Atmanirbharta in life-saving medical devices was the proclaimed goal when policymakers launched a Production Linked Incentive (PLI) scheme, supplemented by the creation of medical device parks. Industry and states responded with enthusiasm to the sector’s ‘Make in India’ moment but a year down the line, remain disappointed with the implementation. Just 14 of the 28 applications made under the PLI scheme have been approved till March this year.16 states applied to develop medical device parks, but there is no news yet of any fresh approvals. Industry experts suggest ways to speed up the initiative
A few days before the national lock-down of last year, on March 21, 2020, the Union Cabinet gave details of two approved schemes aimed at spurring local manufacturing of medical devices.
Hailed as part of Prime Minister Modi’s flagship Make in India/AtmaNirbhar Bharat campaign, the first scheme sanctioned Rs 400 crore for the setting up of four medical de-vice parks, with common infra-structure facilities.
The second policy extended the Production Linked Incentive (PLI) Scheme to the local medical devices sector, setting aside Rs 3,420 crore for this venture. The two schemes will run over the next five years i.e. from 2020-21 to 2024-25.
India depends on imports to the tune of 85 per cent of the total domestic demand of medical devices and thus there is no argument that being self-reliant in this most crucial sector is vital from a health security perspective.
If anything, the COVID-19 pandemic has underlined our dependence on other nations for a range of medical supplies from medicines to oxygen concentrators and the like.
Vital stats of India’s medical device sector
The growth potential of the medical devices sector is the highest among all sectors in India’s healthcare market, with the country ranking as the fourth-largest market for medical devices in Asia.
As per Invest India, India’s national investment facilitation agency, the current market size of the medical device industry in India is estimated to be $11billion, with a projected CAGR of 14.8 per cent and is expected to reach $11.86 billion in 2021-22and $65 billion by 2024 and $50 billion by 2025.
With 100 per cent FDI allowed under the automatic route for both brownfield and greenfield medical device setups, the sector has reportedly seen strong FDI inflows which reflect the confidence of global players in the Indian market.
As per the Invest India site, since April 2000, the sector has seen $2.1 billion in FDI, of which $600 million was received in the last five years. Singapore, the US, Europe, and Japan are key investors and the sectors that attracted the most FDI are equipment and instruments, and second, consumables and implants.
Around 65 per cent of the medical device manufacturers in India are mostly domestic players operating in the consumables segment and catering to local consumption with limited exports. As per Invest India, large MNCs dominate the high technology end of the medical devices market with extensive service networks.
There are 750–800 domestic medical devices manufacturers in India, with an average investment of $2.3–2.7 million and an average turnover of $6.2-6.9million.
There are six medical devices manufacturing “clusters” in the country, including Andhra Pradesh, Telangana, Tamil Nadu, and Kerala who got in-principle approval for new medical devices parks in 2019. (See box: Investment opportunities in India’s medical devices segment)
Status check
One year down the line, what is the progress on these two schemes?
According to Achal Chawla, Tax Partner, and Divya Bhushan, Director, Tax, EY India, the Government of India has received 28 applications under the PLI scheme, of which, 14 applications have been approved till March 2021.
Likewise, the Government has received 16 applications from different states, showing an interest in the development of medical device parks.
Market buzz has it that the states are getting antsy that there is still no word on which applications have been accepted.
While there is unanimous support for the schemes, there is also disappointment that the implementation has lagged. Thus there are many suggestions that a lot more can, and must, be done for so vital a sector. Especially as the COVID-19 pandemic shows no signs of disappearing and will keep rearing its head in waves, most likely over the next few years.
What’s good …
Almost all association chiefs echo Rajiv Nath, Forum Coordinator, Association of Indian Medical Device Industry (AiMeD) who says that these (two schemes) are very welcome Make in India enabling initiatives and the first motivation of its kind.
Pavan Choudary, Chairman & Director General, Medical Technology Association of India (MTaI) and MD, Vygon India states that the PLI scheme is “undoubtedly a step in the right direction which has been taken through adequate consultation with the industry within the bundle of constraints which were there around the generic PLI scheme system.” He points out that it has already achieved partial success, and a few thousand crores of investments are expected to come in, thanks to the scheme.
