{"id":33635,"date":"2021-07-28T14:06:37","date_gmt":"2021-07-28T08:36:37","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=33635"},"modified":"2021-07-28T14:06:39","modified_gmt":"2021-07-28T08:36:39","slug":"fema-compliances-for-pharma-sector","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/fema-compliances-for-pharma-sector\/","title":{"rendered":"FEMA Compliances for Pharma Sector: Explained"},"content":{"rendered":"\n<p class=\"has-drop-cap\">India rejoices a vital presence in the worldwide pharmaceuticals sector with a 20% share of generic drugs in suppliers by volume. Indian pharma sector caters to over 50% of worldwide demand for various vaccines, 40% of generic demand in the United States &amp; 25% of all drugs in the United Kingdom. Liberalization of trade and relaxed government policies has allowed this sector to obtain seamless funding from potential foreign clients. Foreign Exchange Management Act (FEMA) plays an important role in this regard. It acts as a legal framework that keeps a tap on foreign exchange activities. FEMA has also specified certain regulations for FDI meant for the Indian companies.&nbsp;In this blog, we would explore the <a href=\"https:\/\/corpbiz.io\/fema-compliance\"><strong>FEMA Compliances<\/strong><\/a> for Pharmaceutical Sector.&nbsp;<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/fema-compliances-for-pharma-sector\/#An_overview_of_the_Pharmaceutical_Sector_in_India\" >An overview of\nthe Pharmaceutical Sector in India<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/fema-compliances-for-pharma-sector\/#Amendment_in_the_Pharmaceutical_sector_in_India\" >Amendment in the Pharmaceutical sector in India<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/fema-compliances-for-pharma-sector\/#Foreign_Direct_Investment_in_the_Pharmaceuticals\" >Foreign Direct Investment&nbsp;in the Pharmaceuticals<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/fema-compliances-for-pharma-sector\/#_Conditions_apply_to_the_Brownfield_Greenfield_investments\" >&nbsp;Conditions apply to the Brownfield &amp;\nGreenfield&nbsp;investments<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/fema-compliances-for-pharma-sector\/#Conditions_for_the_Brownfield_investment\" >Conditions for the Brownfield investment&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/fema-compliances-for-pharma-sector\/#Conditions_relating_to_Pricing\" >Conditions relating to Pricing<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/fema-compliances-for-pharma-sector\/#Conditions_relating_to_Reporting\" >Conditions relating to Reporting<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/corpbiz.io\/learning\/fema-compliances-for-pharma-sector\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"An_overview_of_the_Pharmaceutical_Sector_in_India\"><\/span>An overview of\nthe Pharmaceutical Sector in India<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>Pharma sector is expected to\nsecure a growth valuation of USD 100 Billion by the year 2025. The aggregate\nannual export turnover of all the companies in the pharma sector is accounted\nfor 20 billion USD. T<\/li><li>The sector also managed to\nsecure the same valuation in terms of domestic annual turnover. Last year, the\nIndian government came up with a package worth Rs14,000 cr for the\nestablishment of a bulk drug &amp; medical devices park.<\/li><li>For leveraging production\ncapabilities of the sector, the government is trying to bring&nbsp;Production\nlinked Incentive scheme for this sector.&nbsp;<\/li><li>Indian Pharma Sector is likely\nto experience massive growth in the near future owing to the ever-increasing\nglobal demand for vaccines.<\/li><li>Owing to the ever-improving\nfootprint in the global market and cutting-edge production capabilities, this\nsector has managed to secure a significant quantum of foreign direct investment\nin the recent past.&nbsp;<\/li><li>Apart from securing FDI, the\nsector has also made some effort to extend its footprint beyond the domestic\nmarket by leveraging&nbsp;Overseas Direct Investment (ODI).&nbsp;<\/li><\/ul>\n\n\n\n<p><strong><em>Let\u2019s go through some fundamental FEMA provisions on FDI and ODI\nrelating to the&nbsp;Pharmaceuticals sector.<\/em><\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Amendment_in_the_Pharmaceutical_sector_in_India\"><\/span>Amendment in the Pharmaceutical sector in India<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>The Indian Pharma sector has lured a significant quantum of FDI from abroad, plus it has made considerable effort in terms of Overseas Direct Investment.&nbsp;<\/li><li>In accordance with the amendment made via&nbsp;<em><strong>Finance Act 2015<\/strong><\/em><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Finance_Act_2015\"><em><strong>[1]<\/strong><\/em><\/a><\/sup>, the Indian government has been vested with rights to legislate for Capital Account Transactions.<\/li><li>Department of Economic functioning under the Ministry of Finance has underpinned issued Foreign Exchange Management (Non-debt Instrument) Rules, 2019 (aka NDI rules) for securing Foreign Investment\/Foreign Direct Investment in India.