Carve out for medical devices from the Pharma sector, permitting FDI up to 100%

The Department of Industrial Policy & Promotion (DIPP) issued a press note on 6 January 2014. The note announced that the medical devices industry has been carved out from the pharmaceutical sector and that FDI in this segment will now follow the automatic route. Previously, the medical devices sector was under the pharmaceutical category where FDI up to 100% was permitted subject to certain conditions (viz. non-compete clause). On 24 December 2014, the Union Cabinet had approved the amendment of the existing FDI norms to allow 100% FDI in medical devices through the automatic route. This new development comes as a major relief for the cash-starved medical devices sector.

India has achieved an eminent global position in the Pharma sector. But the same cannot be said about the medical devices industry. The medical devices industry is highly dependent on imports with over 70% of the demand being satisfied by such imports. Low or no custom duty also aided imports and failed to encourage domestic manufacturing.

FDI for the Pharma sector in greenfield investments are channeled under the automatic route, and brownfield projects are placed under the government approval route. To regulate the drug manufacturing sector, the pharmaceutical industry was governed by strict norms. Since the medical devices industry was part of the Pharma sector, it was also bound by these norms which hampered its growth.

The medical devices industry felt that it was unfair to club medical devices with drugs as it resulted in operational challenges and delays. According to the revised position, the current FDI policy for the pharmaceutical sector which covers medical devices is amended to carve out medical device as a segment, to allow 100% FDI under the automatic route for both greenfield and brownfield investments in this segment. The change is expected to encourage investments from abroad which will give this industry the much required capital boost. As a result, it will allow the industry to focus on capacity building, product development, technology sharing and establish itself in India. In this era of specialisation, India has achieved a noteworthy position within the machine and drugs segments of the pharmaceutical market. This new change will enable the medical devices industry to reach the status that the other segments of the Indian pharmaceutical industry have achieved.

The amendment will be effective from 21 January 2015.