Incorporating a Healthcare Business in India: NABH Standards, FDI, and Compliance

Explore how to incorporate a healthcare business in India with NABH accreditation, FDI rules, compliance, and regulatory insights for 2025.

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India’s healthcare market is scaling fast on the back of rising incomes, insurance penetration, digital public infrastructure, and chronic-disease demand. For foreign investors, global hospital chains, device manufacturers, diagnostics players, and digital-health start-ups, India offers liberal foreign direct investment (FDI) rules, large patient volumes, and a maturing quality ecosystem anchored by NABH (National Accreditation Board for Hospitals and Healthcare Providers) accreditation. The opportunity is compelling – but execution hinges on early alignment with accreditation pathways, state licensing, clinical and data regulations, and FDI structuring.

Starting a healthcare business: Why India, why now

• Scale + growth: India’s 1.4 billion population, rapid urbanization, and expanding private insurance underpin sustained demand in tertiary care, day-care surgery, diagnostics, home health, and digital models.
• Liberal FDI regime: Hospitals and medical devices sector permit up to 100 percent foreign ownership under the automatic route, enabling swift capital deployment and control; pharmaceuticals remain liberalized (100 percent in greenfield while it is 74 percent automatic in brownfield, beyond which will require government approval).
• Quality movement: NABH accreditation has become the market’s quality shorthand for hospitals, day-care centers, and diagnostics; its 6th-edition standards (effective January 1, 2025) raise the bar on outcomes, safety, and digital processes, strengthening investor confidence and payer acceptance.
• Digital rails: Telemedicine is formally recognized via national Telemedicine Practice Guidelines (2020); ABDM (Ayushman Bharat Digital Mission) is mainstreaming digital health records and consent; the Digital Personal Data Protection Act (2023) now sets a new bar for patient-data handling.

Healthcare FDI in India

Source: IBEF, Times of India

Key insights:

• Hospitals drawing the lion’s share: Hospitals and day-care centers are increasingly attractive to foreign investors. With US$1.5 billion in FDI in FY 2023-24, they now constitute half of total healthcare FDI – a significant jump from 24 percent just three years prior.
• Cumulative pharma sector investments are substantial: Pharmaceuticals have seen massive capital inflows over the past two decades, signaling investor confidence and sustained growth in this sub-sector.
• Rapid expansion in early 2010s: Per Niti Aayog, healthcare FDI grew dramatically from US$94 million in 2011 to US$1.275 billion in 2016, an over 13-fold increase, pointing to rising investor appetite and policy momentum.

Implications for stakeholders:

• For global hospital chains and investors: The surge in hospital-related FDI presents prime opportunities for acquisitions, greenfield developments, and scaling high-quality multispecialty infrastructure.
• For start-ups and digital health innovators: Hospitals are becoming central investment nodes, offering potential for tech-enabled models, insurance-linked care frameworks, and integrated diagnostics.
• For pharmaceutical and medtech partners: Long-term capital flows and infrastructure hubs signal both manufacturing scale-up and regulated export readiness.

Also read: An Overview of India’s Healthcare Ecosystem

First decisions: entity, route, and model

Ownership and FDI route

• Hospitals and diagnostics centers: Up to 100 percent FDI automatic – greenfield or acquisition – subject to sectoral laws and state approvals.
• Medical devices manufacturing: Up to 100 percent FDI automatic (carved out from pharma). Consider device parks and PLI schemes for capex support if applicable.
• Pharmaceuticals: Greenfield 100 percent automatic; brownfield 74 percent automatic / >74 percent government route. This is relevant if you combine hospitals with in-house manufacturing or acquire legacy pharma assets.
• Insurance tie-ups: Budget 2025 announced intent to move insurance FDI to 100 percent (subject to conditions on domestic investment of premiums); watch for final notified rules if your model depends on captive insurance/joint venture (JV) design.

Entity forms

• Wholly owned subsidiary (private limited): Preferred for control, capital raising, ESOPs (Employee Stock Ownership Plan).
• JV: Useful for brownfield turnarounds, local brand access, and faster state clearances.
• LLP: Possible for asset-light services but less common for hospital operating companies due to capital and investor preferences.

