Pharmaceutical Manufacturing in India: FDI, CDSCO Approvals & Plant Setup Guide

Why India for Pharmaceutical Manufacturing

India is the world's largest provider of generic medicines, supplying 20% of global generic drug exports by volume and over 60% of global vaccine production. The Indian pharmaceutical industry reached USD 55 billion in 2025 and is projected to touch USD 130 billion by 2030. For foreign companies evaluating manufacturing locations, India offers a combination that is difficult to replicate: deep technical talent, established API supply chains, competitive labour costs, and a regulatory framework that permits foreign direct investment up to 100% without government approval in greenfield projects.

The Union Budget 2025-26 allocated INR 5,268 crore (approximately USD 602 million) to the Department of Pharmaceuticals, representing a 28.8% increase over prior allocations. Cumulative investment under the Production Linked Incentive (PLI) Scheme for pharmaceuticals has exceeded INR 40,294 crore as of September 2025, generating total sales of INR 3,08,409 crore including INR 1,98,509 crore in exports. These numbers signal strong government commitment to positioning India as a global pharmaceutical manufacturing hub.

India hosts over 3,000 pharma companies with more than 10,500 manufacturing units. The country manufactures over 500 different Active Pharmaceutical Ingredients (APIs) and is the source of approximately 40% of all generic and over-the-counter (OTC) products sold in the United States. Major global pharmaceutical companies including Pfizer, Novartis, Sanofi, Abbott, and AstraZeneca operate manufacturing facilities in India, validating the country's position as a viable manufacturing base for quality-regulated products.

The cost advantage is substantial. Manufacturing costs in India are typically 30-40% lower than in the United States or Europe and 15-25% lower than in China for comparable quality standards. Labour costs for qualified pharmacists and production staff range from INR 3-8 lakh per annum for entry-level positions to INR 15-40 lakh for senior production managers, which is a fraction of equivalent costs in developed markets. Utility costs, including power and water, are also significantly lower, particularly in states that offer industrial tariff concessions for pharmaceutical manufacturing units.

FDI Policy for Pharma Manufacturing: Greenfield vs Brownfield

Understanding the distinction between greenfield and brownfield investments is critical because it determines whether you need government approval and what conditions apply to your investment.

Greenfield Investments: 100% Automatic Route

Under Schedule I of the FEMA Non-Debt Instruments (NDI) Rules, 2019, greenfield pharmaceutical investments enjoy 100% FDI through the automatic route. This means no prior approval from the RBI or the government is required. A greenfield project involves establishing a new pharmaceutical facility from scratch, constructing new plants, installing fresh equipment, and commencing original production.

The process requires filing Form FC-GPR with the RBI through the AD Bank within 30 days of share allotment, reporting the investment on the FIRMS portal, and filing the annual FLA Return by July 15 each year. Shares must be allotted within 60 days of receiving the foreign investment amount. If this deadline is missed, the entire investment must be refunded to the foreign investor within 15 days.

For foreign pharma companies establishing greenfield operations, the typical capital infusion sequence involves incorporating the Indian subsidiary first, opening a bank account, receiving the foreign remittance, and then allotting shares. The AD Bank issues a Foreign Inward Remittance Certificate (FIRC) upon receipt of funds, which becomes a critical document for all subsequent regulatory filings. The valuation of shares at the time of issuance must be conducted by a SEBI-registered merchant banker or a chartered accountant using the Discounted Cash Flow (DCF) method for unlisted companies. Given that a newly incorporated company may have minimal financial history, the DCF valuation typically relies on forward projections from the business plan, making the quality of the projections a practical consideration in the valuation process.

Brownfield Investments: 74% Automatic, Balance via Government Approval

Brownfield investments, which involve acquiring or investing in an existing pharmaceutical company, are permitted up to 74% through the automatic route. Investment beyond 74% requires approval through the government approval route, processed by the Department of Pharmaceuticals via the Foreign Investment Facilitation Portal (FIFP).