Pavan Mocherla, Asia Pacific Medical Technology Association’s (APACMed) India Chair, and MD, India, SouthAsia, BD, believes that the “recently introduced PLI scheme for medical devices is highly commendable as it serves as an attractive incentive for medical devices to be manufactured locally, both for domestic use as well as for exports. The scheme also reinforces the government’s commitment to strengthen India’s manufacturing capabilities which in turn, helps to attract foreign investments in a broad range of medical device product segments ranging from capital equipment, implantable devices, diagnostics, and consumables.”
At an individual company level, Dr Shravan Subramanyam, MD, Wipro GE Healthcare explains what his company found attractive about the PLI scheme saying, “The production link incentive is an excellent opportunity for enabling ‘self-reliance’ for India, in a critical industry (during these pandemic times) – medical devices. As a country, we still import a large portion of the medical equipment … and with PLI, private/local companies will be enticed to increase their supply chain footprint in India… first to increase our localisation potential, and eventually to unleash our capabilities for the world. To be a part of such a pivotal moment in the evolution of India’s Healthcare ecosystem… any company would be honoured to receive the PLI nod from the Department of Pharmaceuticals, Government of India.”
Wipro GE did get the nod to participate in the PLI scheme and Dr Subramanyam says that over the next three to four years, they have planned investments of approximately Rs 100crores for setting up the manufacturing of medical devices. He sees the PLI scheme as a combination of import substitution and a higher growth rate propelled by lower cost leading to additional revenues.
As the dependency shifts to Wipro GE Healthcare’s local manufacturing hub over the next few years, he anticipates that the need for importing these target products will naturally decrease. Thus making India more self-reliant for these devices.
He also points out that the various schemes brought in by the Government do play a part in making the devices competitive by a few percentage points. He ties it in with how the company is “constantly looking for innovation in ‘super-value products. What that entails is a relentless search for products and features that are designed for India… made for India-use and even priced in an affordable range, for the multitude of India-hospital needs, spread across the different tiered cities.”
Giving the perspective from the IVD sector, Suresh Vazirani, Founder Chairman, Transasia–Erba International Group of Companies says that the PLI scheme “is a good start and will incentivise domestic manufacturers to engage in high-value production. It can 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.”
Shishir Agarwal, MD, Terumo India, a Japanese company, also terms it a “welcome step to make healthcare more affordable and accessible to patients in India.”
Hinting that we will not see results overnight, he predicts, “Initially, it is likely to create more activity in the mid to low technology, high volume category (of ) manufacturing. Investments in the manufacturing of high-tech medical devices will happen when global companies start seeing volume-linked cost advantages in making the shift. Over time, with stable, practical and long-term policies we will see the efforts bear fruits.”
… and what’s not
MNCs and domestic companies do differ but also agree on the improvements needed to make the PLI and med-tech cluster schemes better.
Choudary of MTaI feels that the PLI scheme can be improved further by seeing if the medical device and equipment universe can be covered more comprehensively especially with respect to those products which can be import substituted in the short term in three ways.
Firstly, identifying how the small and medium scale companies can enter the ring because more than 90 per cent of the companies in this sector belong to the SME space.
Secondly, giving more time to MNCs who may be interested to apply for the scheme, as such decisions in global companies easily take a year to get ex-com and Board approvals after the business case development.
Mocherla also echoes this, suggesting that to ensure the scheme is widely adopted, it is worth considering that the duration for submission of applications is extended to two to three years instead of the current timeline of two to three months, as MNCs typically have long planning cycles when it comes to making investment decisions on where to base their production plants.
Third on Choudary’s list is to bring convergence between the benefits offered by this scheme and other moves which the government is making, like the medical device parks.
Nath of AiMeD has a separate wish list for the government to nurture domestic companies to create Indian MNCs, by extending the PLI scheme to all medical electronics; drugs/vaccine delivery devices/technologies, and thirdly, all implants.
Nath makes the important point that the investment needs to cover all investments, including land, building and plant, machinery and utilities as with medical devices, buildings and utilities are designed around a process, for example, clean rooms, power backups, ETP, airconditioning etc.
