Technology transfer is not mandatory for FDI in Pharma

An inter-ministerial group set up to resolve issues on FDI cap in Pharma sector for brownfield investment has taken a decision to remove the condition of mandatory transfer of technology by the foreign investor to the target company. Brownfield investment means investment into an existing company. The group has however imposed following conditions: 1.     The level of generic medicines produced for domestic use (other than for exports) after FDI should not fall below the average level for the last five financial years preceding the induction of FDI  or the period since the date of commencement of production by the company. The word level will be deemed to mean the percentage of the total turnover of the pharma company and the total quantity of production of generic medicines; 2.      That the level of investment in research for “diseases relevant to India” expressed as a percentage of the total cost of production shall, after induction of FDI, increase by at least five percentage points over the average level for the last five financial years preceding the induction of FDI or the period since the commencement of production by the company. The condition has to be met within a period of three years of the induction of FDI.

It is pertinent to recollect that this inter-ministerial group was formed as there was inordinate delay in clearing of FDI proposal. Such delay was mainly attributed to the differences between health ministry and other departments. While health ministry wanted a strict policy, other departments recommended for a liberal regime. This difference caused delay in investment from major pharma companies such as Akorn Inc (the US), Chemo Espana (Spain) and Global Par Pharma (the US).

The group also agreed that instead of using the term generic the phrase “national list of essential medicines", which could be modified from time to time, should be used. The group further requires the health ministry to come out with some classification specifying diseases relevant to India.

RBI Allows Exporters to Receive Advance Amount Beyond One Year

In a recent Circular Issued by RBI, it has permitted the AD Category- I banks to allow exporters to receive advance payment for export of goods which would take more than one year to manufacture and ship and where the ‘export agreement’ provides for shipment of goods extending beyond the period of one year from the date of receipt of advance payment subject to the flowing conditions:

1. the KYC and due diligence exercise has been done by the AD Category –I bank for the overseas buyer;
2. compliance with the Anti Money Laundering standards has been ensured;
3. the AD Category-I bank should ensure that export advance received by the exporter should be utilized to execute export and not for any other purpose i.e., the transaction is a bona-fide transaction;
4. progress payment, if any, should be received directly from the overseas buyer strictly in terms of the contract;
5. the rate of interest, if any, payable on the advance payment shall not exceed London Inter-Bank Offered Rate (LIBOR) + 100 basis points;
6. there should be no instance of refund exceeding 10% of the advance payment received in the last three years;
7. the documents covering the shipment should be routed through the same authorised dealer bank; and
8. in the event of the exporter's inability to make the shipment, partly or fully, no remittance towards refund of unutilized portion of advance payment or towards payment of interest should be made without the prior approval of the Reserve Bank

This would ease the financial burden of the manufacturers in such a way that they can receive the advance amount from the foreign importer well in advance and adjust the manufacture of the goods accordingly. Necessary amendments will be made to the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000.

Union Budget and its impact on Foreign Exchange Laws of India

Following are some of the highlights of the Union Budget of India, 2012-13 which will have an impact on the foreign exchange laws of India.

1. Efforts to arrive at a broad-based consensus in consultation with the State Governments in respect of decision to allow FDI in multi-brand retail up to 51 per cent.
2. External Commercial Borrowings (ECB) to be allowed to part finance Rupee debt of existing power projects.
3. ECB proposed to be allowed for capital expenditure on the maintenance and operations of toll systems for roads and highways, if they are part of original project.
4. ECB to be permitted for working capital requirement of airline industry for a period of one year, subject to a total ceiling of US $ 1 billion.
5. Proposal to allow foreign airlines to participate up to 49 per cent in the equity of an air transport undertaking under active consideration of the government.
6. Various proposals to address the shortage of housing for low income groups in major cities and towns including allowing ECB for low cost housing projects and setting up of a credit guarantee trust fund etc.
7. To provide low cost funds to stressed infrastructure sectors, rate of withholding tax on interest payment on ECBs proposed to be reduced from 20 per cent to 5 per cent for 3 years for certain sectors.
8. Proposal to continue to allow repatriation of dividends from foreign subsidiaries of Indian companies at a lower tax rate of 15 per cent up to 31.3.2013.