No non-compete clause in acquisition of existing pharma companies: RBI

The non-compete clause will not be applicable in acquisition of existing pharma companies by foreign entities or investors except in certain special cases with the approval of the Foreign Investment Promotion Board (FIPB), the Reserve Bank of India (RBI) said in a notification. Under a non-compete clause, a party cannot enter into a similar trade in competition against another party as part of a deal. The RBI’s notification follows revision of the existing FDI policy for pharmaceutical industry by the government in January' 2014. At present, India permits 100 percent FDI in pharmaceutical sector through automatic approval route in the new projects but in case of brownfield or existing projects, foreign investments are allowed only through FIPB's approval. Presently, several global pharma companies are looking to buy stake in existing Indian firms on the back of their strong growth prospect in future. Foreign direct investment (FDI) in the pharma sector has more than doubled to $1.26 billion during April-December’ 2014 as comparison to $589 million in the April-December period of 2012-13 amid increasing acquisitions of domestic firms by multinationals. Around 90 percent of the total FDI in the sector has come into brownfield pharma. However, low FDI in new pharma project has become a cause of concern for the government.