The changes in patent rights stem from India's membership in the World Trade Organisation, which enhances the country's participation in global trade but requires it to enforce stricter patent rules for its $5 billion pharmaceutical industry.
International aid groups on Wednesday said the new law will curb the supply of cheap generic drugs to impoverished nations, threatening the survival of Aids and cancer patients.
About 50% of 700,000 HIV patients taking antiretroviral medicines in Africa, Asia and Latin America rely on low-cost drugs from India.
A month's dose of a generic Aids drug cocktail costs $30, or 5% of similar drugs sold by Western producers.
Because India is one of the world's biggest producers of generic drugs, this law will have a severe knock-on effect on many developing countries which depend on imported generic drugs from India," Samar Verma, regional policy adviser at Oxfam International, said.
A majority of HIV patients
depend on low-cost drugs
The Paris-based Doctors Without Borders described the Indian move as "the beginning of the end of affordable generics".
Multinational drug companies welcomed the decision.
It "will move India toward the patent mainstream and support and encourage innovation and investment in research and development in India", Ranjit Sahani, managing director of Novartis India, said.
The bill was approved on Wednesday by parliament's upper house.
On Tuesday, it was ratified by the powerful lower house after the government agreed to last-minute changes demanded by leftist allies to placate fears that multinational companies could extend the duration of their patents indefinitely and gain dominance of India's market.
The amendments sought to tighten the definition of "new inventions" to prevent drug companies from winning new patents by making minor changes to existing drugs.
"This law will have a severe knock-on effect on many developing countries which depend on imported generic drugs from India"
The law also allows patents to be challenged before they are granted - a move opposed by multinationals but long demanded by the domestic industry.
Officials also allayed fears that the new law will push up prices of essential medicines.
Jairam Ramesh, the governing Congress party's economic adviser, said more than 90% of essential medicines currently sold in the country are generic products with expired patents.
Also, nothing in the new law prevents the government from setting caps on prices of new essential drugs in the future, Ramesh said.