Investment Banking

India could become a medical devices powerhouse

September 2023

Read Time: 5 minutes

While the Indian pharma industry gained leadership on the global stage a while back, the Indian medical devices sector took some time to come of age. The market was worth USD 11 billion in 2020 and according to NITI Ayog, it is expected to grow to a USD 50 billion+ industry by 2030, at a CAGR of ~25%, driven by robust domestic and global demand, as well as favourable government initiatives. These numbers indicate that it is on track to replicate the pharma industry’s success, driven by multiple tailwinds.

Currently, a majority of Indian players are catering to a relatively lower end of the industry (surgical accessories, consumables etc), while the mid to higher end requirements are still heavily dependent on imports. This preference has developed due to the highly fragmented nature of the domestic industry, an inverted duty structure and a lack of favourable policies and regulations. Here’s how we think the Union Cabinet’s approval of a comprehensive and cohesive National Medical Devices Policy (NMDP) will help unleash the true potential of the domestic industry.

Single window clearance

Regulatory and promotional support is currently dispersed across different departments at both the central and state levels. The policy ideates a single window clearance system to amalgamate these interventions into a coherent framework and streamline the process.

Holistic licensing

The transition from partial regulation of specific medical services to a comprehensive regulation and licensing of all medical devices is already underway, with completion expected by October 2023.

Focus on research and development

The policy proposes concessions on customs duty on the import of specific goods and services for R&D, tax exemptions on research funds and more.

Enabling the start-up ecosystem

The policy highlights the need for fiscal and non-fiscal support to MedTech startups and corporations by easing FDI and VC investment routes. To complement this, it plans to conduct skilling-upskilling programs and establish multidisciplinary medical devices courses across top engineering institutes.

Rewiring the logistics

The 11 planned industrial corridors under the National Industrial Corridor Program will offer economies of scale and attract private sector investments. The corridors will provide smooth access to industrial production units, decrease transportation and communications costs, improve delivery time and reduce inventory cost. So far, out of 32 projects (under 11 corridors), 5 are nearing completion across Gujarat, Haryana, Uttar Pradesh, Madhya Pradesh, and Maharashtra.

Production linked incentives

The Government is also ahead on its promise on PLI scheme implementation by sanctioning 26 projects with INR 1,206 cr benefits. This includes 21 product and 5 components manufacturing projects. 14 of these projects worth INR 741 cr have already been commissioned and they have initiated manufacturing of high-end medical products such as Linear Accelerator (LINAC), MRI Scan, CT-Scan, Mammogram, C-Arm, MRI Coils, high end X-ray tubes.

Will the PLI scheme be effective?

The efficacy of these initiatives and schemes will hinge on all stakeholders – manufacturers will have to exhibit compliance in spirit, while the government will need to minutely monitor the same.

We saw how the PLI scheme for mobile manufacturing failed to deliver on ground impact as effectively as was envisaged. Introduced in 2020, the number of manufacturing setups grew from 2 in 2014 to 200+. However, a deeper dive in exports/imports data for finished devices, semiconductors, PCBAs, and other parts reveals that the net exports have fallen from USD 12.7 billion in FY17 to USD 21.3 billion in FY23. The major reason for this was incentives being paid on finished products. This led to a surge in import of mobile components, thereby leading to a suboptimal outcome.

Similarly, the automobiles manufacturing PLI scheme faced its own set of challenges. The benefits scheme came into effect in April 2022, but after a year-long delay in the release of Standard Operating Procedures (SOPs), manufacturers are set to lose a year-worth of incentives. Learning from the mobile PLI scheme, these recently released SOPs clearly mandate 50% domestic value addition, but a loose execution has again raised questions on its impact.

The Medical Devices PLI scheme only encompasses large enterprises and leaves unsettled scores for the Micro and Small Enterprises (MSEs). Evolution and growth of MSEs is quintessential for incremental innovation, access to a wide variety of components, competitive pricing, and contribution to the grassroots of society. In the absence of the PLI incentives, additional grants and tax benefits measures should be seriously and quickly pushed to support MSEs and hence complete the ecosystem for the medical devices industry.

The road ahead

India can draw valuable lessons from China’s remarkable journey towards strengthening its medical device sector, led by government support and focus. The Chinese government rolled out policies to incentivize domestic production and promote local demand. This set up the industry on a decade long growth trajectory of ~21% (2010-20). With developing local production, the exports and local demand also shifted towards higher tech products, accelerating it to be the medical devices behemoth that it is today. Brazil, Canada and Europe also benefited from a comprehensive Medical Devices Act.

It is evident that the Indian medical device industry is at an inflection point and the current policy is an effective starting point for the next phase of its growth. To make it a success story, its present shortcomings should be quickly fixed with time bound refinement and implementation into an act. By harnessing the potential of these initiatives and embracing constructive feedback, India's trajectory as a medical device powerhouse looks promising.

(This article was first published by Moneycontrol)

Author: Ujjwal Singh, Director, Healthcare Investment Banking, Avendus Capital

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