The new Foreign Direct Investment (FDI) policy 2016 allowing 74 per cent FDI through automatic route in pharmaceutical industry will open up the foreign investments in pharma industry as many foreign companies are looking for an investment in brownfield, says S V Veerramani, President of Indian Drug Manufacturers' Association (IDMA).

The government has permitted 74 per cent of FDI in brownfield or operational firms under automatic route for pharma industry. Earlier the government had allowed 100 per cent FDI in greenfield projects.

Veerramani says, “The government decision is welcome as it will attract huge investments as they have made it in automatic route. There are so many companies in India looking for an expansion and this decision will provide ample opportunities to MNCs interested in brownfield investment. But the concern is that it should not be dominated by MNC.”

Speaking from the export point of view, P V Appaji, director general of Pharmexcil says, “Export has special relevance with FDI. It is a good decision by the government. When the companies export to US and EU, there are many upgradation required. The government decision will help in sharing of these technologies and the overseas investment will also increase. Earlier we  requested the government to allow 100 per cent FDI with respect to export, but we are happy the government has made it to 74 per cent for the pharma industry.”

The advantage of a brown-field investment strategy is that the building is already constructed. The costs of starting up may be greatly reduced and the time required for construction can be avoided as well.

Some of the brownfield acquisitions by foreign firms in recent years include the takeover of Ranbaxy Labs by Daiichi Sankyo (Japan), formulation business of Piramal Healthcare by Abbott Inc (US), Matrix Labs by Mylan (US), Shantha Biotechnics by Sanofi (France), J K Drugs and Pharmaceuticals by Teva (Israel), injectable business of Orchid Chemicals by Hospira (US) and some popular brands of Universal Caps by Sanofi.