Brownfield investments carry additional conditions designed to protect India's domestic drug supply:

• NLEM Production Maintenance: Production levels of drugs listed on the National List of Essential Medicines must be maintained at or above the highest annual production level of the preceding three financial years, for a period of five years post-investment
• R&D Expenditure: Research and development spending must be maintained at the highest level achieved in the preceding three financial years, for five years
• Non-Compete Restrictions: Non-compete clauses are permitted only under exceptional circumstances with specific government approval
• Certification Requirement: Both the investor and the investee company must furnish certificates listing all agreements entered into, with copies attached

For a detailed comparison of these two routes, see our guide on automatic route vs government approval.

Press Note 3 (2020) Implications for Pharma

Under Press Note 3 of 2020, investments from countries sharing a land border with India (China, Pakistan, Bangladesh, Nepal, Myanmar, Bhutan, Afghanistan) require mandatory government approval regardless of the sector or investment percentage. This is particularly relevant for pharmaceutical manufacturing given that China has historically been a major source of API supply chain investments. A Chinese pharmaceutical company seeking to establish a manufacturing facility in India must obtain government approval through the DPIIT even for a greenfield project that would otherwise qualify for the automatic route. Processing time for Press Note 3 applications has been variable, ranging from 3 months to over 12 months depending on the sensitivity of the sector and the specific investor profile.

FDI in Medical Devices: Separate Carve-Out

Medical devices were carved out from the pharmaceutical FDI policy in 2015. Medical devices manufacturing enjoys 100% FDI under the automatic route for both greenfield and brownfield investments, with no conditions attached. This is a significant advantage if your manufacturing plan includes medical devices alongside pharmaceuticals. The medical devices sector has seen particular growth, with the Indian medical devices market projected to reach USD 50 billion by 2030, driven by government initiatives like Make in India and increased domestic healthcare spending.

CDSCO Licensing and Drug Approval Process

The Central Drugs Standard Control Organisation (CDSCO), under the Directorate General of Health Services, serves as India's National Regulatory Authority. However, the actual drug manufacturing license is issued by the State Drug Controller, not CDSCO directly. Understanding this dual regulatory structure is essential.

State Drug Controller: Manufacturing Licenses

Drug manufacturing licenses are issued by the State Drug Controller of the state where your manufacturing plant is located. The key forms are:

• Form 25: License to manufacture drugs other than those specified in Schedule C and C(1). This covers most tablets, capsules, ointments, and standard dosage forms
• Form 28: License to manufacture drugs specified in Schedule C and C(1), which includes biological products, vaccines, sera, and large-volume parenterals
• Form 25-A: License to manufacture drugs for loan license manufacturing (contract manufacturing)

State Drug Controller: Application Process

The application process for a manufacturing license involves several practical steps that foreign companies should plan for carefully. First, you must identify and secure a manufacturing site that meets Schedule M requirements before applying. The State Drug Controller will conduct a site inspection as part of the approval process, and the facility must be substantially ready. This means your building must be constructed, HVAC systems installed, equipment placed (though not necessarily validated), and utilities connected.

The application itself requires submission of detailed site plans and building layouts, equipment lists with specifications and qualification protocols, standard operating procedures for manufacturing and quality control, details of qualified technical staff (production manager and quality control head), water system specifications and treatment details, waste management and effluent treatment plans, and proof of land ownership or lease agreement. The application fee varies by state but typically ranges from INR 5,000 to INR 50,000 depending on the category of drugs and the number of product lines.

Upon receiving the application, the State Drug Controller deputes an inspector for a facility inspection. The inspector verifies compliance with Schedule M requirements, checks the qualifications of technical staff, and reviews documentation systems. If deficiencies are found, the inspector issues a show-cause notice specifying the gaps, and you are given time to rectify them before a re-inspection. Successful inspection leads to license issuance within 60-90 days of application.

CDSCO: New Drug Approvals and Import Registration

CDSCO handles approvals for new drugs, clinical trials, and import registrations. If you are manufacturing a new drug not previously approved in India, you must obtain CDSCO approval before the state manufacturing license. The process involves:

