Union Budget 2021 – Indian medical device manufacturers keep their hopes high for a level play to contribute for Affordable and Accessible Healthcare

 

I believe the time has come for our Finance Minister to make a new future for India by giving a huge impetus to the making of Atma Nirbhar Bharat in healthcare. Healthy India means Happy India.

Current pandemic has shown that the diagnostic industry is a very essential part of healthcare sector in every country. Without adequate diagnostic tests, it would have been impossible to control the spread of COVID-19.

The domestic diagnostic industry is still a very small industry, estimated at USD 9 bn (around INR 675 bn), and is expected to grow at a compounded annual growth rate (CAGR) of ~10% over the next 5 years. Growth will be primarily driven by a change in demographics, increase in lifestyle diseases, and higher income levels across all strata of society, rise in preventive testing, deeper penetration with asset-light expansion, and spread of healthcare services and insurance.

Having said that the industry looks forward to crucial government support that is needed to help this industry grow for the Atma Nirbhar Bharat. The government also needs to follow the WHO recommendation for making essential diagnostics available free of cost to everyone in the country.

While technology is expected to continue to make in-roads, I reiterate that affordability and accessibility of healthcare need to take center stage. I am hoping that a major focus in the Union Budget 2021 will be given to the diagnostic industry, as it is the starting point to building a Healthy and Happy India. As per WHO, over 70% of treatment decisions depend on diagnostic tests.

While Make in India continues to remain the central focus for the government, as an Indian manufacturer, we wish there would have been some more efforts on encouraging Make in India and reducing the dependency on imports. Make in India is the only way to make healthcare more affordable in India. However, at present there is very little incentive for a medical devices company to change from importing and begin Make in India.

As an industry body member, I expect the following from the Union Budget 2021, to encourage Make in India:

Why India should support development of Diagnostic industry?

As the COVID pandemic has shown, diagnostic tests are absolutely essential for preventing spread of every disease. We all know that not only prevention is better than cure but prevention costs just 2% of what it costs to cure. Hence it is essential that a developing country like India should spend more money on the prevention of disease than on curing it.

High GST of 18% on diagnostic equipment:
It is unbelievable that the Government is charging the same high GST rate of 18% even on essential diagnostic equipment as it does on non-essential products. We have been demanding a reduction in the GST rate on medical supplies, diagnostic equipment, and devices from the current 18 percent to 5 percent. This would help in making affordable healthcare a reality.

The reality is that introduction of GST has worked against Make in India. The implementation of GST has led to imported devices being cheaper by 11%. In addition, there being no import duty on blood analyzers, makes it difficult for the Indian manufacturers to compete with the cheaper imports. The interests of the domestic manufacturers need to be protected through a revision in the GST regime so that not everyone gets the benefit of input credit.

Providing free healthcare to every citizen of India is the Government’s constitutional responsibility. It needs to focus on reducing the medical expenditure burden on general public, which currently bears almost 70 percent of all medical expenditure. While the government has exempted healthcare services from GST, the taxation on the medical supplies and devices ultimately is a hindrance in bringing down the cost of treatment. The common man can get some relief from this burden by a reduction in the GST rate on medical supplies, diagnostic equipment, and devices. The GST rate, which currently stands at 18 percent, should be no more than 5 percent.   

Inverted import duty structure:
Even now, the import duty on several raw materials is higher than that on finished products. In fact, India's import duty is the lowest among BRIC countries, at zero to 7.5 percent - making it cheaper to import devices rather than encouraging homegrown, cutting edge technology Indian devices. This should be raised to 15-20 percent, as lower import duties dissuade manufacturers from producing them in India. To reduce the dependency on imports, we expected the Government to provide reasonable tariff protection for enabling Make in India.

Production-Linked Incentive (PLI) Scheme:
We urge the government to extend such schemes to the IVD sector; especially Indian manufacturers. This will make Indian manufacturers globally competitive, attract investment in the areas of core competency and cutting-edge technology; ensure efficiencies; create economies of scale; enhance exports and make India an integral part of the global supply chain. The PLI scheme will incentivize domestic manufacturers like us to engage in high-value production.

R&D:
Today medical technology is developing very fast. To keep up with the changing technology, Indian manufacturers need to build R&D infrastructure which needs a huge amount of investment in R&D. To encourage R&D in India, we expect the Government to provide a 200% weighted tax deduction on expenditure made on R&D of medical devices.

Encouraging exports:
The introduction of export incentives would lead to further encouraging this growth engine for the economy and help India become a global leader in medical devices.

The above changes can fulfill the Government’s commitment to an affordable healthcare system for all.

Authored by:

Mr. Suresh Vazirani
Founder Chairman & Managing Director
Transasia-Erba Group