Will Union Budget 2020 address Indian medical device manufacturers’ woes?

Updated : January 21, 2020 02:39 PM IST

Incentivise traders to become manufacturers rather than encouraging manufacturers to import and sell under their brands.

The GST on medical devices gave a competitive advantage to imports by reducing the cost of equipment by over 10 percent.

Even though the year 2019 witnessed significant developments, there is an urgent need for the government to accelerate further reforms and supportive measures in 2020 to make India a global medical device manufacturing hub, reduce import dependency in this sector which is still at 80-90 percent, minimising outgo of foreign reserves, and making quality healthcare affordable and accessible to the masses at large.

As the market is barely growing at 10-12 percent overall, a 24 percent increase in imports indicates further erosion of 10-30 percent domestic market share to 10-20 percent.

The goods and services tax on medical devices gave a competitive advantage to imports by reducing the cost of an imported medical device by over 10 percent and is detrimental to ‘Make in India’ programme. MSME sector has been the worst hit with huge job losses.

If we compare other large developing countries, i.e., BRICS countries, we will find that India is possibly levying the lowest import duty on medical devices.

BRICS countries’ taxation:

Taxation on Medical Devices (HS Code 9018) in BRICS countries

Duty / Tax Brazil Russia China South Africa India

Import Duty 14% 0% to 15% 3.3% to 4% 0% to 20% 0% to 7.5%

VAT/ Sales Tax/ GST 17% NIL 17% 14% 12%

Even as medical device makers in America allege the regulatory environment in India has hindered the growth of their export, the data suggests otherwise. India imports around 80 percent of its medical devices requirement and over a fifth of that come from the US. The top 5 countries that India imports medical devices from are the USA (21 percent), Germany (14 percent), Singapore (11 percent), China 10 percent and the Netherlands (7 percent).

There is an urgent need for the government to expedite steps to end the 80-90 percent import dependence forced upon us and an ever-increasing import bill of over Rs 38,837 crore, expedite steps for patients’ protection, stronger quality and safety regulations, price controls to make medical devices and quality treatment accessible and affordable and ethical indigenous manufacturing viable.

Budget recommendations

Reasonable tariff protection for enabling Make in India: Incentivise traders to become manufacturers as was the status a decade ago rather than the current status where we encourage manufacturers to import and sell under their brands. To promote domestic medical device industry that will subsequently reduce India's heavy reliance on import, the current basic import tariff of 0-7.5 percent needs to be over 15 percent for medical device (the bound rate under WTO is 40 percent duty) and concessional duty on raw material may be retained at 2.5 percent for now, for the next three years. After GST, imported devices are cheaper by over 10 percent and this needs to be neutralised as at times we are unable to compete with Chinese imports in government tenders. In other countries like Iran, as soon as a factory is put up, they start to support the domestically produced product with import restrictions and duty protection.

Level-playing field for domestic manufacturers: If the government can boost manufacturing of mobile phones and consumer electronics by levying 15 percent to 20 percent duty and for automotive, bicycles and motorcycles, we request for medical device, which is even more important for healthcare security of our country similar tariff protection clauses. Unless the Indian manufacturers get level playing field and visible benefit to manufacture in India in comparison to the imports, nobody will venture out to this tedious job of putting together men, machine and capital for manufacturing of medical device in India to make quality healthcare affordable to common masses which is a dream and mission of Prime Minister Narendra Modi.

Encourage a phased manufacturing plan of components by increasing duty to 5 percent basic duty on import of part or accessories for medical devices, up from 2.5 percent done on January 19, 2016 by Notification No. 4/2016 and then increase to 7.5 percent in the second year under heading HS Code 90.18, 90.19, 90.20, 90.21, 90.22. The PMP (Phased Manufacturing Plan) proposed for X-Ray equipment is a good start and needs to be carried forward to other devices. Consider 2.5 percent basic duty on import of medical grade raw materials for medical devices under heading also for HS Code 90.27, 30.06 and 38.22 on actual user condition, as had been done earlier for 90.18, etc., to ensure there is no inverted duty structure.

India needs to regulate all medical devices under a Patients’ Safety Medical Devices Law as correctly proposed by NITI Aayog to protect patients and aid responsible manufacturing

There is a need to protect consumers from exploitatively high MRP in medical devices by rationalised price controls and aid ethical marketing by capping markup over import landed price.

The government should incentivise quality in healthcare products in public healthcare procurements by preferential pricing for quality, Q1 e.g. ICMED (QCI’s Indian Certification for Medical Devices) instead of L1 (lowest price) to ensure patients access acceptable quality for healthcare.

Steps to make healthcare affordable to all

The Indian medical device industry is very hopeful the Union Budget will make quality healthcare accessible and affordable for common masses, enable placing India among the top 5 medical devices manufacturing hubs worldwide and help end the 80-90 percent import dependence forced upon us and an ever-increasing import bill of over Rs 38,837 crore. Right from trade margin rationalisation to ensuring a separate set of legislations and regulatory framework to govern the medical device sector and everything in between need to be looked afresh to galvanise domestic manufacturing. A pro-active policy formulation to regulate medical devices differently than drugs should permit free market dynamics to succeed and keep regulations simple, protecting consumers and incentivising Make in India programme.

Rajiv Nath is Forum Coordinator of Association of Indian Medical Device Industry (AiMeD)

Will Union Budget 2020 address Indian medical device manufacturers’ woes?

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