Press Information Bureau

Government of India

Ministry of Commerce & Industry

07-May-2012 13:9 IST

FDI in Pharma

Comprehensive data with regard to acquisition of Pharma companies by multi-national companies is not maintained by the Ministry of Commerce & Industry. However, FDI equity inflows, of US $ 341.49 million, have been recorded, under the acquisition route, in the drugs and pharmaceuticals sector, between April, 2009 to February, 2012.

The existing policy on Foreign Direct Investment (FDI), in the pharmaceuticals sector, was reviewed, vide Press Note 3 (2011), issued on 8 November, 2011, as under.

(i) FDI, upto 100%, under the automatic route, is permitted for Greenfield investments.

(ii) FDI, up to 100%, under the Government approval route, is permitted for investments in existing companies.

As per extant policy, FDI, up to 100%, under the automatic route, is permitted in exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products and natural gas, marketing of natural gas and petroleum products, petroleum product, pipelines, natural gas/pipelines. LNG Regasification infrastructure, market study and formulation and Petroleum refining in the private sector, subject to the existing sectoral policy and regulatory framework in the oil marketing sector and the policy of the Government on private participation in exploration of oil and the discovered fields of national oil companies.

FDI, up to 49%, under the Government approval route, is permitted in Petroleum refining by the Public Sector Undertakings (PSU), without any disinvestment or dilution of domestic equity in the existing PSUs.

FDI in MSEs ( as defined under Micro, Small and Medium Enterprises Development Act, 2006 (MSMED), Act 2006) is subject to the sectoral caps, entry routes and other relevant sectoral regulations. FDI in any industrial undertaking which is not a Micro or Small Scale Enterprise, but manufactures items reserved for the MSE sector requires approval on the Government route, where foreign investment is more than 24% of the capital. Such an undertaking also requires an industrial Licence under the Industries (Development & Regulation) Act, 1951, for such manufacture. The issue of industrial License, is subject to a few general conditions and the specific condition that the industrial Undertaking shall undertake to export a minimum of 50% of the new or additional annual production of the MSE reserved items to be achieved within a maximum period of three years. The export obligation is applicable from the date of commencement of commercial production and in accordance with the provisions of sector 11 of the Industries (Development & Regulation) Act, 1951.

At present, no proposal for change in the FDI Policy, in these sectors, is under consideration.

Prior to 10.4.2012, investment by registered FIIs under the Portfolio investment Scheme (PIS) and investment under the FDI scheme, was under the Government approval route. The Government, vide its Consolidated FDI Policy Circular, effective from 10.4.2012, has announced liberalization of this policy and mandated the requirement of Government approval only for the FDI component of the investment.

Prior to 10.4.2012, conversion to equity was permitted for import of capital goods machinery/equipment (including second-hand machinery). With a view to incentivizing machinery embodying state-of-the-art technology, compliant with international standards, in terms of being green, clean and energy efficient, second-hand machinery has been excluded from the purview of this provision, in the Consolidated FDI Policy Circular effective from 10.4.2012.

FDI policy is reviewed on an ongoing basis, with a view to making it more investor friendly.

This information was given by the Minister of State for Commerce and Industry, Shri Jyotiraditya M. Scindia in a written reply in the Rajya Sabha today.

DS/GK

Foreign investment policy liberalization allows automatic route for greenfield pharma projects while existing-company investments require government approval. FDI policy permits FDI up to 100% under the automatic route for Greenfield investments and up to 100% under the Government approval route for investments in existing companies in the pharmaceuticals sector. The Consolidated FDI Policy Circular clarified that Government approval is required only for the FDI component of certain combined investments and removed second-hand machinery from the conversion-to-equity concession to incentivize modern, energy-efficient equipment. Sectoral caps, entry routes, and industrial licence conditions with export obligations for MSE-reserved items remain applicable.