Even as the current government raises the pitch for the ‘Make In India’ campaign, medical equipment manufacturers in India are struggling to use their capacity to the fullest due to the unfavuorable business environment. In such circumstances how will the concept work for the Indian healthcare sector? By Raelene Kambli
Union Finance Minister, Arun Jaitley during the Budget 2015 session reiterated PM Narendra Modi’s vision of making India a global manufacturing hub. In his budget speech, the FM defined the road map for the ‘Make in India campaign’ which is a key pillar of the government’s strategy to rectify the country’s multiple socio-economic problems. The FM further, urged the industry to manufacture medical equipment in India and kick-start thinking on the agenda of ‘Healthcare for All’. For this reason, he announced a reduction of custom duties for raw materials and unveiled many proposals to cut down delays in manufacturing projects clearance, developing infrastructure, creating a business environment and more importantly to generate employment. All to be done to lead the Make in India campaign to success.
However, with Indians bearing maximum of their healthcare spending out-of-pocket and with most medical equipment being imported for India, will the Make in India concept work for healthcare? We seek to find out….
The Make in India vision
India’s overall mainufacturing sector contributes to about 16-17 per cent to the GDP out of which the medical device manufacturing contributes only 0.2 per cent. The campaign which was launched last year September aims to increase the overall manufactuirng share to 25 per cent by 2022.
The vision behind this campaign is to put the country on the global manufacturing map and, in turn, facilitate the inflow of new technology and capital, while creating millions of jobs. Under this flagship campaign, the government has identified 25 sectors that have huge scope to draw foreign as well as Indian companies to manufacture in India. Pharma and healthcare are amongst them. According to the PM, the campaign can act as a catalyst to make healthcare accessible and affordable in India. During the Make in India conference organised by the Dept of Industrial Promotion and Policies (DIPP) on December last year, the PM said, “Make in India” vision is realised even in the medical devices field which is close to 35,000 crore industry with over 80 per cent import dependency. We are all hopeful with new initiatives like 100 per cent FDI for both green and brown field projects, right incentives for domestic manufacturing and Buy India policy, medical devices also will grow like pharma industry starting from 2015 and become import independent by 2020”.
Industry’s viewpoint
Currently, the Make in India campaign has picked up momentum in areas of defence and electronics manufacturing. Where the healthcare and pharma sectors are concerned, industry experts opine that the move can certainly act as a catalyst for change. Rajiv Nath, Forum Coordinator AIMED feels, “The idea is simple, yet powerful and visionary. India is in transition and for the next level of development to happen. India needs to create new avenues for growth and employment. Unfortunately, despite potential, manufacturing lagged behind due to myopic policies pursued by governments over the years. Result has been that on one hand we stumped domestic manufacturing and on the other, we became heavily import dependent in critical sectors like medical devices. Make in India vision aspires to correct certain anomalies and be an answer to many challenges facing the country”. Elaborating further on how the medical device industry can play its part in realising the vision of the campaign, he says, “The medical device sector has been identified by the government task force as one of five key sectors which can be a driver for the ‘Make in India’ campaign. And there are valid reasons for this conclusion. The industry is already the size of $ five billion and expected to grow to $ 30 billion by 2022. Additionally, manufacturing and employment opportunities are huge as this sector is import dependant of over 70 per cent. Moreover, within the electronic medical device segment the import dependency is almost 90 per cent.”
On the same lines Anjan Bose, Secretary General NATHEALTH, says, “Make in India is an excellent concept, which should result in many benefits for healthcare and pharma industry as well as citizens of India”. Explaining further the idea behind the campaign he goes on, “The idea of this campaign is to create the right products for the Indian market at the right price levels. Also this will result in increased local employment that will certainly help the economy and the nation. These products can also be considered for export which will increase our forex (foreign exchange) earning. ‘Brand India’ will go more global!”
Medical technology manufacturer and industry leader, Dr G S K Velu, MD, Trivitron Healthcare also feels that the concept is a good initiative to boost manufacturers within the healthcare sector. He states, “There are some significant benefits to this move which will bring down the cost of medical equipment and devices by 30 to 50 per cent and also the uptime of equipment in tier 2/3/4 towns will improve due to easier availability of spare parts. Local production will also lead to additional employment generation, local R&D and local skill development programmes. Moreover, the PM’s vision has already attracted some major MNC players are attracted to set up low cost manufacturing units in India to serve emerging market. The first step has been taken by American conglomerate, General Electric (GE) who has already started shipping ultra low-cost medical devices made in India to emerging markets globally. These products will be up to 40 per cent cheaper and is expected to address 10-15 per cent of the global healthcare equipment market.
