Press Note No.3 (2011 Series) - Review of the policy on Foreign Direct Investment in pharmaceuticals sector

Note No.3 (2011 Series), dated 8-11-2011

1. Present Position:

Foreign Direct Investment (FDI), up to 100%, under the automatic route, is permitted in the pharmaceuticals sector.

2. Revised Position:

The Government of India has reviewed the extant policy on FDI and decided as under:

(i) FDI, up to 100%, under the automatic route, would continue to be permitted for greenfield investments in the pharmaceuticals sector.

(ii) FDI, up to 100%, would be permitted for brownfield investments (i.e., investments in existing companies), in the pharmaceuticals sector, under the Government approval route.

3. Accordingly, the following amendment is made in 'Circular 2 of 2011- Consolidated FDI Policy', dated 30-9-2011, issued by the Department of Industrial Policy & Promotion:

Insertion of a new paragraph 6.2.25:

A new paragraph (6.2.25) is inserted as below :

6.2.25	Pharmaceuticals
6.2.25.1	Greenfield	100%	Automatic
6.2.25.2	Existing companies	100%	Government

4. The above decision will take immediate effect. It would be reviewed after a period of six months.

Press Release on Consolidated FDI policy

Corrigendum to Circular 2 Of 2011 - Consolidated FDI Policy

Circular 2 of 2011 was issued on 30th September, 2011. Para NO.3.3.2.1 of the above Circular hereby stands deleted. Erstwhile paragraph 3.3.2.1 of ‘Circular 2 of 2011’ went like this:

“ 3.3.2.1: Only equity shares, fully, compulsorily and mandatorily convertible debentures and fully, compulsorily and mandatorily convertible preference shares, with no in-built options of any type, would qualify as eligible instruments for FDI. Equity instruments issued/transferred to non-residents having in-built options or supported by options sold by third parties would lose their equity character and such instruments would have to comply with the extant ECB guidelines.”

This paragraph now stands deleted from ‘Circular 2 of 2011’.

The Circular duly corrected is available at http://www.dipp.nic.in/.

Consolidated FDI Policy effective from October 1, 2011

Consolidated FDI Policy effective from October 1, 2011.

Press Release on FDI Circular 2 Of 2011

PRESS RELEASE

The consolidated FDI policy document is a single reference point for investors and regulators. The first such consolidation was released in March, 2010 after which it has been updated every six months. This‘Circular 2 of 2011’-is the fourth edition of the consolidated policy document.

2. The significant changes introduced in this edition of the Circular are:

(i) Exemption of construction-development activities in the education sector and in old-age homes, from the general conditionalities in the construction-development sector:

FDI into construction development activities in the education sector and in respect of old-age homes has been exempted from the conditionalities imposed on FDI in the construction development sector in general i.e. minimum area and built-up area requirement; minimum capitalization requirement; and lock-in period. These conditionalities perhaps posed a constraint to FDI coming into these areas since educational institutions like schools, colleges, universities etc. as well as old-age homes have their own special requirements which do not necessarily fit these conditionalities. This step should augment the educational infrastructure in the country and bring it up to global standards. Similarly, with growing urbanisation, there is an increasing demand for old-age homes to cater to the needs of senior citizens. The physical infrastructure in this area also is short of the requirements. Hence, it has also been decided to exempt old-age homes also from the general conditionalities applicable to the construction development sector.

(ii) Inclusion of ‘apiculture’, under controlled conditions, under the agricultural activities permitted for FDI:

FDI has been allowed upto 100% under the automatic route in apiculture under controlled conditions. Apiculture is an important agro-based industry and has the potential of bringing in high economic returns with comparatively low levels of investment. Being a decentralized activity, it does not bring pressure on land and can flourish as a household activity in villages. The activity has the potential of large scale income generation with some infusion of capital and technology. This liberalization would not only provide the desired thrust to the sector but would also bring in international best practices to upgrade the product and the methods of production.

(iii) Inclusion of ‘basic and applied R&D on bio-technology pharmaceutical sciences/life sciences’, as an ‘industrial activity’, under industrial parks:

FDI, up to 100%, under the automatic route, is permitted in existing and new industrial parks. Under the existing regime, industrial parks cover specified sectors.The coverage has been expanded to specifically include research and development in bio-technology, pharmaceutical and life sciences, given the urgent need to augment research and development infrastructure in these areas as also expand the production facilities.

(iv) Notification of the revised limit of 26% for foreign investment in Terrestrial Broadcasting/ FM radio:

The foreign investment limit for FM radio has been enhanced to 26% from the earlier 20%. This change ensures conformity of the foreign investment limit in this sector with other similar activities in the Information & Broadcasting sector.

(v) Liberalisation of conversion of imported capital goods/machinery and pre-operative/pre-incorporation expenses to equity instruments:

Conversion of imported capital goods/machinery and pre-operative/pre-incorporation expenses to equity instruments had been permitted in the last Circular on FDI policy, effective 1 April, 2011. It was stipulated that such conversions must be made within a period of 180 days of the date of shipment of capital goods/machinery or retention of advance against equity and that payments made through third parties would not be allowed. This conveyed the sense that the onus of conversion is on the investor with no allowance for the FIPB process involved. This has been clarified through the present amendment, under which the time limit for making applications for such conversions will be 180 days. Further, payments for pre-operative/incorporation expenses can now be made directly by the foreign investor to the company or through a bank account, opened by the foreign investor, as provided under the FEMA regulations.

