The Reserve Bank of India (RBI) will continue to allow overseas capital up to 100 percent in greenfield pharmaceutical projects through the automatic route, but existing companies would need the government's approval for the same.

"FDI (foreign direct investment) up to 100 percent, under the automatic route, would continue to be permitted for greenfield investments in the pharmaceuticals sector," said Rashmi Fauzdar, RBI chief general manager, in a notification on foreign investment in the sector.

The apex bank added that FDI of up to 100 percent would be permitted for investing in existing companies under the government approval route.

The government had last month mandated overseas investors to take prior approval from the Foreign Investment Promotion Board (FIPB) for any merger or acquisition.

Chemicals and Fertilisers Minister Srikant Jena had said the overseas companies interested in India have to demonstrate the value addition that they would bring in for getting the government's approval in brownfield investments.

"The acquiring companies need to clearly demonstrate the value addition brought forth, either for servicing the domestic segment or significant increases in export earnings," Jena had said.

"The motive should not merely be shopping of Indian companies to access one of the highest growth markets in India, or to acquire facilities and reduce competition of potential Indian pharma industry in its quest for access to emerging export markets."