Also read: Tax and Incentive Policies to Spur Investment in India’s Healthcare Sector

Healthcare regulatory compliance in India: What you must plan for (by business model)

A. Hospitals and day-care surgery centers

1. NABH accreditation (6th edition)
   • Why it matters: Payer contracts, medical tourism, clinician recruitment, patient trust.
   • What’s new: Higher emphasis on outcomes measurement, safety culture, digitization, and governance. No new 5th-edition applications after December 31, 2024; plan your gap assessment and migration accordingly.
   • Pathways: Entry-level certification (smaller units) → full accreditation. Build in a 9 to 12 month operational readiness program (policies, audits, training, IT systems).
2. State licensing and clinical establishments laws
   • India’s Clinical Establishments (Registration & Regulation) Act, 2010 (CEA) is adopted/implemented in many states/UTs, while others use state-specific private hospital laws (e.g., West Bengal, Gujarat) with added obligations like transparent billing and time-bound approvals. Always validate the state-specific list, rules, and timelines during site selection.
3. Cross-cutting compliance
   • Biomedical waste management (environmental regulator consents), fire & building codes, AERB (Atomic Energy Regulatory Board) approvals for radiology, blood bank/transfusion licenses if applicable, organ transplantation (THOTA or Transplantation of Human Organs and Tissues Act, 1994) approvals for centers of excellence, and PCPNDT (Pre-Conception and Pre-Natal Diagnostic Techniques Act) for ultrasound units.
4. Pricing and advertising
   • NPPA/DPCO price controls may affect stents, implants, and select consumables; marketing must avoid claims restricted under the Drugs and Magic Remedies Act (Objectionable Advertisement).
5. Workforce and foreign clinicians
   • Credentialing must align to NMC (National Medical Commission) norms; foreign doctors need appropriate registration and visas. Implement robust privileging, CME (Continuing Medical Education), and credential audits to satisfy NABH governance clauses.

B. Diagnostics and reference labs

• CEA/state lab rules + quality via NABL (National Accreditation Board for Testing and Calibration Laboratories) (preferred) and NABH program for smaller centers. Ensure sample transport SOPs, EQA/PT (External Quality Assessment/Proficiency Testing) participation, and LIS (Laboratory Information System) security controls meet audit trails and DPDP standards.

C. Medical devices (manufacturing and supply chain)

• Up to 100 percent FDI permitted for medical device manufacturing; licensing under Medical Devices Rules, 2017 via CDSCO (Central Drugs Standard Control Organisation ) (Class A–D). Consider device parks and logistics hubs near major hospital clusters for KAM (Key Account Management) and clinical evaluation studies.

D. Digital health, telemedicine, and platforms

• Teleconsults must follow Telemedicine Practice Guidelines (2020): patient consent, RMP (Registered Medical Practitioner) identification, documentation, prescribing do’s/don’ts, and escalation criteria. Integrate ABDM consent artefacts and DPDP privacy notices, data-retention and breach protocols.
• E-pharmacy rules remain in flux – structure operations to comply with pharmacy licensing and avoid at-risk claim language until specific e-pharmacy regulations are notified (work with local counsel).

NABH accreditation in India: What investors should know

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NABH accreditation in India covers a wide scope of healthcare facilities, including hospitals, small healthcare organizations, clinics, blood banks, imaging services, and emergency departments, with each category having dedicated programs. Investors planning multisite networks should refer to the NABH program list to ensure alignment with accreditation pathways. Governance under NABH requires boards to demonstrate oversight of quality, patient safety, infection control, sentinel event monitoring, and compliance with applicable laws. The 6th-edition NABH Standards also emphasize digital integration, making it important to invest early in electronic medical records (EMR), incident reporting systems, audit dashboards, and patient-reported outcome measures (PROMs). Additionally, procurement and material management systems must be structured with traceability for implants and consumables, ensuring compliance with both NABH requirements and price-control audits.

Compliant building: Step-by-step incorporation and launch

• Choose structure and capital plan

Private limited WOS or JV; align FDI inflow with FEMA/Companies Act filings, pricing guidelines, shareholder rights, and any put/call mechanics.

• Location diligence

Zoning norms, hospital floor-area rules, fire exits/ramps, bed spacing, radiation-shielding feasibility. Pick states with clear CEA regimes or predictable private hospital rules.

• Licensing calendar

Adopt parallel-path strategy for building/fire NOCs (No Objection Certificate), Pollution Control consents, AERB, blood bank (if any), biomedical waste authorization, pharmacy license, clinical establishment registration, and trade licenses.