(vi) Introduction of provisions on ‘pledging of shares’ and opening of non-interest bearing escrow accounts, subject to specified conditions:

The policy has been amended to provide for pledge of shares of an Indian company which has raised external commercial borrowings, or that of its associate resident companies for the purpose of securing the ECB raised by the borrowing company, subject to conditions. The policy also now provides for opening and maintaining AD Category – I banks without the prior approval of RBI, non-interest bearing Escrow accounts in Indian Rupees in India, on behalf of non-residents, towards payment of share purchase consideration and/or for keeping securities to facilitate FDI transactions, subject to the terms and conditions specified by RBI. This will streamline the process for bringing in FDI and provide the investors with options.

3. The sectoral section of the policy has been re-arranged, to provide for grouping of services under ‘financial services’, ‘other services’ and ‘information services’. The Circular has also been re-organised, with a view to grouping of similar subjects under common chapters. This is expected to significantly rationalise the organisation of the material in the Circular and further facilitate comprehension and readability.

Consolidated FDI policy

DIPP has issued a consolidated FDI policy vide CIRCULAR 1 OF 2010 dated March 31, 2010.

This circular consolidates into one document all the prior policies/regulations on FDI which are contained in FEMA, 1999, RBI Regulations under FEMA, 1999 and Press Notes/Press Releases/Clarifications issued by DIPP and reflects the current ‘policy framework’ on FDI. It is clarified that this is a consolidation/compilation and comprehensive listing of most matters on FDI and is not intended to make changes in the extant regulations. This Consolidation deals comprehensively with all aspects of FDI Policy which are covered under the various Press Notes/Press Releases/ Clarifications issued by DIPP.

It has been decided that from now onwards a consolidated circular would be issued every six months to update the FDI policy. This consolidated circular will, therefore, be superseded by a circular to be issued on September 30, 2010.

Click here for the text of the circular.

Consolidated FDI policy and FDI Framework

Ministry of Commerce and Industry, has released the first draft consolidation of all the aspects of FDI Policy and FDI Framework.

Such consolidation would ensure the availability of all information on FDI policy at one place, and is expected to lead to: simplification of the policy; greater clarity of understanding of foreign investment rules among foreign investors and sectoral regulators, as also predictability of policy and added that having a single policy platform would also ease the regulatory burden for Government.

The document released today would be open for comments until the 31st of January, 2010 and all comments received until that date will be considered before the final document is prepared. The final document would be released on 31st March / 1st April, 2010. As a novel measure, this Press Note/ Government Order would have a sunset clause of six months. This would imply that the work of reviewing this Press Note/Government Order would need to be undertaken every six months, so that FDI policy is continuously reviewed.

Click the title for the first draft of the FDI Regulatory Framework.

Clarification on FDI into a SSI/MSE and in Industrial Undertaking manufacturing items reserved for SSII MSE

Clarification on Foreign Direct Investment (FDI) into a Small Scale Industrial Undertaking (SSI)/Micro & Small Enterprises (MSE) and in Industrial Undertaking manufacturing items reserved for SSII MSE

Press Note No. 6 (2009), dated 4-9-2009

1.0 FDI into SSIIMSE

1.1 A Small Scale industrial undertaking (SSI) was defined in terms of: (i) investment in fixed assets in plant and machinery and (ii) equity participation (both domestic and foreign) in the SSI, by other industrial undertakings prior to 2006.

1.2 Vide Press Note 18 (1997), it was further notified that, for cases of foreign collaborations, since the maximum equity participation allowed for in small scale units was 24%, proposals for induction of foreign equity more than 24% would be subject to the condition that: (i) the company would get itself de-registered as a small scale unit and (ii) obtain industrial licence or file Industrial Entrepreneur Memorandum with SIA, as per prescribed policy and procedure.

1.3 With the promulgation of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, the ceiling for equity participation (both domestic and foreign) in the micro and small enterprises, by other enterprises, was removed and Micro and Small Enterprises (MSE) (earlier small scale industries) were defined solely on the basis of investment in plant & machinery (for micro and small enterprise engaged in manufacturing) and equipment (for micro and small enterprise engaged in providing or rendering of services). Accordingly, this change was notified by Notification No. S.O. 563(E) dated 27^th February 2009 of Department of Industrial Policy & Promotion, Ministry of Commerce & Industry.

1.4 Thus the present policy on FDI in MSE permits FDI subject only to the sectoral equity caps, entry routes and other relevant sectoral regulations.

1.5 Press Note 18 (1997 series) stands modified to the above extent.

2.0 FDI in Industrial Undertaking manufacturing items reserved for SSIIMSE

2.1 Vide Press Note 14 (1997), it was notified that Industrial Undertakings manufacturing items reserved for small scale sector were not eligible for automatic approval for induction of foreign investment.

2.2 Accordingly, the FDI policy notified vide Press Note 2 (2000) prescribed prior approval of Government where foreign investment was more than 24% in the equity capital of units manufacturing items reserved for small scale industries. This was reiterated in the Annex to Press Note 4 (2006) and at Para III (ii) of Annex to Press Note 7 (2008).

2.3 Thus, any industrial undertaking, with or without FDI, which is not a MSE, manufacturing items reserved for manufacture in the MSE sector (presently 21 items) as per the Industrial Policy, would require an Industrial License under the Industries (Development & Regulation) Act, 1951, for such manufacture. The issue of the Industrial Licence will be subject to a few general conditions and the specific condition that the undertaking shall undertake to 'export a minimum of 50% of the new or additional annual production of the MSE reserved items to be achieved within a maximum period of three years. The export obligation would be applicable from the date of commencement of commercial production'.

Such an industrial undertaking would also require prior approval of the Government (FIPB) where foreign investment is more than 24% in the equity capital.