Foreign Direct Investment in Indian Pharmaceutical Industry
In most occasions, foreign direct investment is considered to be of great important to the host economy considering that it can result into spillover effects through the various transmission avenues. Such positive externalities may include transfer of technology, imitation effects and even increased competition. Indian pharmaceutical industry has gone through the experience of foreign direct investment that is viewed by many stakeholders as having helped in developing the industry.
Foreign direct investment in Indian pharmaceutical industry is among the policy initiatives that were adopted by the government in the 1990s to help in the transformation of the country from a restrictive regime to a liberal one. India allows foreign direct investment in various forms that include preferential allotments, Euro issues, financial collaborations and technical collaborations.
Quite a number of foreign companies have invested in India’s pharmaceutical industry and made contributions to 
the growth of the sector. However, the results that have been achieved by this are mixed up. Despite the visible spillover effects, the correlation that exists between foreign direct investment and growth in domestic pharmaceutical firms is not significant at all. This is as a result of a variety of reasons that include the absorptive capability of the local firms, market structure, competitiveness, technological policies, trade among several others.
According to various reports on the foreign direct investment in India’s pharmaceutical industry, it has been doing quite well and was able to shoot upwards more than double between December 2013 and April 2014. Within that period, it was able to move up to about $1.26 billion in the 2013-2014 fiscal year. The foreign direct investments moved from $589 million in the April-December period of 2012/2013. However, there are ongoing concerns that are being raised over the increasing acquisitions of domestic pharmaceutical firms by multinational companies.
Currently, there is a rush by quite a number of multinationals that are eyeing the acquisition of pharmaceutical companies in India. This is a move that has even prompted the government to come in and propose the tightening of laws for foreign investors in order to avoid ‘eating into’ domestic pharmaceutical firms. The proposal was made by India’s Commerce and industry Ministry but faced rejection from the Union Cabinet. The proposal for strict measures against foreign firms had been made to contain the multinational pharmaceutical companies from taking over domestic firms that are renowned for the manufacture of critical and rare medicines.
The Indian government allows 100% foreign direct investment in the pharmaceutical sector through automatic approval route in the event that there are new projects that need to be initiated. However, foreign direct investment in the existing companies is only allowed after approval has been done by the Foreign Investment Promotion Board. The main attractions for foreign direct investment in the Indian pharmaceutical industry include skilled labor, strong production base in the industry and large population that enables them to acquire labor quite cheaply. However, the multinationals that acquire Indian companies still outsource part of the production.
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