• Quality program from Day 0

Appoint a Quality Head, Infection Control Committee, and set SOPs, audits, credentialing, incident reporting, and M&M meets (morbidity and mortality meetings) to be NABH-ready before opening. This is a strategic trust-builder with patients, regulators, and payers.

• Data protection and ABDM

Draft privacy policies, purpose limitation, retention schedules, DPO (Data Protection Officer) role, consent logs, breach playbooks; if integrating with ABDM, align to health-ID and consent artefacts.

• Commercials and payer strategy

Build tariffs with transparency; monitor NPPA (National Pharmaceutical Pricing Authority)-controlled items; design package contracts with TPA (Third-Party Administrator) /insurers (and international patient flows) that reflect case-mix and LOS (Length of Stay) targets.

• Clinical governance

Medical bylaws, privileging matrix, peer review, CME plan, antibiograms, antimicrobial stewardship, and safety walk-rounds.

Risk and compliance watchlist (2025)

• State-level transparency and inspections are tightening. West Bengal’s amendment bill on billing transparency (The West Bengal Clinical Establishments (Registration, Regulation and Transparency) (Amendment) Bill, 2025), Kerala’s push to formalize inspection rules (following a public interest litigation (PIL) filed in July 2025, prompted by incidents of facility collapse at Kottayam Medical College and reports of severe equipment shortages Thiruvananthapuram Medical College). Healthcare investors in the Indian market should expect more oversight on pricing, grievance redressal, and facility safety. Bake transparency into your rev-cycle systems (Revenue Cycle Management (RCM) systems).
• Insurance FDI changes. Track final notifications if partnering with or floating insurance ventures alongside provider networks.
• Data breaches. DPDP enforcement will test provider preparedness – invest in IAM (Identity and Access Management), encryption, and incident response tabletop exercises.

Capital strategies that work

• Brownfield turnarounds: Acquire under-performing assets, invest in clinical programs (oncology/cardiac/neuro), and fast-track to NABH 6th-edition to lift payer mix and ARPOB (Average Revenue Per Occupied Bed).
• Asset-light networks: Day-care surgery, dialysis, oncology day centers, and diagnostics hubs offer faster payback with smaller regulatory footprints (but maintain the same quality bar).
• Device-provider synergies: Devices players can anchor clinical evaluation, training labs, and service hubs inside hospital ecosystems while leveraging 100 percent FDI and India’s device parks.
• Digital front-doors: Tele-triage + care navigation + home health with compliant e-prescribing; integrate ABDM for portability and payer acceptance.

Key tip: At every decision node, validate FDI route, state-specific licensing matrix, and NABH 6th ed readiness to avoid costly delays in commissioning or payer tie-ups.

Healthcare business incorporation in India: Checklist + NABH roadmap (2025 Edition)

1. Entry route and entity

• ☐ Confirm sector: Hospital / Day-care / Diagnostics / Devices / Digital Health
• ☐ Verify FDI cap and route (Automatic vs Govt)
• ☐ Finalize entity structure (Private Ltd / JV / LLP)
• ☐ File FEMA & Companies Act compliances

2. Location and licensing

• ☐ Assess state laws: CEA vs state-specific private hospital acts
• ☐ Validate building/zoning/fire safety requirements
• ☐ Plan biomedical waste, AERB, blood bank (if applicable), pharmacy licenses
• ☐ Check state-specific obligations: billing transparency, inspection regime

3. Quality and accreditation (NABH)

• ☐ Commit to NABH 6th edition standards (effective January 1, 2025)
• ☐ Choose pathway: Entry-level → Full accreditation (for smaller units)
• ☐ Establish Quality Head, Infection Control Committee, M&M audits
• ☐ Digitize: EMR, audit dashboards, PROMs, incident reporting

4. Data and digital compliance

• ☐ Draft privacy policy + consent templates (DPDP Act)
• ☐ Appoint Data Protection Officer (DPO)
• ☐ Implement encryption, role-based access, breach protocols
• ☐ Align systems with ABDM interoperability standards

5. Payer and commercial strategy

• ☐ Review NPPA price controls (stents, implants, consumables)
• ☐ Set tariff transparency & billing SOPs
• ☐ Structure TPA/insurer contracts (case-mix, LOS targets)
• ☐ Evaluate international patient flows (medical tourism)

NABH implementation roadmap

Greenfield build

Phase 1 – Design and planning (0-6 months)

