Review of the policy on Foreign Direct Investment in Pharmaceutical Sector – carve out for medical devices

The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi, today gave its approval to amend the existing Foreign Direct Investment (FDI) policy in the Pharmaceutical Sector to create carve out for medical devices. As per the extant FDI policy for pharmaceuticals sector, FDI up to 100% is permitted subject to specified conditions. While FDI for green-field projects is under automatic route, brown-field projects are placed under government route. The Policy on the pharmaceutical sector covers `medical devices` since this area is not separately covered. Since medical devices are part of the Drugs & Cosmetics Act, 1940 and fall under the Pharmaceutical sector, all the conditions of the FDI policy on the sector, including the condition relating to `non-compete clause, apply on brownfield investment proposals of medical devices industry. As per National Industrial Classification (NIC) Code 2008, sector code of Manufacture of pharmaceuticals, medicinal chemical, and botanical products is 2100 while sector code of Manufacture of medical and dental instruments and supplies` is 3250. Medical devices will fall under the category of medical and dental instruments and supplies. Therefore, drugs and pharmaceuticals and medical devices are two different industrial activities. The condition of non-compete was imposed so that the Indian manufacturers can continue manufacturing generic drugs and catering to the needs of the large number of people in the country and in other developing countries who cannot afford branded and patented drugs. This condition is not relevant to medical devices industry of the country where the country is substantially import dependent and the sector is adversely impacted because of the lack of adequate capital and required technology. Therefore, the Cabinet approved the following proposal to amend the relevant paragraphs of the extant FDI policy as contained in the Consolidated FDI Policy Circular 2014 as follows: i. FDI up to 100%, under the automatic route is permitted for manufacturing of medical devices. The abovementioned conditions will, therefore, not be applicable to greenfield as well as brownfield projects of this industry. ii. 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- (aa) diagnosis, prevention, monitoring, treatment or alleviation of any disease or disorder; (ab) diagnosis, monitoring, treatment, alleviation of, or assistance for, any injury or handicap; (ac) investigation, replacement or modification or support of the anatomy or of a physiological process; (ad) supporting or sustaining life; (ae) disinfection of medical devices; (af) 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; iii. The definition of medical device at Note (ii) above would be subject to the amendment in Drugs and Cosmetics Act. India has achieved an eminent global position in pharma sector. However, same has not been replicated in the medical devices industry. The country has huge pool of scientists and engineers who have potential to take medical device industry to a very high level. Domestic capital market is not able to provide much needed investment in the sector. Easing of norms for medical devices industry by creating special carve out in the extant FDI policy on pharma sector will encourage FDI inflows in this area.