1. Application Filing: Submit through the SUGAM 2.0 portal (CDSCO's online system) with Form 44, clinical trial data, stability studies, and applicable fees. The portal was revamped as SUGAM 2.0 to provide faster application tracking, digital correspondence with the regulator, and streamlined document submission. All submissions are now paperless.
2. Subject Expert Committee (SEC) Review: The SEC evaluates safety, efficacy, and manufacturing quality data. The committee meets periodically, and your application is scheduled based on the product category and completeness of data. This stage typically takes 6-12 months depending on data completeness and whether additional information is requested.
3. Clinical Trial Requirements: For new chemical entities, clinical trials in Indian patients may be required. However, India now permits the use of global clinical trial data in many cases, particularly where the drug has already been approved by the US FDA, EMA, or other stringent regulatory authorities. The clinical trial permission process itself takes 30-90 working days from CDSCO.
4. Site Inspection: CDSCO may conduct a facility inspection to verify GMP compliance before granting approval. This is particularly common for Schedule C and C(1) products including biologicals and injectables.
5. Manufacturing Permission: Upon successful review, CDSCO issues a manufacturing permission letter, which you present to the State Drug Controller for the manufacturing license

Import Registration for Raw Materials and APIs

If your manufacturing process relies on imported APIs or raw materials, you will need an Import Export Code (IEC) from the Directorate General of Foreign Trade. Additionally, certain APIs and drug intermediates require import licenses from the Drug Controller General of India. The import registration process for APIs typically takes 2-4 weeks once the IEC is in place. GST registration is mandatory for import operations, with most pharmaceutical raw materials attracting GST rates of 5-12%.

Key Timeline Estimates

Schedule M GMP Compliance: Non-Negotiable Standards

Every pharmaceutical manufacturing facility in India must comply with Schedule M of the Drugs and Cosmetics Act, 1940. Schedule M prescribes Good Manufacturing Practices (GMP) standards that are mandatory for obtaining and retaining a drug manufacturing license.

Key Schedule M Requirements

Schedule M covers every aspect of pharmaceutical manufacturing, from facility design to quality control:

• Premises: Location away from pollution sources, adequate space for equipment and operations, proper ventilation and air handling systems, segregation of manufacturing, packaging, and quality control areas
• Equipment: All equipment must be designed and installed to prevent contamination, facilitate cleaning, and be qualified (IQ/OQ/PQ protocols)
• Water Systems: Purified water and Water for Injection (WFI) systems with documented validation, regular testing for microbial limits and chemical purity
• Documentation: Batch Manufacturing Records, Standard Operating Procedures (SOPs), stability protocols, deviation reports, and change control procedures
• Quality Control: In-house quality control laboratory with qualified analysts, retention samples for each batch, and validated analytical methods
• Personnel: Qualified production manager (B.Pharm minimum), quality control head with adequate experience, and ongoing personnel training programmes

Revised Schedule M (2024-2025 Update)

India has been progressively aligning Schedule M with international GMP standards, including PIC/S and ICH Q7 guidelines. The revised Schedule M introduced in recent years includes enhanced requirements for data integrity, computer system validation, quality risk management approaches, and continuous process verification. Foreign manufacturers accustomed to FDA cGMP or EU GMP standards will find the revised Schedule M broadly comparable, though certain documentation and reporting requirements remain India-specific.

Key additions in the revised framework include mandatory stability studies for all products following ICH guidelines, requirements for process validation covering at least three consecutive batches, enhanced environmental monitoring programmes for sterile manufacturing areas, detailed requirements for HVAC qualification including air change rates, differential pressures, and particulate monitoring, and specific requirements for computerised systems including audit trails, electronic signatures, and data backup protocols.

WHO-GMP Certification

For export-oriented facilities, WHO-GMP certification is highly recommended and often required by importing countries. India's drug regulators issue WHO-GMP certificates based on compliance with WHO Technical Report Series No. 986 standards. Many state regulators now conduct joint inspections covering both Schedule M and WHO-GMP requirements. Having WHO-GMP certification opens access to regulated markets in Africa, Southeast Asia, Latin America, and the Middle East, where Indian generic manufacturers have a dominant market position. The certification process involves a detailed facility inspection by a team of inspectors, review of product dossiers, and verification of stability data. Renewal inspections are conducted every 2-3 years.

PLI Scheme: Government Incentives for Pharma Manufacturing

The government offers substantial financial incentives through the Production Linked Incentive (PLI) scheme specifically designed to boost pharmaceutical manufacturing capacity.

PLI for Bulk Drugs (APIs)

The PLI Scheme for promotion of domestic manufacturing of critical Key Starting Materials (KSMs), Drug Intermediates (DIs), and Active Pharmaceutical Ingredients (APIs) has a financial outlay of INR 6,940 crore. It has facilitated production capacity for 26 key materials previously imported in large quantities, primarily from China. The sixth application round was launched on November 26, 2025, targeting priority APIs including Meropenem and Ritonavir.