&nbsp;<\/li><li>NDI Rules replaces Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017, known as TISPRO. <\/li><\/ul>\n\n\n\n<p><strong><em>FDI in India encounters legalities on the grounds of the following\nparameters<\/em><\/strong><\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"998\" height=\"655\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/07\/FDI-in-India-encounters-legalities-on-the-grounds-of-the-following-parameters.png\" alt=\"FDI in India encounters legalities on the grounds of the following parameters\" class=\"wp-image-33641\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/07\/FDI-in-India-encounters-legalities-on-the-grounds-of-the-following-parameters.png 998w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/07\/FDI-in-India-encounters-legalities-on-the-grounds-of-the-following-parameters-300x197.png 300w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/07\/FDI-in-India-encounters-legalities-on-the-grounds-of-the-following-parameters-768x504.png 768w\" sizes=\"(max-width: 998px) 100vw, 998px\" \/><\/figure><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Foreign_Direct_Investment_in_the_Pharmaceuticals\"><\/span>Foreign Direct Investment&nbsp;in the Pharmaceuticals<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As per Schedule 1 under NDI Rules, Government permits 100% FDI in\nthe pharma sector both in terms of&nbsp;Greenfield&nbsp;and&nbsp;Brownfield\ninvestment. The entry route pertaining to the&nbsp;Greenfield investment is\n100% under the automatic route. However, in the case of Brownfield investment,\nthis quantum has been capped at 74% under the automatic route. Anything higher\nthan that shall be subjected to applicable laws and regulations.<\/p>\n\n\n\n<p><strong><em>Key points to Ponder<\/em><\/strong><\/p>\n\n\n\n<ul><li>Greenfield and brownfield investments are two types of FDI.&nbsp;<\/li><li>In Greenfield investing, the company builds its new facilities in\ntheir host country from scratch.&nbsp;<\/li><li>In Brownfield investment, on the other hand, the company purchases\nor leases established facilities.&nbsp;<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"_Conditions_apply_to_the_Brownfield_Greenfield_investments\"><\/span>&nbsp;Conditions apply to the Brownfield &amp;\nGreenfield&nbsp;investments<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>Non-compete clause&nbsp;would be permitted only under specific scenarios with government approval.&nbsp;<\/li><li>Certificate, in a pre-determined format, to be submitted by prospective investor and investee rendering thorough detail of agreements drafted and attaching the copies thereof.&nbsp;<\/li><\/ul>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/compounding-of-offenses-under-fema\/\">A Complete Briefing on Compounding of Offenses under FEMA <\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conditions_for_the_Brownfield_investment\"><\/span>Conditions for the Brownfield investment&nbsp; <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The government may, while rendering consent for&nbsp;Brownfield,\nimpose suitable conditions for foreign direct investment in such cases.&nbsp;<\/p>\n\n\n\n<ul><li>Maintenance of Production as well as supply of NLEM Drugs (National\nList of Essential Medicines): The production level of such medicines and their\nsupply to the local market ought to be managed over the next five years at an\nabsolute quantitative level. Benchmark for such level would be the highest\nlevel of annual Production for such drugs in the last three years, before\nthe&nbsp;orientation&nbsp;of overseas investment.&nbsp;<\/li><li>Maintenance pertaining to R&amp;D expenditures: From a value\nstandpoint, it must be maintained for five years at an absolute quantitative\nlevel. The benchmark in this context would be the highest level of Research and\nDevelopment expenses that came to light on any of the last three financial\nyears promptly preceding the year of Foreign investment&nbsp;<\/li><li>In the event of technology transfer, entire information along with\nthe orientation of overseas funding to be submitted to the Administrative\nMinistry.<\/li><li>Department of Pharmaceuticals, Ministry of Health &amp; Family\nWelfare, or any other regulators as notified by Central Government, shall\nadminister the compliance of conditionalities. <\/li><\/ul>\n\n\n\n<p><strong><em>FDI from below, regardless of sector, would need to avail government\npermission:&nbsp;<\/em><\/strong><\/p>\n\n\n\n<ul><li>Any establishment of the country which is in close proximity to the\nIndian Border or&nbsp;<\/li><li>Beneficial owners belong to the nation which shares a land border\nwith India.&nbsp;<\/li><\/ul>\n\n\n\n<p>Therefore, foreign Direct Investment from the entities of the\nneighbouring countries such as&nbsp;Pakistan, Nepal, Afghanistan, China, and\nMyanmar would be subject to government permission (NDI rules, 2020).&nbsp;<\/p>\n\n\n\n<p>NDI rule entails schedules for overseas investment. Schedule 1 talk\nabout the FDI. Each schedule renders distinctive legal treatment to the foreign\ninvestment as per the conditions and limits mentioned therein.&nbsp;Investment\nfor foreign nationals, on a non-repatriation basis under schedule, shall\nreceive legal treatment at par with Domestic Investment and henceforth not\ndeemed as an overseas investment.