Till recently, clinical research in India was governed by the Drug and Cosmetics Act, 1940. Weak patent laws, a protectionist economy and a fear of Indians being used as guinea pigs by MNCs created challenges for the industry. India signed the Trade Related Aspects of Intellectual Property Rights agreement under the WTO guidelines, which became effective in India in January 2005 allowing Indian patent laws to recognise 20-year product patents, consistent with international standards.

In 2000, the Indian Council of Medical Research issued the Ethical Guidelines for Biomedical Research on Human Subjects followed by 2002's Good Clinical Practices for Clinical Research in India. Also in 2002, the government allowed 100 per cent direct foreign ownership of pharma firms in India. In 2005, it eliminated import duties for investigational drugs to be used in trials. Besides in 2007 the Centre eliminated the 12 per cent service tax on the conduct of clinical research.

Prior to 2005, a major stumbling block for conducting trials in India was the requirement of a `phase lag’ (which meant a Phase II study could be performed only while a Phase III was ongoing in another country).

In July 2007, India joined the United States, UK, Australia, and New Zealand to create an online registry similar to the FDA's clinicaltrials.gov to allow for registration of trials being conducted in India. The Drugs Controller General of India is developing a structure of self-regulation combined with government oversight similar to the FDA.