PLI for Pharmaceutical Formulations

The PLI Scheme for Pharmaceuticals incentivises manufacturing of complex generics, biosimilars, APIs, and drug intermediates. Cumulative investment under this scheme has reached INR 40,294 crore as of September 2025, exceeding the originally targeted INR 17,275 crore by over 130%. Incentive rates range from 3% to 10% of incremental sales over the base year.

Bulk Drug Parks

Three Bulk Drug Parks have been approved in Andhra Pradesh, Gujarat, and Himachal Pradesh, supported by a central outlay of INR 3,000 crore. Each park is eligible for up to INR 1,000 crore for establishing common infrastructure including effluent treatment plants, solvent recovery systems, warehouses, and utilities. State governments supplement this with capital subsidies, GST reimbursement, concessional land allotments, and logistics support.

State-Level Incentives

Beyond central government schemes, individual states offer competitive incentive packages to attract pharmaceutical manufacturing investments. These incentives vary by state but commonly include capital investment subsidies ranging from 15-30% of fixed capital investment, stamp duty and registration fee exemptions on land transactions, electricity duty waivers for 5-10 years, interest subsidies on term loans at 5-7% for 5-7 years, employment generation subsidies of INR 3,000-5,000 per employee per month for initial years, and GST reimbursement of state share (SGST) for 5-10 years. States like Gujarat, Telangana, Andhra Pradesh, and Himachal Pradesh have dedicated pharmaceutical industry policies that outline these incentives in detail. Engaging with the state's industrial development corporation early in the planning process is recommended to maximise incentive benefits and secure the best available land parcels in established pharmaceutical zones.

Pharmaceutical Research and Innovation Promotion (PRIP) Scheme

The government also operates the PRIP scheme with an allocation of INR 600 crore, designed to promote innovation and research in the pharmaceutical sector. This scheme supports development of new drug delivery systems, novel drug development, clinical research infrastructure, and pharmaceutical innovation hubs. Foreign companies undertaking significant R&D alongside manufacturing may benefit from this scheme in addition to the PLI incentives.

Plant Setup: Cost Breakdown and Practical Considerations

Understanding realistic cost structures is essential for capital planning. Here is a breakdown based on scale of operations:

Investment Range by Plant Type

Cost Component Breakdown (Mid-Scale Facility)

Location Selection

Pharmaceutical clusters in Hyderabad (Telangana), Ahmedabad (Gujarat), Baddi (Himachal Pradesh), and Aurangabad (Maharashtra) offer 15-25% cost savings through established supplier networks, regulatory familiarity among local inspectors, and proximity to API sources. State-level incentives vary significantly. Gujarat and Andhra Pradesh currently offer the most competitive packages, including stamp duty exemptions, electricity duty waivers, and employment-linked subsidies.

Timeline to Commercial Production

1. Company Incorporation and FDI Reporting: 4-6 weeks
2. Land Acquisition and Construction: 8-14 months
3. Equipment Procurement and Installation: 6-10 months (overlapping with construction)
4. Regulatory Approvals and Licensing: 3-6 months
5. Validation and Trial Batches: 3-6 months
6. Commercial Production Launch: 18-30 months total from incorporation

Most mid-scale plants reach break-even in 18-24 months after commercial launch, with EBITDA margins climbing to 25-35% by Year 3-5 when capacity utilisation reaches 85% or above.

Environmental and Pollution Control Compliance

Pharmaceutical manufacturing generates effluents and emissions that require specific environmental clearances. Before commencing construction, you need the following approvals:

• Environmental Clearance (EC): Required from the State Environment Impact Assessment Authority (SEIAA) for projects with investment below INR 500 crore, or from the Ministry of Environment, Forest and Climate Change (MoEFCC) for larger projects. The process involves an Environmental Impact Assessment (EIA), public hearing, and expert committee review, typically taking 4-8 months.
• Consent to Establish (CTE): Obtained from the State Pollution Control Board (SPCB) before construction begins. Requires submission of manufacturing process details, expected emissions and effluent quantities, and proposed treatment systems.
• Consent to Operate (CTO): Obtained from the SPCB after construction is complete and pollution control systems are installed and tested. The SPCB inspects the facility before issuing the CTO.
• Hazardous Waste Authorization: If your manufacturing process generates hazardous waste (which most pharmaceutical processes do), you need separate authorization from the SPCB under the Hazardous Waste Management Rules.