&nbsp;<\/p>\n\n\n\n<p>Equity Instruments to Person Resident outside India (PROI): It ought\nto be issued within sixty days from the date of consideration\u2019s receipt,\nfailing which consideration must be sent back to PROI within 15 days from the\ncompletion date of sixty days. Such transaction must be conducted via banking\nmodes or by credit to his NRE\/ FCNR (B) account.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conditions_relating_to_Pricing\"><\/span>Conditions relating to Pricing<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>Listed Company:<\/em><\/strong> Price outlined\npursuant to the guidelines of SEBI.&nbsp;<\/p>\n\n\n\n<p><strong><em>Un-listed Company:<\/em><\/strong> In view of any\nglobally-acknowledged pricing methodology for&nbsp;valuation on an arm\u2019s length\nbasis approved by the CA or a SEBI-certified Merchant Banker or a practising\nCost Accountant.<\/p>\n\n\n\n<p>Payment mode for equity instrument &amp; the reporting norms is\nregulated by the Foreign Exchange Management (Mode of Payment and Reporting of\nNon-debt Instruments) Regulations 2019, underpinned by the Reserve Bank.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conditions_relating_to_Reporting\"><\/span>Conditions relating to Reporting<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>Form Foreign Currency \u2013<\/em><\/strong> Gross\nProvisional Return (FC-GPR):&nbsp;An Indian-based organization granting equity\ninstruments to PROI, under FDI must share such concern in form FC-GPR, within\nthirty days from the issuance date of the equity instruments.&nbsp;<\/p>\n\n\n\n<p><strong><em>Annual Return on Foreign Liabilities and Assets (FLA):&nbsp;<\/em><\/strong>An Indian-based organization, which has received overseas funding or\nan LLP which has secured Foreign Investment, shall furnish form, viz FLA to\nreserve bank by 15th duly of each year.&nbsp;<\/p>\n\n\n\n<p><strong><em>Foreign Currency \u2013<\/em><\/strong> Transfer of\nShares (FC-TRS): to be filed for equity&nbsp;instruments\u2019 transfer in pursuant\nto NDI rules, between:&nbsp;<\/p>\n\n\n\n<ul><li>PROI having equity instruments in an Indian-based entity on a\nrepatriable basis or otherwise.<\/li><li>PROI having equity instruments in an Indian-based entity on a\nrepatriable basis &amp; PRI accountability is on resident\ntransferor\/transferee, or PROI have&nbsp;<\/li><li>PROI holding equity instruments in an Indian company on a\nrepatriable basis and PROI holding equity instruments on a non-repatriable\nbasis; and<\/li><li>PROI holding equity instruments in an Indian company on a\nrepatriable basis and PRI equity instruments on a non-repatriable basis.\nTransfers of Equity Instrument of an Indian-based entity by\/to PROI\nare&nbsp;regulated by Rule 9 &amp;13 of NDI Rules.<\/li><\/ul>\n\n\n\n<p>Form LLP (I):&nbsp;Entity functioning as an LLP getting amount\ntowards the acquisition of profit shares\/ capital contribution from PROI, must\nfile Form LLP (I), within 30 days period from the receipt of consideration.<\/p>\n\n\n\n<p>Form LLP (II):&nbsp;On transfer of capital\ncontribution\/disinvestment\/\/profit share between PRI &amp; PROI from Form LLP\n(III) ought to be filed within 60 days from the receipt of funds. The\nobligation of reporting is on the resident transferee\/ transferor<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Government allows 100% Foreign Direct investment in the pharma sector via Brownfield and Greenfield investment. The entry route for Greenfield-based funding is 100% under the automatic route. Meanwhile, for Brownfield investment,&nbsp; this quantum is 74% under the automatic route.&nbsp; The applicable laws and regulations will come into play if the amount of investment surpassed such a limit. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/fema-compliance-checklist-for-startups-from-fdi-standpoint\/\">FEMA Compliance Checklist for Startups from FDI standpoint <\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>India rejoices a vital presence in the worldwide pharmaceuticals sector with a 20% share of generic drugs in suppliers by volume. Indian pharma sector caters to over 50% of worldwide demand for various vaccines, 40% of generic demand in the United States &amp; 25% of all drugs in the United Kingdom. Liberalization of trade and [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":33639,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[844],"tags":[1885],"acf":{"service_id":"112"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":5618,"readingTime":5,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/33635"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=33635"}],"version-history":[{"count":16,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/33635\/revisions"}],"predecessor-version":[{"id":33655,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/33635\/revisions\/33655"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/33639"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=33635"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=33635"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=33635"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}