May 31, 2022
Indian pharmaceutical industry plays a substantial role in the international pharmaceutical sector, in fact, India ranks 3rd in terms of production of drugs in volume and ranks 14th in terms of value. India is the world's largest provider of generic medications, accounting for 20% (twenty percent) of worldwide supply by volume, and it is also the world's leading vaccine manufacturer as it supplies 62% (sixty-two percent) of global demand for various vaccines. Post-COVID-19 pandemic, Indian dominance was tangible to the world in the pharmaceutical sector, as India was one of the major pharmaceutical manufacturers of vaccines and medicines for COVID-19 infection. Evidently, India is currently one of the best markets in the world for Russian companies to start or expand their pharmaceutical business.
There are many reasons why Russian companies should invest and start a pharmaceutical business in India, such as cheap labour, cost efficiency, economic drives (impact of COVID-19), funding options, India’s Foreign Direct Investment (“FDI policy, supportive government policies, etc. Considering the current situation led by the Russian-Ukrainian conflict, leading to an impact on the Russian pharmaceutical business it is the best time to invest in the Indian pharmaceutical market. Given unlike other countries India does not plan to set in place any sanctions against Russia, hence, investing and doing pharmaceutical business in India is not only convenient but beneficial for Russian pharmaceutical companies.
For a Russian company to start its pharmaceutical business in India, it must first establish/register/incorporate itself with the Indian Ministry of Corporate Affairs (“MCA”). There are many ways under the Companies Act, 2013, and Limited Liability Partnership Act, 2008 through which any foreign company can register itself in India and start its pharmaceutical business. A Russian company can either start a pharmaceutical business in India by incorporating/registering itself with MCA, project, by establishing a liaison, project, or branch office in India or by having a permanent establishment in India by incorporating a private limited company or a limited liability partnership. We have briefly discussed below some of the methods through which a Russian company can establish and start its pharmaceutical business/manufacturing unit in India:
Russian foreign companies can set up their pharmaceutical business in India by forming a partnership with an existing business entity in India through a joint venture. Joint ventures have grown in popularity and importance as a way for two businesses to work together to achieve a common commercial goal. Russian companies pursuing to enter the Indian market should consider forming a joint venture after conducting adequate due diligence on their Indian partners prior to forming any alliance. Joint ventures not only allow the foreign investors to benefit from the Indian partner’s expertise, established market, and consumers but also have access to the Indian partner’s local distribution channels, local know-how, and management and also get the benefit of their goodwill.
A wholly-owned subsidiary is a company in which another company owns all of its shares and also has the power to make the majority of its decisions. By allowing Russian companies to establish a wholly-owned subsidiary company in India, the Indian market provides an accessible and valuable business environment for the Russian companies. As per the FDI policy, foreign companies can invest 100% (one hundred percent) under the automatic route for greenfield pharma and 100% (one hundred percent) in the brownfield pharma sector, wherein 74% (seventy-four percent) of the investment is permitted under the automatic route and for investment beyond 74% (seventy-four percent) FDI requires government approval.
The branch office is an extension of a foreign company that can engage in commercial business as a representative of the parent company. For a Russian company to establish a temporary presence in India to do a pharmaceutical business, a branch office is an effective strategy. Foreign companies keen on setting up a branch office should meet the criteria as prescribed by the Reserve Bank of India, which is: the Applicant must be a body incorporated outside India, and the net worth of the branch office shall not be less than USD 100,000 (united states dollar one lakh only) or its equivalent and the parent company should have a profit-making record during the immediately preceding 5 (five) financial years in the home country.
