FDI in brownfield pharma projects - Critical analysis

Arvind Sharma, Partner, Shardul Amarchand Mangaldas & Co informs that the extant regulatory regime for FDI in brownfield projects follows a balanced approach as it safeguards supplies for domestic consumption and ensures foreign investments as well as technological advancement for the pharma sector

- Arvind Sharma

The COVID-19 crisis has bought the pharma sector back to the limelight, and foreign investors are seeing India as a viable option for investments and setting up and developing their manufacturing bases. To capitalise on this opportunity amid an increased focus on healthcare, it is important to ensure that the regulatory environment in India is conducive and aligned with global standards and practices.

Foreign Direct Investment (FDI) may either be in a:

a) Greenfield project - where 100 per cent FDI is permitted without any prior approval from the Government of India (GOI); or

b) Brownfield project - where up to 100 per cent FDI is permitted, with prior approval from the GOI for FDI exceeding 74 per cent.

To ensure that there is an adequate supply of pharma products for domestic consumption, and with a view to increase research and development (R&D) in the pharma sector, the extant FDI laws mandate the following requirements to be fulfilled for FDI in brownfield pharma projects under the automatic and approval route:

(a) Maintaining the production level of essential medicines, drugs, consumables and their supply to the domestic market at an absolute quantity level;

(b) Maintaining research and development expenses in value terms for five years at an absolute quantity level, and

(c) Providing complete information relating to the transfer of technology to the concerned ministry.