The Role and Impact of FDI in Indian Pharmaceutical Sector
All these years, India has been the hub for manufacturing and supplying affordable generic medicines all over the world. FDI in Pharmaceutical Sector of India is permitted 100% under the automatic route regarding greenfield investments in order to attract investment to set up new manufacturing units, research and development, along with technology acquisition.
Regarding brownfield investment, any amount of FDI requires prior approval of the government.
A 20% share in global supply by volume and 62% of supplies of global demand for vaccines is occupied by India. The nation ranks 3rd worldwide in production by volume and 10th by value, hence accounting for over 10% of global production by volume and 1.5% by value.
The country has more than 3,000 pharma companies with a strong network of over 10,500 facilities of manufacturing. The turnover of the domestic pharmaceutical market reached almost USD 20.03 billion in 2019 and up to 9.3% in 2018. It has been growing ever since as the penetration of health insurance and pharmacies is on the rise.
FDI Policy for Pharmaceutical Sector
The investment policy of FDI in Pharmaceutical Sector in India has gone through several key changes in the previous decade.
Before 2011, 100% FDI was allowed for the manufacturing of drugs and pharmaceuticals under the automatic route. Following a sudden increase in the takeover numbers of domestic pharma organisations, there was a concern regarding the availability of vital medicines, research and development. Also, the availability of technology forced the policy of the FDI to be revised in order to distinguish between FDI in greenfield and brownfield investment.
In 2014, the FDI policy was further revised to insert a condition which prohibits non-compete clause agreements among the parties, except in special cases, that would also require government approval. This condition was made applicable to both the FDIs regarding brownfield and greenfield.
Furthermore, in 2016, the Indian government relaxed the FDI policy regarding brownfield pharmaceuticals in order to attract foreign investment in the pharmaceutical sector. Certain conditions were imposed for FDI in brownfield pharmaceuticals, under both the routes, automatic and government approved.
The current policy of FDI regarding greenfield and brownfield investment is explained below-
Regarding Greenfield FDI
FDI in greenfield pharmaceuticals is permitted under the 100% Automatic route, implying that no government approval is needed to make the investment.
Defining Greenfield FDI in Pharma
Greenfield investment refers to investments made by foreign investors in the construction of new facilities of production and operation from the ground up and also requires utilising industry licences, etc.
Regarding Brownfield FDI
FDI in Pharmaceutical Sector regarding brownfield is allowed up to 74% under the automatic route. But, investments above 74% are made under the route of approval for which approval of the government is needed.
Defining Brownfield FDI in Pharma
Brownfield investment refers to investments made in an existing plant. It is preferred over the greenfield investment as it saves time and costs to begin a project as important infrastructure like a production facility, capital equipment, local labour, and local approvals, etc, already exists and is relatively quick and a less expensive alternative to a greenfield project.
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