• ☐ Integrate NABH 6th ed standards into hospital design
• ☐ Draft SOPs for clinical governance & infection control
• ☐ Build IT stack for EMR & quality dashboards

Phase 2 – Pre-operations (6-12 months)

• ☐ Recruit & credential clinicians per NMC norms
• ☐ Train staff in quality, safety, and incident reporting
• ☐ Conduct internal mock audits & gap assessments

Phase 3 – Go-live and accreditation (12-18 months)

• ☐ Apply for NABH entry-level accreditation (if applicable)
• ☐ Submit documentation + compliance evidence
• ☐ Prepare for full accreditation survey within 12 months

Brownfield acquisition / JV

Phase 1 – Due diligence (0-3 months)

• ☐ Audit existing NABH status (if any)
• ☐ Assess compliance gaps vs 6th edition
• ☐ Evaluate capex for safety, IT, and quality upgrades

Phase 2 – Stabilization (3-9 months)

• ☐ Standardize SOPs & credentialing processes
• ☐ Migrate to digital quality reporting & incident tracking
• ☐ Address deficiencies in infection control & governance

Phase 3 – Accreditation upgrade (9-15 months)

• ☐ Apply for migration from 5th ed to 6th ed (if existing)
• ☐ Conduct mock audits & external gap analysis
• ☐ Target NABH full accreditation for payer & tourism readiness

Key tip: Treat NABH 6th edition as your operating system, not just a certificate. It drives patient trust, payer acceptance, and enterprise value uplift.

FAQs on healthcare business incorporation in India (2025)

Q1. What is NABH accreditation in India and why is it important?

NABH (National Accreditation Board for Hospitals and Healthcare Providers) sets quality and patient safety standards for hospitals, clinics, etc. in India. Accreditation is crucial for gaining patient trust, securing insurer contracts, attracting medical tourism, and complying with the latest 6th-edition standards effective January 1, 2025.

Q2. Can foreign companies own 100 percent of a hospital in India?

Yes. India allows up to 100 percent FDI in hospitals and diagnostics under the automatic route, meaning no prior government approval is required. This makes it easier for foreign hospital chains and investors to set up or acquire healthcare facilities in India.

Q3. What are the compliance requirements for starting a hospital in India?

Hospitals must register under the Clinical Establishments Act (CEA) or state-specific laws, obtain fire and building NOCs, biomedical waste authorization, and approvals for radiology, blood banks, or organ transplantation (if applicable). To attract insurers and patients, NABH accreditation is strongly recommended.

Q4. What are the FDI rules for medical devices in India?

India permits 100 percent FDI in medical device manufacturing under the automatic route. Businesses must comply with the Medical Devices Rules, 2017 through licensing with the Central Drugs Standard Control Organisation (CDSCO). Device parks and incentives under Production-Linked Incentive (PLI) schemes further support investment.

Q5. Is telemedicine legal in India?

Yes. The Telemedicine Practice Guidelines (2020) provide a legal framework for remote consultations. Registered Medical Practitioners must ensure patient consent, proper documentation, and compliance with prescribing rules. Startups must also align operations with the Ayushman Bharat Digital Mission (ABDM) and India’s Data Protection Act (DPDP 2023).

Q6. What are the best structures for incorporating a healthcare business in India?

The most common forms are:

• Private Limited Company (Wholly Owned Subsidiary): Full control, preferred by foreign investors.
• Joint Venture (JV): Useful for partnerships and brownfield acquisitions.
• Limited Liability Partnership (LLP): Suitable for asset-light healthcare services, though less common for hospitals.

Q7. How can digital health and e-pharmacy businesses operate in India?

Among others, digital health platforms must comply with CDSCO, Telemedicine Guidelines, ABDM standards, and DPDP data privacy laws. India’s e-pharmacy sector operates within the framework of the Drugs and Cosmetics Act, 1940 and the Drugs and Cosmetics Rules, 1945, further clarified through a 2015 Drugs Controller General of India (DCGI) directive and the Drugs and Cosmetics (Amendment) Rules, 2018. E-pharmacy regulations are pending, so companies should operate under valid pharmacy licenses while monitoring for updated rules and ensure compliance with relevant laws and regulators. Operators must comply with IT and data privacy norms, ensure tamper-proof packaging, maintain detailed records, and avoid restricted drugs such as narcotics.

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