he Reserve Bank of India on Friday notified new rules doing away with automatic approval for foreign direct investment (FDI) in existing pharmaceutical companies.

Tightening the norms, the government had last month done away with automatic approval of FDI in the existing pharmaceutical companies.

“FDI, up to 100 per cent, would be permitted for brownfield investment (i.e. investments in existing companies), in the pharmaceutical sector, under the Government approval route,” RBI said in a notification.

Under the new rules, for any merger or acquisition, the overseas investor will have to seek permission from the Foreign Investment Promotion Board (FIPB).

After six months, it will be the monopoly watchdog Competition Commission of India (CCI) which will vet such deals.

The decision follows directions from Prime Minister Manmohan Singh, who along with his senior Cabinet colleagues had deliberated on 10th October over concerns arising out of several acquisitions of domestic pharmaceutical companies by overseas firms.

For the new investment, 100 percent FDI will be allowed under the automatic route, under which investors only inform the Reserve Bank about the inflows and no specific government nod is required.

“FDI, up to 100 per cent, under the automatic route, would continue to be permitted for green field investments in the pharmaceuticals sector,” RBI said.

The filter was suggested by a high-level committee, headed by Planning Commission Member Arun Maira.

Concerns have been raised over the impact of a spate of acquisitions of homegrown firms by multi-national companies.

The recent acquisitions include Ranbaxy Laboratories buy out by Daiichi Sankyo of Japan, Shanta Biotech by Sanofi Aventis of France and Piramal Health Care by Abbott Laboratories of the US.

The affordability factor has so far been the hallmark of the Indian generic drugs all over the world, thanks to robust growth of the homegrown players.

RBI/2011-12/296
A. P. (DIR Series) Circular No.56,

Dated- December 09, 2011

Foreign Investment in Pharmaceuticals Sector – Amendment to the Foreign Direct Investment Scheme

Attention of  Authorised Dealers Category – I (AD Category – I) banks is invited to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time. In terms of Schedule 1 of the Notification ibid, Foreign Direct Investment (FDI) up to 100 per cent is permitted in pharmaceuticals sector under the automatic route of the FDI Scheme.

2. The extant FDI policy for pharmaceuticals sector has since been reviewed and it has now been decided as under:

(i) FDI, up to 100 per cent, under the automatic route, would continue to be permitted for green field investments in the pharmaceuticals sector.

(ii) FDI, up to 100 per cent, would be permitted for brownfield investment (i.e. investments in existing companies), in the pharmaceutical sector, under the Government approval route.

3. A copy of Press Note 3 (2011Series) dated November 8, 2011 issued in this regard is enclosed.

4. AD Category – I banks may bring the contents of the circular to the notice of their customers/constituents concerned.

5. Necessary amendments to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 (Notification No. FEMA 20/2000-RB dated May 3, 2000) are being notified separately.

6. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.

Yours faithfully,

(Rashmi Fauzdar)
Chief General Manager

More Under Fema / RBI

Posted Under

Category : Fema / RBI (3237)
Type : Circulars (7454) Notifications/Circulars (29873)
Tags : fema (526) Fema Notifications (716) RBI Notifications (1845)

Leave a Reply

Your email address will not be published. Required fields are marked *