Foreign equity in medical devices comes into effect Jan 21

The government decision to permit 100 percent foreign direct investment (FDI) in medical devices will take effect from Jan 21, the commerce ministry said Tuesday.

"The decision will take effect from Jan 21, 2015," the ministry said in a press note here.

The condition of "non-compete clause" would also not be applicable to greenfield (new) or brownfield (existing) projects in the sector, it added.

Calling for a blanket ban on 100 percent foreign equity in brownfield projects in medical devices, the industry association has said the government's recent decision is in direct conflict with its 'Make in India' programme to promote domestic manufacturing and reduce import dependency.

"The Association of Indian Medical Device Industry (AIMED) welcomes 100 percent FDI for medical devices as long as it's restricted for manufacturing but not for trading. It is ok for greenfield projects but should not be allowed for brownfield," it said in a letter to Commerce and Industry Minister Nirmala Sitharaman last month.

In a bid to encourage the domestic production of medical devices like pacemakers, nebulisers and cardiovascular stents, the government last week de-linked it from pharmaceuticals and allowed 100 percent foreign equity under the automatic route.

The present policy for pharmaceuticals permits 100 percent foreign equity under the automatic route only under some specified conditions, notably greenfield projects. Ongoing projects that may require overseas funding have conditions attached.

Since the existing policy clubbed medical devices with pharma, they too were subject to conditions.

Pointing out that there are hardly 50 manufacturers of medical devices in India with a turnover of over Rs. 50 crore, AIMED said: "By making 100 percent auto approval for brownfield investment, these battered surviving Indian device medical industry will get wiped out."

According to the association, this industry in India is worth a market of $5-$6 billion annually, but the bulk of it is imported as the customs duty is low. The gross customs duty, in recent years, fell from nearly 30 percent to around 10 percent.

As a result, imports, which account for 77 percent of the market, have been growing at a compounded annual growth rate of nearly 17 percent.

In the interest of some 1,700 domestic manufacturers of medical devices, who had turned traders of imported goods rather than manufacture them in India, the association had asked for removing this area from the purview of the Drugs and Cosmetics Act.

"In the past too when FDI was permitted with the intent to encourage manufacturing within the country, multinationals only misused the provisions by setting up 100 percent owned subsidiaries for import, marketing and warehousing rather than for manufacturing resulting in India becoming heavily import dependent in this critical sector with over 70 percent import dependency," AIMED said in a release here.

The government has termed a medical device as any instrument, apparatus, appliance, implant, material or other article, whether used alone or in combination, including software, by its manufacturer to be used specially for humans or animals for one or more of the specific purposes.