While industry analysts and equipment manufacturers feel that this campaign can give an impetus to the industry, healthcare providers hope that this campaign will improve basic healthcare indicators and sanitation and infrastructure needs in rural India. Dr Ramakanta Panda, VC-MD, Asian Heart Institute states, “Make in India has to be a way of life. As manufacturing facilities will get set up in the remotest parts of our country, people will begin to enjoy the benefits of basics such as access to sanitation.”
Explaining how diagnostic sector can be a part of this initiative, Ameera Shah, MD Metropolis Healthcare, shares, “From a diagnostic industry perspective, our business is hit very badly due to rupee depreciation because 30 per cent of our P&L goes in chemicals to conduct tests. These chemicals are imported and are heavily taxed. We pay almost 25-30 per cent of tax on these imported chemicals. Today the problem is that as the rupee fluctuates, our cost of importing these chemicals goes up and we can’t pass on the cost burden to our patients. The other problem is that we don’t have good indigenous chemical manufacturers in India from whom we can buy these chemicals and reagents. So, if the industry is encouraged to produce these chemicals in India, it will not only benefit these manufacturers but also the entire diagnostic industry and offcourse patients at large as this will even help in reducing the cost of diagnostic tests. Therefore, the Make in India campaign should not only focus on equipment but also diagnostic chemical and reagents.”
Adds, Rajan Datar, Founder, Datar Genetics, “From Jaipur foot to Embrace Global’s low cost infant warmers and incubators, India has always shown a strong tradition to make in India. The initiative has two parts to it, one is technology and the other is manufacturing”.
Citing some more success stories, Dr Panda, says, “Sustainability is the key. No enterprise can survive if it is not sustainable. There are inspiring models like Aravinda Eye Care, which has been manufacturing its own intraocular lenses (IOLs) used in cataract surgery and providing service to millions of people who cannot afford it. Or Kanungo Diabetes in healthcare, a set up in Odisha that caters to rural populations. The scale of impact is something that will be built with time. The seeds have to be sown at the earliest. Any entrepreneur who can commit to a certain healthcare need, and build economies of scale in volume terms around it, will surely succeed.”
Experts further believe that hospital furniture, such as trolleys, beds, wheelchairs, stools, common usage items such as syringes, needles catheters, gloves, ventilators, pumps, simple diagnostic machines such as X-rays, low-end sonography machines, glucose monitors etc; should definitely be manufactured in India.
The vision of Make in India is indeed acceptable by the industry, but do we have the wherewithal to realise it? Do we have favourable policies and tax structures to encourage manufacturers or is this campaign’s pro-business reform propaganda, a political gimmick?
Dreams or Delusion?
India has enough fundamental strength that will help foster this vision. A huge domestic market, technical expertise, plentiful natural and financial resources as well as a large pool of entrepreneurs who wish to contribute to this cause. But without government backing this dream will only be delusion.
As a note of caution, Reserve Bank of India Governor Raghuram Rajan during a lecture organised by Federation of Indian Chambers of Commerce and Industry (Ficci) said, “Too much focus on manufacturing and an export-led growth path may not work in India as it has done for China. I am cautioning against picking a particular sector such as manufacturing for encouragement, simply because it has worked well for China… India is different and developing at a different time. We should be agnostic about what will work. Such a strategy will not pay for India due to the tepid global economic recovery. Other emerging markets could absorb more, and a regional focus for exports will pay off. But the world as a whole is unlikely to be able to accommodate another export-led China.”
Further on, he goes on to say, “Instead, the focus should be ‘Make for India’, which will produce for the internal market”. He says this because, China whose strategy we seem to follow under this campaign, has moved away from the export-led growth model and is concentrating on production geared to domestic demand. “Indian manufacturers should also cater to domestic demand. This is because the global scene is not as upbeat as before and external demand coming from US and the EU is weak and not enough to sustain export led growth”, he sums.
Indian Players
Majore Indian players include: Hindustan Syringes & Medical Devices, Opto Circuits (India), Wipro GE Healthcare, 3M India, Medtronic, J&J, Becton Dickinson, Abbott Vascular, Bausch & Lomb, Baxter, Zimmer India, Edwards Life Sciences, St Jude Medical, Stryker, Boston Scientific, BPL Healthcare India, Sushrut Surgicals, Trivitron, Accurex Biomedical, Biopore Surgicals, Endomed Technologies, Forus Health, HD Medical Services (India), Eastern Medikit, Harsoria Healthcare, Nidhi Meditech System, Philips Medical, Wipro, HCL Tech and Texas Instruments.
