Pharmaceutical Alliance (IPA) lobby group, said if government regards pharma as a sensitive sector like banking, insurance and aviation, then it should be treated on par with them and all foreign investments should be routed through FIPB, a stand taken by DIPP as well.

Shah said the cases should not be hastened through the FIPB before DIPP makes the guidelines. “As far as I understand, the guidelines could not be cleared by the DIPP because commerce and industry minister Anand Sharma was travelling,” he added.

DIPP officials could not be reached for comment.

Source : livemint.com