The government today allowed up to 74 per cent foreign direct investment in the existing pharmaceutical companies through automatic route, with an aim to promote the sector.
Earlier, 100 per cent FDI was permitted through government approval route.
"With the objective of promoting the development of this (pharmaceutical) sector, it has been decided to permit up to 74 per cent FDI under automatic route in brownfield pharmaceuticals and government approval route beyond 74 per cent will continue," an official statement said.
The decision was taken at a meeting chaired by Prime Minister Narendra Modi.
Under the existing policy on the sector, 100 per cent FDI is allowed under automatic route in greenfield pharma and up to 100 per cent under government approval in brownfield pharma.
However, FDI in brownfield projects has been a contentious issue as concerns have been raised over some M&As of Indian pharma companies by foreign giants.
Some analysts stated that such activities were impacting accessibility and growth of the generic industry in the country.
India is recognised as a major generic medicine hub of the world. The market size of the country's pharma industry is estimated at over USD 20 billion.
In 2008, Japanese firm Daiichi Sankyo had bought out the country's largest drug maker Ranbaxy for USD 4.6 billion.
US-based Abbot Laboratories had acquired Piramal Health Care's domestic business for USD 3.7 billion.
Another US company Mylan bought Matrix Lab while Dabur Pharma was acquired by Singapore's Fresenius. France's Sanofi Aventis purchased Shanta Biotech and certain assets of Orchid Chemicals were acquired by the US-based Hospira.
As per estimates, over 96 per cent of the total FDI in the sector between April 2012 and April 2013 flowed into brownfield pharma companies.
(REOPENS DCM 53)
Commenting on the development, Biocon Chairperson and Managing Director Kiran Mazumdar-Shaw tweeted: "Automatic approval route for FDI in Pharma is a welcome n long awaited policy announcement for a sector that is highly capital intensive."
Devraj Singh, Executive Director, Tax & Regulatory Services, EY, said the FDI Policy change will definitely reduce the timeline for the cross-border mergers and acquisitions in pharmaceuticals sector which will lead to more funds coming into India in this sector.
