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100% FDI Approval for Medical Devices Will Make Indian Company Non-Existent

Dec 31, 2014 | Services and Utilities | Future Market Insights

The Indian government recently approved 100 percent foreign direct investment (FDI) in medical devices through automatic approval route. This move has been received with mixed reactions from domestic medical device manufacturers.

There is little doubt that the news of 100% government approval for FDI in the medical devices sector will indeed affect the Indian health care scenario greatly. According to Future Market Insights (FMI), “Manufacturers in the Indian medical devices industry are increasingly shifting towards importing and trading rather than investing in manufacturing; and with the introduction of this policy, domestic manufacturers might experience a further decline in revenue.

Currently, India imports around 70% of medical devices used in the country. The ‘Make in India’ campaign has resulted in the government relaxing the FDI rules in order to attract investments and drive domestic manufacturing.

However, domestic manufacturers have raised concerns about the misuse of this policy by multinational corporations. According to them, this move could result in large foreign companies exploiting this policy to set up their own local subsidiaries and continue imports. Furthermore, it will make the minority of the domestic manufactures of medical devices an easy bait to pick for large corporations. The Association of Indian Medical Device Industry stated that it welcomes this policy initiated by the government, but urges the government to make sure that FDI is used for local manufacturing and not for trading purposes.

Previously, the government had created fully-owned subsidiaries for importing, stocking, and marketing their products instead of focusing on manufacturing. But, a significant proportion of the medical devices in India are imported from foreign countries.

Foreign Investment was introduced in India in 1991 under the Foreign Exchange Management Act (FEMA). A 2012 survey conducted by UNCTAD projected India as the most important FDI destination after China. The sectors which attracted higher inflows were telecommunication, construction activities, services, and computer software and hardware.                                                               

“The key to ensuring that this policy is beneficial to domestic manufacturers of medical devices is to make manufacturing viable in India, which will allow domestic investors to reap the benefits of this growing market,” stated a lead consultant at FMI.

Presently, the medical devices industry comes under the Drugs and Cosmetics Act, and investments by foreign organizations should also be governed by the same rules.

Even though, the major projected drawback of the 100% FDI government approval policy in medical devices industry might restrain the already struggling domestic manufacturers, there are certain positive aspects to it. India boasts a huge pool of scientists and engineers that possess the potential to transform the medical devices industry. The domestic capital market in India is not able to provide the much required investment in this vertical. India has already achieved a strong position in the pharmaceutical industry, but this has still not reflected in the medical devices industry. The auto approach of this policy will help companies receive faster approval than it was possible previously.

In the coming years, the impact of the policy will be noticeable in both green field and brown field projects. However, some amount of caution exercised by the government on this policy will help put the focus more on the manufacturing sector rather than trading or importing.