INTRODUCTION
Over
the years, India has been a center point for manufacturing and supply of
affordable generic medicines across the world and has witnessed a steady flow
of foreign direct investment (FDI) in this sector. Foreign
investors looking to invest in India often consider Brownfield Pharmaceutical
by tapping the M&A route.
However,
FDI in this sector stood at $266 million for the period, a huge dip from $1,010
million in the corresponding period of the previous year, data recently
released by the Department for Promotion of Industry and Internal Trade showed.
Medical devices too reported an FDI dip to $66 million in the year ended
December 2018, compared to $439 million in 2016.
But
owing to the crisis put forth by Covid19 pandemic pharma sector has gained much
of the global attention, with many global players opting to move operations out
of China, and therefore India offers to be a strong alternative contender.
India has a distinct advantage in this area and the Indian government is also
pushing for reforms and rolling out the red carpet for businesses looking to
invest in India.
Let
us now understand how FDI in Indian Pharma sector takes place.
FDI Policy
According
to present FDI Policy, the FDI in Pharmaceutical sector makes a distinction
between greenfield and brownfield investment.
Greenfield Pharmaceuticals
Greenfield investment means the
investment in new plants. It implies establishing new production capacity by an
investor, and requires availing of industry licences etc.
FDI in Greenfield Pharmaceuticals is
allowed under 100% Automatic Route, which implies that no government approval
is required for making the investment.
Brownfield Pharmaceuticals
Brownfield investment refers to investment
in an existing plant. Brownfield investment is usually made through M&A.
Brownfield investment saves the initial time and cost to start-up a project
because essential infrastructure (such as production facility, capital
equipment, local labour and local approvals, etc.) already exists, and is a
relatively quicker and cheaper alternative to a greenfield project.
FDI in Brownfield Pharmaceuticals is
permitted for up to 74% under the automatic route. However, investments above
74% are made under the approval route, for which the government approval is
required.
The competent authority for grant of
approval for FDI in the Pharmaceuticals sector is the Department of
Pharmaceuticals.
Medical Devices
FDI up to 100%, under the automatic
route is permitted for manufacturing of medical devices. This is applicable to
greenfield as well as brownfield projects.
Definition of Medical Devices:
Medical device means-
(a.) any instrument, apparatus,
appliance, implant, material or other article, whether used alone or in
combination, including the software, intended by its manufacturer to be used
specially for human beings or animals for one or more of the specific purposes
of-
-
diagnosis, prevention, monitoring, treatment or alleviation
of any disease or disorder;
- diagnosis, monitoring, treatment, alleviation of, or
assistance for, any injury or handicap;
- investigation, replacement or modification or support of the
anatomy or of a physiological process;
- supporting or sustaining life;
- disinfection of medical devices;
- control of conception, and which does not achieve its
primary intended action in or on the human body or animals by any
pharmacological or immunological or metabolic means, but which may be assisted
in its intended function by such means;
(b) an accessory to such an
instrument, apparatus, appliance, material or other article;c. a device which
is reagent, reagent product, calibrator, control material, kit, instrument,
apparatus, equipment or system whether used alone or in combination thereof
intended to be used for examination and providing information for medical or
diagnostic purposes by means of in vitro examination of specimens derived from
the human body or animals.
(The definition of medical device above would be subject to
the amendment in Drugs and Cosmetics Act)
OTHER IMPORTANT CONDITIONS
Following are the conditions that
are applicable to both, greenfield and brownfield FDI:
(i) ‘Non-compete’ clause would not
be allowed under both automatic and government approval routes, except in
special circumstances and that too only with the approval of the Government.
(ii) The prospective investor and
the prospective investee are required to provide a certificate along with the
application for foreign investment as per Annexure-10.
(iii) Government may incorporate
appropriate conditions for FDI in brownfield cases, at the time of granting
approval.
Furthermore FDI in brownfield pharmaceuticals (under both
automatic and government approval route), is further subject to the compliance
of following conditions:
- The production and supply level of certain medicines at certain rate to be maintained at the time of induction of FDI, being maintained over the next five years.
- R&D (Research and Development) expenses being maintained in certain value terms for 5 years at the time of induction of FDI.
- The administrative Ministry will be provided complete information pertaining to the transfer of technology, if any, along with induction of FDI into the investee company.
- The administrative Ministry (Ministry of Health and Family Welfare, Department of Pharmaceuticals or any other regulatory Agency/Development as notified by Central Government from time to time), will monitor the compliance of these conditions.
OPPORTUNITIES PRESENTED BY COVID19
As
mentioned earlier, owing to the crisis put forth by Covid19 pandemic, the
Pharma sector has gained much of the global attention lately, with many global
players opting to move operations out of China, and therefore India offers to
be a strong alternative contender. India has a distinct advantage in this area
and the Indian government is also pushing for reforms and rolling out the red
carpet for businesses looking to invest in India.
Now
more than ever, the investment in the sector is likely to gain further
momentum. India has a distinct advantage in this area and the Indian government
is also continuously bringing welcoming reforms for investors desiring to
invest in India. Such investments would also reduce the domestic dependencies
of Indian manufacturers who look over to China for importing APIs (Active
Pharmaceutical Ingredients).
Recently,
the Government of India has recently announced a package of INR 140 billion for
setting up bulk drugs and medical devices parks. Funds allocated herein are to
be utilized for financing common infrastructure facilities and incentivising
domestic production of bulk drugs/ APIs and medical devices, in order to reduce
the dependency on China for import, and further giving a further boost to
pharma manufacturing in India and attracting further investments in the Pharma
sector.
CONCLUSION
India’s FDI policy for investment in
the pharma sector has undergone significant changes in the past decade,
steering the industry to the present scenario. And now owing to the Covid19
crisis, the Pharma sector is in the center of hot global attention, and with
the businesses willing to move out of China, India stands a much prospective
opportunity in the near future in terms of attracting Foreign Direct Investment
in the Pharmaceutical sector.
References:
- Consolidated FDI Policy(Effective from August28, 2017)
- https://corporate.cyrilamarchandblogs.com/2020/06/fdi-in-brownfield-pharma-will-covid-19-be-the-catalyst-for-policy-reform/
-
https://www.fdi.finance/sectors/pharmaceuticals
