Discusses the legal requirements/options for joint venture/licensing in this market.
Last Published: 10/10/2018

This type of arrangement is quite common because India encourages foreign collaboration to facilitate capital investments, import of capital goods, and transfer of technology. However, India is a market that requires a careful approach because mistakes can be quite costly. Once a decision to go with a joint venture partner is made, it is important to keep in mind the following: define each partner's roles and expectations; experience is a key ingredient; there is no substitute for thorough research and due diligence; and consider the long term.

There are two channels for joint ventures entering India: the automatic route and the government route. The automatic route does not require the venture to seek overall approval from the central government or the Reserve Bank of India (RBI). The venture company is expected to notify the RBI of its investment using the Foreign Collaboration - General Permission Route (FC-GPR) form within 30 days of inward receipts and issuance of shares. The government route, as the name implies, requires an approval from the central government.

The title "automatic route" is nonetheless a misnomer since investments in most sectors still require some amount of interaction with the government at both the state and national levels. The approving entity varies depending on the applicant and the product.

The Ministry of Commerce and Industry’s (MOCI) Department of Industrial Policy and Promotion (DIPP) oversees single-brand product retailing investment proposals as well as proposals made by Non-Resident Indians (NRIs) and Overseas Corporate Bodies (OCBs). An NRI is an Indian citizen who has resided overseas for six months or more for any purpose. An OCB is a company, partnership, firm, or other corporate entity that is at least 60 percent owned, directly or indirectly, by NRIs, including overseas trusts.

The MOCI’s Department of Commerce oversees proposals from export-oriented units (i.e., industrial companies that intend to export their entire production of goods and services from India abroad).

In 2017, the Indian government abolished the Ministry of Finance’s Foreign Investment Promotion Board (FIPB) and announced relevant ministries will now determine approvals for sensitive investments in the 11 sectors that previously required FIPB clearance.

For Sector-Specific Guidelines for foreign direct investment, please see the Investment Climate Statement.

For NRI investment and for investment in the retail sector, applications need to be submitted to Secretariat of Industrial Assistance (SIA) within the DIPP in the Ministry of Commerce and Industry. It provides a single window for entrepreneurial assistance, investor facilitation, processing of all applications that require government approval, assisting entrepreneurs and investors in setting up projects (including liaison with other organizations and state governments) and monitoring the implementation of projects. The timeline for approval of applications that meet all the required criteria is usually one month.

All new investments require several industrial approvals and clearances from different authorities such as the Pollution Control Board, Chief Inspector of Factories, Electricity Board, and Municipal Corporation (locally elected entities). In December 2014, the new government approved the formation of an Inter-Ministerial Committee led by the DIPP to fast track investment proposals from the United States. Business chambers and sources within the government have reported that the Inter-Ministerial Committee has been meeting informally as they receive reports from business chambers and affected companies of stalled projects.

100 percent FDI is allowed in most categories of manufacturing. The 2011 National Manufacturing Policy (NMP) provides the framework for India’s local manufacturing requirements in the Information and Communications Technology (ICT) and clean energy sectors.

Indian FDI policy is governed by the Foreign Exchange Management Act of 1999 and the RBI. Details on current caps and procedures are available at: http://www.dipp.nic.in/foreign-direct-investment/foreign-direct-investment-policy

The GOI prioritizes investment applications in certain industries and projects. Some examples include infrastructure, projects with export potential, projects with large employment potential, particularly in rural areas; items which have direct or indirect links with the agricultural sector; socially relevant projects such as hospitals and life-saving drugs; and projects which induct new technology or infuse capital. If the U.S. investor has a comprehensive proposal, provided details, and the investment meets India's industrial development goals, approval can be granted in as little as three weeks.

In 2016 the Indian government changed FDI rules for the pharmaceutical sector. While continuing with 100 percent FDI in the pharmaceutical sector, the government allowed foreign investment up to 74 percent equity in domestic pharmaceutical companies through the automatic route. Investors can raise their stake up to 100 percent with government approval. Previously, the policy allowed 100 percent FDI under the automatic route in new pharmaceutical projects and up to 100 per cent FDI under government approval in existing pharmaceutical companies. One of the perceptions is that large foreign pharmaceutical companies may try to acquire existing companies and then change the products it makes to branded or patented generics. This is viewed in socio-economic terms as a grave concern for India’s poorer population which needs access to affordable medicines.

Some industries are reserved exclusively for the public sector are not available for private investment unless a specific approval is obtained, like Atomic energy and railway operations (with exceptions).

For more details please refer to the GOI Ministry of Commerce and Industry’s FDI policy, which can be found online at http://dipp.nic.in/foreign-direct-investment/foreign-direct-investment-policy

Five industries are subject to compulsory licensing in India. The need for licensing is attributed to safety, environmental, and defense related considerations. The licensing authority in these cases is the Ministry of Industrial Development and the industries are: distillation and brewing of alcoholic drinks, cigars and cigarettes of tobacco and manufactured tobacco substitutes, electronic aerospace and defense equipment of all types, industrial explosives including detonating and safety fuses, gun powder, nitrocellulose and matches and specified hazardous chemicals.

In March 2012, the Controller General of Patents granted a generic drug manufacturer the right to make and sell generic copy of a Bayer patented cancer drug, citing that Bayer not only charged a price that was unaffordable to most Indians but also did not supply enough doses of the medication to make it available to patients in India. This case was the first compulsory licensing of a patented drug in India.

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India Trade Development and Promotion