NEW DELHI: The government has cleared four foreign direct investment proposals in pharmaceutical space, dispelling fears that the recent change in rules will effectively kill foreign investments in the sector.
The government had shifted all stake acquisitions into Indian pharmaceutical companies to the approval route from the automatic route after a spate of high-profile sellouts of local companies to multinationals raised fears of mass takeover of Indian companies.
This led to a growing apprehension that government scrutiny of deals will slow down investments in the pharma sector. "The FIPB has cleared four proposals. There is no delay," a finance ministry official told ET, refuting any such misgivings.
The Foreign Investment Promotion Board (FIPB) examines FDI proposals that are on the approval route, but in the case of pharmaceutical sector, after a six-month window, all deals will be scrutinised by the Competition Commission of India.
The proposals cleared by the FIPB were all submitted after the change in FDI policy were notified. Most of the deals cleared by the FIPB are small-value transactions. Experts say the real test of the policy will be put to test when some bigticket acquisition happens.
"The government is internally debating on what the policy should be...in the interim, it is clearing proposals on merit, but the real test would be when a big-ticket deal proposal lands," said Hitesh Sharma, pharma head of Ernst & Young.
"So long as FDI in pharma sector is approved by FIPB in accordance with the well-laid out objective and transparent criteria and within reasonable time frames, this is a positive development," said Punit Shah , executive director, tax & regulatory services (financial services), KPMG.
For instance, Daiichi Sankyo's acquisition of Ranbaxy Laboratories in June 2008 had created an impression that big pharma was looking at the extremely competitive Indian manufacturers.
In the very next month, Sanofi acquired Shanta Biotech, which further raised fears that the big buyouts will make drugs expensive.
After debating over the idea of limiting foreign direct investment in pharmaceuticals, the government decided to continue with the 100% limit, but subject them to oversight to ensure that the deals do not jeopardise the cause of cheaper medicine.
The four proposals that were cleared relate to acquisition of stakes in Aptuit Laurus Pvt Ltd, Edict Pharma Pvt Ltd, Pharmaceuticals Ingredients and Formulations India Pvt Ltd.
In the case of Aptuit, the Indian entity has sought the board's approval to transfer equity from Aptuit Asia to FIL Mauritius forRs 47.95 crore.
Edict Pharma has sought the board's aproval to transfer 100% equity to Par Pharma, US, for Rs 81.48 crore and Pharmaceutical Ingredients and Formulations India Pvt Ltd for transfer to Levomed Inc US. Softgel's proposal was, however, deferred to seek comments from ministries.
Source : economictimes.indiatimes.com