Right diagnosis, wrong pills

While the Centre has rightfully recognised medical devices as a separate category for policy making, its decision to allow 100 per cent foreign investment in the sector will threaten domestic players

By Kundan Pandey
Published: Sunday 15 February 2015

Right diagnosis, wrong pills

WITH THE hope of making healthcare affordable, the Centre on December 24 last year allowed 100 per cent foreign direct investment (FDI) in medical devices sector. The policy also recognised medical devices as a separate category for the first time which was till now a part of drugs.

V K Subburaj, secretary, Department of Pharmaceuticals, says the move will reduce India’s excessive dependency on imports for medical devices which at present stand at 85 per cent. The country is ranked among the world’s top 20 medical device users by UK-based research group Espicom. And domestic manufacturers say the demand is increasing every year.

Though the government is right in reading the challenges faced by the industry, the solution, fear manufacturers and experts, has the potential to worsen the situation. Rajiv Nath, coordinator of the Association of Indian Medical Device Industry, says the decision will create problems for small manufacturers. Nath’s concern stems from the fact that most medical device manufacturers in the country are small when compared to global manufacturers. He says just 50 domestic manufacturers have over Rs 50 crore turnover in medical devices and most of the others are even smaller.

“The move to allow 100 per cent FDI in brownfield projects would make small manufacturers easy pickings for MNCs,” says he. Shobha Mishra, director of health services at industry body FICCI, says that while the move will help startups get funding, “acquisition of small manufacturer by multinationals” is a fear the government needs to address.


Domestic manufactures have, however, welcomed the decision to create a separate category for medical devices for policy making. As per the Cabinet order, medical devices will now fall under the medical and dental instruments and supplies category. Sanjay Banerjee, chairperson of the India chapter of the Advance Medical Technology Association, an international group of medical device manufacturers, says it was a long-standing demand which has finally been met.

Make domestic firms stronger

Allowing free flow of foreign funds is a practice followed in the US where big manufacturers control the sector. Experts say India should, instead, follow the model found in Japan, Europe, China and ASEAN countries that creates an environment conducive for small and medium manufacturers.

K M Gopakumar from non-profit Third World Network says foreign investment is not required because the country is already capable of manufacturing most medical devices locally. “But they (local manufacturers) are unable to reach the people because of a nexus between multinationals and hospitals,” says he. This could have been addressed if the new policy had preferential clause to push domestic manufacturers, a practice popular in most developing countries. China, for example, gives a 15 per cent preferential pricing to local manufacturers. Indonesia, Malaysia, Jordan and Turkey pay 15 to 20 per cent higher price to domestic producers than MNCs while awarding public health tenders. Even the World Bank gives preference to domestic manufacturers in its public health tenders.

Manufacturers also say the country should increase import duty on medical devices by at least 10 per cent. Nath says such moves will make manufacturing more viable in India and will attract domestic investors in the sector. This is better than importing because “almost all devices present in developing countries have been designed for use in industrialised countries”, says a 2010 World Health Organization report.

The reason healthcare devices are expensive in the country, says Gopakumar, is because the sector has no price control and the existing policies encourage imports. “The import duty on finished devices is lesser than importing individual parts for a device,” says he. This highlights the government’s willingness to benefit multinationals.

Experts say that the country’s growing demand for medical devices should be met by domestic players and not by multinationals. This, they say, will happen only if the government creates a more conducive environment that will allow domestic players to grow.

India can be a medical devices hub
imageThe Centre's decision to allow 100 per cent FDI to manufacture medical devices will benefit only multinationals who will push domestic players out of business, believes Rajiv Nath, coordinator of the Association of Indian Medical Device Industry. In an interview to Kundan Pandey, he says the government should focus on enabling domestic players to meet the country's growing demand for medical devices
Why are domestic manufacturers opposing the Centre's decision to allow 100 per cent FDI in the medical device industry?

We are not opposing FDI in the industry. But there are caveats. We are against 100 per cent FDI in brownfield projects. The move will not only kill existing domestic manufacturers by making them an easy target for takeovers but will also defeat the very purpose of reducing import dependency or encouraging manufacturing of medical devices within the country.

Last time when FDI was permitted in the sector without conditions to increase manufacturing within the country, the whole idea got defeated as foreign companies simply put up marketing and trading shops in India without creating manufacturing bases. They simply imported goods and sold them here, increasing the country's import dependency. This time too, such things are going to happen. In a letter to MoS, commerce and industry, NirmalaSitharaman, we have demanded a blanket ban on FDI in brownfield projects. For greenfield projects, we have demanded that at least 60 per cent of overall goods being sold by a foreign company in India have to be manufactured within the country.

How big is the medical device industry in the country? How much of it is imported?

The size of the Indian medical device market is nearly Rs 30,000 crore. The industry is expected to grow nearly 10-fold in next 10 years because of increased healthcare spending, income and population growth. India's import dependency has been increasing over the years. In some electronic medical device segments, it is as high as 90 per cent.

What are the major challenges the industry is facing?

India has the potential and wherewithal to become a global manufacturing hub for medical devices. Yet, we have become import dependent. Some of the issues the industry is facing are rationalisation of tax structure, absence of export substitution policy, domestic preferential public procurement policy, separation of the medical device sector from drugs and cosmetics sector. As a result, a large number of domestic medical device manufacturers have either shut shop or turned importers.

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