The Zero Liquid Discharge (ZLD) requirement is increasingly common for pharmaceutical manufacturing units, particularly in water-stressed states. ZLD systems require capital investment of INR 2-5 crore for a mid-scale facility but are increasingly mandated by state pollution control boards as a condition for the CTO.

Taxation Framework for Pharma Manufacturing

Understanding the tax implications is essential for financial modelling:

• Corporate Tax: Section 115BAB offered a concessional 15% base rate (effective ~17.16%) to new domestic manufacturing companies, but the eligibility window for commencing manufacturing (extended by Budget 2024 to 31 March 2025) has now closed for new incorporations. New pharma manufacturers as of 2026 would generally opt for Section 115BAA at 22% (effective 25.17% including surcharge and cess). The default corporate tax rate without opting for the concessional regime is 25% for companies with turnover up to INR 400 crore.
• GST: Most pharmaceutical finished products attract 5% or 12% GST, while APIs and intermediates typically attract 18%. Input GST on raw materials, equipment, and services can be claimed as credit against output GST liability.
• Withholding Tax on Dividends: Dividends repatriated to the foreign parent attract withholding tax at 20% (or lower rates under applicable DTAA). For example, the India-USA DTAA provides for a 15-25% rate depending on shareholding percentage, while the India-Singapore DTAA offers 10-15%.
• Transfer Pricing: Inter-company transactions between the Indian subsidiary and the foreign parent must be at arm's length. For pharmaceutical companies, this is particularly relevant for API supply agreements, technology licensing fees, management service charges, and royalty payments.

Entity Structure for Foreign Pharma Investors

The most common structure for foreign pharmaceutical companies entering India is a wholly-owned subsidiary incorporated as a private limited company. This structure offers 100% ownership through the automatic route (for greenfield), limited liability protection, lower corporate tax rates (22% base rate under Section 115BAA for a domestic company, versus 35% base rate for foreign companies / branch offices post-Finance (No. 2) Act 2024), and full operational autonomy.

Alternative structures include a branch office for limited manufacturing activities, or a joint venture with an Indian partner for brownfield investments. For a comparison of entity options, see our guide on branch office vs subsidiary.

Incorporation requires at least one resident director, a digital signature certificate, and filing through the SPICe+ portal. You will also need a memorandum of association and articles of association specifying pharmaceutical manufacturing as a primary business objective.

FEMA Compliance for Pharma FDI

Pharmaceutical FDI carries the standard FEMA compliance obligations plus sector-specific requirements:

• FC-GPR Filing: Within 30 days of share allotment to the foreign investor
• FLA Return: Annual filing by July 15 for all Indian companies with FDI
• Downstream Investment: If the Indian subsidiary invests further, downstream investment regulations apply
• Pricing Guidelines: Share issuance price must comply with FEMA valuation norms, determined by a SEBI-registered merchant banker or a chartered accountant using DCF method for unlisted companies
• Transfer Pricing: All transactions between the Indian subsidiary and the foreign parent must comply with transfer pricing regulations under the Income Tax Act

For ongoing regulatory compliance, consider engaging a professional firm for annual compliance management.

Key Takeaways

• Greenfield pharma manufacturing in India enjoys 100% FDI through the automatic route with no government approval required; brownfield investments above 74% need government approval with NLEM production and R&D maintenance conditions
• Drug manufacturing licenses are issued by the State Drug Controller (Form 25/28), while CDSCO handles new drug approvals, import registrations, and clinical trials
• Schedule M GMP compliance is mandatory and covers premises, equipment, water systems, documentation, quality control, and personnel qualifications
• PLI scheme incentives offer 3-10% of incremental sales, with three dedicated bulk drug parks providing subsidised infrastructure in Andhra Pradesh, Gujarat, and Himachal Pradesh
• A mid-scale export-oriented facility requires INR 50-80 crore in capital investment, with commercial production achievable in 18-30 months from incorporation