Meanwhile, industry experts also express certainly ambiguities associated with realising the big Make in India vision. Says Dr Velu, “Firstly, there should be a fair play field as the current fiscal policies and tax structure favour imports and there are no incentives for manufacturing in India”. Nath, explains, “The current inverted duty structure whereby the import of medical devices is at 0 per cent basic and 0 per cent special additional duty (SAD) in most cases and five per cent basic and O per cent SAD in some cases whereas the import of raw materials and components are at peak duty rates – hence the lopsided tax regime does not make the projects viable”. “Why will foreign companies invest if they can easily access and exploit Asia’s 4th largest market with negligible duties and build their brand image without having the headaches of putting up greenfield projects at considerable, investment costs and efforts ?”, Nath further questions the government. He then goes on to say, “There has to be ease of business policies by bureaucracy and a strategy by political leadership need to be on the same page of the Prime Minister’s vision. Mere sloganeering and lip service are not going to yield results. Small doses of reforms and policy facilitations for public consumption are also not going to yield results. Government needs to take some concrete, hard long term decisions which will truly make India a manufacturing powerhouse”.
With lack of favourable tax policy accomplishing the goals of the campaign will be arduous. Nevertheless, the industry is making efforts to speak with the government and negotiate on the tax policies for medical devices.
Measures for success
Nath informs that the AIMED prior to the Union budget 2015 had sent some recommendations to the FM on revising the tax structures to simplify medical device manufacturing in India. Although these recommendations were overlooked during the budget, the ministry has promised to consider them soon. Some of these recommendations are listed below:
- Reversal and rationalisation of inverted duty structure: If government really wishes to encourage ‘Make in India’, it has to remove this anomaly at the earliest.
- Absence of export substitution policy: Due to an aggressive export substitution policies followed by countries such as China, Indian manufacturers/ products are simply unable to compete on lowest price criteria alone in any public tender. AIMED have been demanding an encouraging export substitution policy for subsidising a Brand India export promotion (not OEM) along with domestic preferential public procurement policy to create a level playing field between imports and domestically manufactured goods.
- Domestic preferential public procurement policy: Countries such as China are not only the leading manufacturers of medical devices but they also follow a ‘domestic preferential public procurement policy’ whereby they give 15-20 per cent price preference to domestically manufactured goods in public procurement. India follows no such policy. Government of India needs to formulate a 15 per cent price preferential ‘Buy Indian Procur ement Policy” in Indian public healthcare system which will also be in sync with policies followed in countries such as US and China and will also be in line with Prime Minister Modi’s vision of ‘Make in India.’ This needs to be put in place at the earliest.
- De-clubbing of medical device sector from drug and cosmetics sector: Currently, medical device industry in India is incorrectly and incompletely governed under the provisions of the Drugs & Cosmetic Act 1940 & Rules 1945 and nodal regulatory authorities are Drugs Controller General (India) and Directorate General of Health Services, Ministry of Health and Family Welfare! At present, there is no nodal or separate body for regulating or supporting medical device industry. So, this sector is nobody’s baby but everyone’s business! World over this does not happen as medical device industry is different from drugs and cosmetics. We have demanded changes in the Act and creation of a separate regulatory authority and also a Department to support medical device industry on the lines of Ayush. Medical device sector should never have been and should not be clubbed with drugs and cosmetics.
Apart from this, Dr Panda suggests that FDI is key and since it’s allowed in both ‘greenfield’ and brownfield’ projects; this is a much needed fillip for the industry. The creation of SEZs with tax incentives will also help, but these have to be identified carefully. Healthcare is a fundamental right; we need to do a deep evaluation on the impact of this move.
“India is a smouldering cauldron of inequities, a rapidly developing economy with a very small super-rich class, fast expanding middle class and 22 per cent still under the poverty line. I have said this before. India has to talk health in terms of infant mortality rates (IMR), maternal mortality ratios (MMR) and life expectancies. The “Make in India” campaign has to look at how to improve these basic indices which are a reflection of our healthcare- with better reach and accessibility. If every child has to walk 2 km for a toilet and 5 km for a clinic, it is best that we start with making toilets, medicines and hospitals in India”, he adds.
Bose sums up saying, “India still imports around 80-85 per cent of its medical technology. With judicious plans and efficient implementation, the private sector and government need to work hand in hand as one team to make further progress and make India one of the global hubs of innovation and manufacturing in healthcare particularly medical technology. We can also learn from the models adopted by other countries successful in this area. Ireland is an example”.
Moving ahead
So, what should be the way forward? According to experts, the coming few months are critical as the government will fully unveil its reform agenda and roadmaps for implementation. There is no doubt about the potential and opportunities this initiative possesses. But Indian manufacturers, foreign investors and the government will also have to focus very seriously on the risk side of the equation. All in all, a prerequisite for the success of this campaign will be assessing, understanding and working towards mitigating the road blocks. Last but not least, it’s important to ponder over the fact that does India only needs its manufacturers to make in India or also to make for India?
Going by the current situation, the way forward should be low-cost quality devices manufactured in India for India. This will not only increase affordability and availability of healthcare products but will also eventually lower market prices for medical equipment.
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