Tariff policy should be shorn of ideology, based on empirical data: Pavan Choudary, Chairman and Director General, MTaI
The medical technology sector is expected to recover to the pre-COVID-19 level only by June-December 2021 at best as companies continue to earn lower than projected revenue due to weak demand and high cost, as per estimates from Medical Technology Association of India (MTaI), which represents research-based medical technology companies.
As per the release, global medical device manufacturers operating in India suffered up to 85 per cent drop in revenue in most of the segments during April-June 2020. In the July-September quarter, the decline has slowed a little but the future growth looks constrained due to continuing socio-economic challenges posed by the COVID-19 pandemic, compounded by rising import and operational costs, rupee depreciation against US dollar, and some policy measures that could threaten the viability of medtech companies.
Listing the setbacks to the medtech sector in financial year 2019-20, the release noted that the first blow came even before COVID-19 which was the 5 per cent ad valorem health cess imposed on imported medical devices. This, coupled with the INR depreciating by almost 7-8 per cent per cent in March 2020 against the EUR and the USD, meant a very significant hit for the medical technology industry where more than 80 per cent of the products are imported.
Then came COVID-19 pandemic along with the nationwide lockdown, and elective surgeries shrank dramatically. While many healthcare workers migrated to their hometowns, star doctors (who are mostly in their 50s and 60s), who are the magnets for procedures as per the release, also became less available in hospital premises due to their vulnerable age.
Hospitals got hit because the impact of apportioning part of the beds for COVID facilities was not clearly foreseen on non-COVID procedures. The cost of dedicated COVID corridors and infection control measures hit the hospitals further and their bottom lines shrank. All this meant postponement of capital expenditures and stringent monitoring of inventories. The patient started procedure shopping and the hospitals began reducing their product inventories, analyses the MTaI release.
Looking ahead, Pavan Choudary, Chairman and Director General, MTaI concured with epidemiological experts who say that normalcy will return only past June 2021. “Part of the problem is universal, stretching across the globe. Some other part is unique to India – this is the part we would like to draw government’s attention to. The 5 per cent health cess ad valorem imposed on imported medical devices have added to the woes of the industry. Almost all the companies in the industry have heeded to the call given by the Prime Minister to preserve the jobs and the industry has done so. However, the global management’s stamina for generosity shakes when they realise that a percentage of their shrinking corpus, which is meant for their employees, is going to the government exchequer”, according to Choudary.
He warns that retrenchment has already started in the industry and this has a domino effect extending from the jobs loss to the jobs which would have otherwise been generated in the normal course in the healthcare worker industry.
“It should be noted that maximum number of employees in the global medical companies are actually engaged in healthcare worker training on procedures and techniques. It is they who have created almost the entire market in India and made the universe of healthcare workers, patient ready. Also, the tariff policy of the country should be shorn of ideology and based on empirical data which clearly suggests that high import tariffs don’t work to bring FDI in manufacturing (in the 90s the tariffs on medical devices were to the tune of 40 per cent and the proportion of imported to domestically manufactured good was more or less the same even then),” said Choudary.
“This gets contrasted with several other countries which have dropped custom duties in the wake of COVID19 pandemic”, he added.
Sanjay Bhutani, Director, MTaI said, “The new health cess along with the previously imposed price control on stents and knee implants is proving to be detrimental to the government’s intention of bringing in FDI in not just manufacturing but in R&D sector as well. As far as the recovery outlook is concerned, the COVID recovery has not been consistent and even the regions which were recovering well are falling back because of returning COVID-19 waves. Revenues of some global companies such as those in the orthopaedic or cardiology space were hit up to 85 per cent and almost all other segments experienced a fall in revenue on similar lines in the first quarter of this financial year. As per our analysis, the industry is likely to recover to pre-COVID 2019 values only in second half of the year 2021, with different recovery rates across different segments.
Bhutani further stated, “As the industry looks ahead to start the recovery, it is essential that a nuanced approach is taken considering the strengths and weaknesses of the sector before creating new policies as this is the best time to attract investments else we would miss the bus.”