Mumbai: Medical device manufacturers in India will be able to bring in foreign direct investment (FDI) up to 100% through the automatic route, the Reserve Bank of India (RBI) said on Monday, formalizing a government decision taken in this regard in January.
Until now, the medical devices industry has been considered part of the overall pharmaceutical sector, where 100% FDI is allowed through the automatic route in new projects; however, existing companies can do so only with permission from the Foreign Investment Promotion Board (FIPB), in what is called the approval route. The RBI clarification essentially carves out the devices industry from the pharmaceutical sector for regulatory purposes and opens it for 100% FDI through the automatic route.
In 2014, the government had reviewed the FDI policy for the pharma industry to restrict the 100% automatic approval route only for greenfield or new units and insisting on FIPB approval for existing units. This review was prompted by concerns that 100% foreign investment though automatic route in existing units would lead to increased inbound mergers and acquisitions in the sector, driving pharmaceutical manufacturing to the control of foreign companies.
On 6 January, the government said it will allow 100% FDI for medical devices manufacturing in India. All kinds of medical instruments, diagnostic tools and products, any technology and products including clinical implants were included in the category. It was also proposed that the FDI approval restrictions on the pharmaceutical industry will be removed for medical devices. Monday’s RBI clarification mandates this policy recommendation.
Allowing 100% FDI in the medical devices sector is aimed at promoting local manufacturing of these products, as currently India meets at least 70% of its requirements through imports.
The local industry, however, says automatic approvals may not necessarily result in boosting local manufacturing as many foreign companies may use this rule for setting up their local subsidiaries in the country to import and trade in products.
“The government decision to allow 100% foreign direct investment in the area of medical devices is welcome, but the government should also have the required mechanism to scrutinize the use of such investments to ensure that it actually results in reducing the imports," said G.S.K. Velu, founder and managing director of Trivitron Healthcare, one of India’s top medical devices companies.
In December, local medical devices manufacturers had cautioned against allowing 100% FDI through the automatic route, saying large foreign companies may misuse this provision to set up local subsidiaries and continue imports.
The Association of Indian Medical Device Industry welcomed the proposal, while urging the government to ensure that the FDI is used for local manufacturing, not trading. Citing a previous experiment (since withdrawn) when the government invited US companies to set up such units under 100% FDI, the association said these companies set up fully-owned subsidiaries to import, stock and market their products, instead of manufacturing.