Discusses the legal requirements/options for joint venture/licensing in this market.
Last Published: 7/27/2017

This type of arrangement is quite common because India encourages foreign collaboration to facilitate capital investments, import of capital goods, and transfer of technology.  That aside, 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 foreign investment entering India: the automatic route and the government route. Investments entering via the automatic route are not required to seek overall approval from the central government or the Reserve Bank of India (RBI). The investor 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 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).
 
On May 24, the Indian Cabinet approved the decision to abolish the Ministry   of   Finance’s   Foreign   Investment   Promotion   Board   (FIPB) and announced relevant ministries will 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 section on Investment Climate.
For NRI investment and for investment in the retail sector, applications need to be submitted to Secretariat of Industrial Assistance (SIA) within the Department of Industrial Policy and Promotion (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 a number of 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 Department of Industrial Policy and Promotion (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 and on an ad-hoc basis as they receive reports from business chambers and affected companies of stalled projects.

100% 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.
FDI policy is governed by the Foreign Exchange Management Act of 1999 and the RBI.  Details on current caps and procedures are available at:.

Investment  in  the  Following  Areas  is  Accorded  Priority in  Considering  Investment  Applications: Items  listed  in  the automatic approval list, where conditions  for  automatic  approval  are  not  met:  infrastructure;  items  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 written a comprehensive proposal, provided details, and the investment meets India's industrial development goals, approval can be granted in as little time as three weeks. 

Investment in Existing Pharmaceutical Companies:  In June 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.

Industries Reserved for the Public Sector:   Some industries are reserved exclusively for the public sector.  The following industries are not available for private investment unless a specific approval is obtained: 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.
Compulsory Licensing:  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  this case 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.

First Compulsory License to a Patented Pharmaceutical Product:  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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