Sunday, January 12, 2014

FDI in Pharma; Non-Compete

According to the prevailing annual FDI policy notified by the Government in April 2013, foreign direct investment (FDI) in the pharmaceuticals sector is allowed up to 100%. While FDI is allowed in greenfield projects under the automatic route, FDI in brownfield projects requires prior Government permission.

Given the numerous acquisitions of Indian pharma players by multinational companies in recent years and also the concerns relating to affordability of essential drugs and public health, the Department for Industrial Policy and Promotion (DIPP) had floated the idea of reducing the FDI sectoral limit in brownfield projects from 100% to 49%. However, last week, after a review of this proposal the Cabinet decided to retain the 100% FDI limit but imposed some restrictions on non-compete clauses.

By way of Press Note 1 (2014 series) issued on 8 January 2014, the existing sectoral limits on FDI have been retained. In order to assuage wider concerns, the Government has stipulated that “non-compete” clauses will not be allowed except in special circumstances with the approval of the Foreign Investment Promotion Board (FIPB). Therefore, Indian companies or promoters who divest their stakes in domestic pharma companies would be free to establish their own ventures in the same field. Foreign acquirers would not be able to limit the same. While the possibility of applying to the FIPB for specific dispensation to include non-compete clauses does exist, there are no guidelines specified for the exercise of discretion, which will be left to a case-by-case analysis.

1 comment:

Casey said...

It is incredible the way we make law in this country. Minimal application of mind. The restriction was clearly formulated keeping in mind the recent buy-outs of Indian Pharma companies. No one seems to have thought about the various other forms of investments/partnerships that the FDI route can be used for. Which foreign investor is going to put in money if the Promoter can set up a competing business the next day after the investment? One only hopes that the lords sitting in judgement in FIPB meetings have the good sense to understand these not very subtle distinctions.