The government will take up on Monday the issue of tightening foreign direct investment (FDI) in existing pharmaceutical companies in the wake of concerns over multinationals taking over domestic drug makers.

“The Cabinet will review the FDI policy in the pharmaceutical sector on Monday,” an official said.

The Department of Industrial Policy and Promotion (DIPP) has proposed to reduce the FDI cap from 100 per cent to 49 per cent in the “rare or critical pharma verticals.”

It has also proposed to incorporate conditions for foreign firms like mandatory investment in R&D and non-compete clause in the shareholders pact.

As per the proposal, sources said, the foreign company would not be allowed to close down the existing R&D centre, and would have to mandatorily invest up to 25 per cent of FDI in the new unit or in the R&D facility. The total investment, as per the condition proposed, would have to be incurred within three years of the acquisition.

Sources said that there was a feeling in the government circle that with MNCs taking control of domestic firms, there could be reduction in supply of vaccines, injectables, particularly for cancer and active pharmaceutical ingredients.

“MNCs, which are acquiring domestic firms, have spent less than one per cent of their total sales in R&D in India. They are doing only clinical trials in India and not actual drug development work,” another source said.

Global firms are accusing India that its pharma policy is not in compliance with the international standards.

At present, the government permits 100 per cent FDI in the pharma sector through the automatic approval route in new projects but foreign investment in existing pharma companies are allowed only through FIPB nod.