India raises bar on foreign investment

The Indian government’s recent decision to ease foreign direct investment (FDI) restrictions, allowing foreign firms to acquire up to 74% of an Indian company or business without special government approval, is expected to spur investment in the pharmaceutical industry. The previous level was 49%.

Although Indian drug companies have been acquired in full in recent years—Abbott, for example, bought Piramal’s drug business for $3.3 billion in 2010—such deals have been subject to a protracted government approval process.

“This development is certainly positive for India as a whole and for the Indian pharmaceutical industry, but also for the non-Indian pharma companies who want a presence in one of the world’s biggest economies,” says Nailesh A. Bhatt, managing director of Proximare, a Princeton, N.J.-based firm that advises on mergers and acquisitions in India.

In addition to promoting much-needed consolidation, Bhatt says, the decision to raise foreign investment limits creates an opportunity to develop the Indian market for treatments for cardiovascular disease, diabetes, and other diseases on the rise in India. “It allows all kinds of companies to go in without the red tape and approvals that have been required,” he says.

Bhatt credits the government of Prime Minister Narendra Modi, who came into office in 2014, for understanding the value of better access to capital, technology, and infrastructure to increase availability of pharmaceuticals in India. He notes that Modi was previously the chief minister of the western Indian state of Gujarat, home to more than 40% of the country’s pharmaceutical industry.

Bhatt adds that the new FDI level also could impact companies earlier in the pharmaceutical supply chain such as chemical intermediate producers. “They could also benefit from the consolidation,” he says.