FDI in Pharma opened doors for Indian companies

The Pharma sector allows FDI upto 100% as per the current FDI Policy. For greenfield projects it is allowed under Automatic route & for brownfield projects it requires prior permission. 

Both Greenfield & Brownfield projects relate to property construction, however the difference lies in the kind of property the construction is located on. A Greenfield project is when construction is done on a new or untouched land. However, Brownfield project is when construction is done on redeveloped or retouched land.

In the past, we have seen many acquisitions in Pharma sector. One of the issue involved in such acquisitions was the non-compete clause in the acquisition agreement, which prevent the owners of Indian target(or taken over) company to re-establish its business in the same sector. This used to be a stumbling block in the growth of pharma sector.

By way of Press Note 1 (2014) issued on 8th January, 14 the Govt. has stipulated that "non-compete" clauses will not be allowed except in special circumstances with the approval of Foreign Investment Promotion Board (FIPB). Therefore, Indian companies who divest their stake 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 in specific cases to include the non-compete clauses does exist but there are no specific guidelines issued for the exercise of discretion which will be done on case to case basis.

This article has been share by Himanshi Baluni. She can be reached at cshimanshi@gmail.com