A private limited company is suggested to be incorporated in case a Russian Company intends to have more flexibility and freedom in its structuring and operations to match its individual requirements, objectives, and obligations. The Russian company can also start a pharmaceutical business in India by establishing a private limited company that must have at least 2 (two) shareholders, under the Companies Act, 2013, it is a mandate that at least one director of every Indian company is a resident of India [any person who has lived in India for more than 182 (one eighty-two) days is considered an Indian resident]. Foreign companies can choose to establish a company with 3 (three) directors, two being foreign nationals from the parent company, and as a legal mandate, 1 (one) being an Indian citizen. Further, as there is no requirement for minimum shareholding by the Indian director, foreign companies or nationals have the freedom to hold 100% of the shares of the Indian company.
Funding is an extremely significant aspect in line with meeting the vision of a business, and the pharmaceutical business/sector is no different. Some of the common funding options available for Russian pharmaceutical companies in India are:
Angel investors are wealthy individuals who invest in businesses. These are the high-net-worth individuals who support the company in exchange for ownership of stock or convertible debt if they believe in your product. The angel investor(s) may make a one-time investment to assist the company in growing or investing on a regular basis to support and sustain the company through its early phases of development.
Venture capital funds are organizations that invest a huge amount in promising start-ups and because of it, the start-up funding goes to the next level. As an organization, venture capital funds contribute huge sums of funding to a firm for growth and expansion while also monitoring its progress to ensure that its investment produces long-term growth.
Crowdfunding is a relatively new method of funding a start-up that has recently gained a lot of traction. It's the equivalent of getting a loan, pre-order, contribution, or investment from multiple people at the same time. This is how crowdfunding works – a company will provide a detailed description of its business on a relevant crowdfunding platform. Then the company shall mention the future goals of its business, plans for making a profit, funding requirements and the reasons for the same, etc., and then customers can read about the business and scope and then, invest money if they like the overall vision and idea of the business.
The bank offers two types of business financing. The first is a working capital loan, whereas the second is funding. The loan required to run one complete cycle of revenue-generating operations is known as a working capital loan, and its limit is normally determined by hypothecating stocks and debtors. The regular process of providing the business plan and valuation details, as well as the project report, on which the loan is sanctioned, will be followed. Almost every bank in India provides finance through various programs. For example, leading Indian banks such as Bank of Baroda, HDFC, ICICI, and Axis banks have different alternatives to offer collateral-free business loans.
For any company in India whether an Indian or foreign company, there is a specific minimum requirement of some documents/registrations to start a pharmaceutical business in India. Here are some of the mandatory registrations required for the establishment of a pharmaceutical business in India:
The first and most important registration/ document is getting a drug license in India. Without a drug license/number, no one is allowed to carry any type of pharmaceutical business in India. Depending upon the nature of the business, that is, whether the company wants to do pharmaceutical manufacturing in India or just want to sell the drugs wholesale or through retail, the different type of licenses is provided under the Drugs and Cosmetic Act, of 1940.
Goods and Service Tax Identification Number (“GST Number”) is tax compliance which every company and business must take depending upon the turnover of the company. Applying for a GST Number is very easy and can easily be done by visiting the GST portal and applying for it.
Trademark registration is necessary to protect others from using your intellectual property, such as your company name or brand name. At the very least, your company name and significant brand/product names should be registered as trademarks.
If the company plans to sell the drugs wholesale or through retail including food and dietary supplement goods in addition to pharmaceuticals, the company shall apply for FSSAI (Food Safety and Standards Authority of India) certification. Lycopene products, omega-3 fatty acids, calcium supplements, vitamin preparations, and enzymatic goods are some of the most regularly used food supplements by pharmaceutical companies. If any company is planning to sell any type of food supplement, it must register for FSSAI registration.
It is safe to say that the export of generic drugs is one of the core strengths of Indian foreign trade. Given that the Indian pharmaceutical industry has grown rapidly in the past several years and is even expected to grow at a relatively higher pace in the coming years, it is a lucrative market for foreign investment. While considering the promising Indian advantages in respect of labour cost, easily establishing the company in India, high demand, world dependency, the easy registration process for drug license, favorable FDI policy and supportive government policies, India is one of the most efficient choices of the country in the world at the moment for Russian companies to invest and start their pharmaceutical business in India.
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