Vazirani of Transasia points out that the largest share of the PLI scheme rests with the automobile sector. He wishes that the government would have outlaid a larger amount for the MedTech and IVD sector as well. As per Vazirani, “The (PLI) scheme will be completely successful when we become the manufacturing hub for the world. And in order to participate in global and regional value chains, import tariffs will have to be correspondingly calibrated. Last and most important, a scheme of such magnitude cannot be monitored by routine mechanisms. It will require a comprehensive, technically evolved approach with appropriate growth strategies, to develop a global ecosystem.”
Strategy for MedTech parks
Speaking about MedTech parks, Vazirani emphasises that “their success will be critical for the sector’s future. However, most of the MedTech parks provide no other support other than the land. This has to change. Medtech parks should consider themselves as an integral part of the eco-system and should handhold the industrial units to help them get all necessary Government approvals in a short time.”
The general consensus is that strengthening existing infrastructure needs to be prioritised rather than starting from scratch, which could jumpstart the process and save precious time.
Mocherla hails the government’s initiative of promoting MedTech parks in India to boost infrastructural capacity as a “huge stride towards developing a robust manufacturing ecosystem for medical devices in India. These parks would not only significantly reduce costs of manufacturing but also improve accessibility and affordability of medical devices for the Indian population, thus improving the overall quality of healthcare delivery.”
But he also points out, “it is prudent to ensure optimal utilisation of the existing parks before setting up the new medical device parks across the four states. To better support and scale up these existing clusters such as those in Haryana, Maharashtra, and Trivandrum, it would help if we develop ancillary industries and provide common warehousing, 3D printing, testing, and sterilisation facilities. These existing parks could then serve as models for the inception of new medtech parks of the future.”
Making India great again
Nath of AiMeD too makes the same point that existing clusters need to be strengthened. He gives examples of how this can be done by encouraging the development of low-cost plastic disposables in Gujarat and Delhi NCR, surgical textiles based in Coimbatore, orthopaedic implants in Gujarat, Maharashtra and Delhi NCR, IOL in Tamil Nadu and Gujarat.
Similarly, medical electronics could be strengthened in Maharashtra, Karnataka and Tamil Nadu by providing laboratories, research linkages with local universities, common R&D and tool room facilities, sterilisation facilities, regulatory support, consultancy and training services, permanent exhibition/showrooms, conference sharing and start-up facilitating centres etc.
Additionally, Nath suggests that MedTech parks can be created with common product categories with common technologies so that they are specialised, interdependent cooperative clusters around key common raw material/component suppliers.
For example, he cites that Andhra Pradesh Medtech Zone (AMTZ) at Vishakhapatnam was envisaged to be focused on medical electronics with mother units of X-Ray tubes (to attract X-Ray manufacturers), magnetic coils (to attract manufacturing of CT scans and MRI equipment) and EMC testing to aiding manufacturing of large medical electronic equipment.
Similarly, Nath/AiMeD recommends that Nagpur’s MIHAN SEZ in Maharashtra and Karnal in Haryana should focus on orthopaedic implants and surgical instruments by inviting and supporting a stainless steel alloy manufacturer instead of the industry being dependent on expensive imports from Sweden etc. It should also have a strategically located logistics hub for medical equipment online traders and for national distributors considering its central distance to all parts of India.
For Chennai, AiMeD’s recommendation is to develop a medical park focused on instruments like medical electronics and IVD. Whereas Trivandrum, Kerala’s medical park should focus on latex and rubber technology with a commonly shared zero discharge effluent treatment centre.
Moving up the map of India, Nath suggests that UP’s Noida should focus on small consumer electronics and mid-sized electronics along with IVD reagents in collaboration with NIB. Hyderabad, Telangana should focus on medical electrical equipment and implants needing clinical research studies while Karnataka’s medical park should focus on embedded and standalone software, AI and IoT app-based products.
The rationale for AiMeD’s suggestions is that the focus of an existing or created cluster needs to be on shared backward integrated resources to provide economies of scale and interdependent expertise of core skills and technologies that are complementary but not disruptive competition to existing clusters. Projects that encourage import substitution need to be encouraged and prioritised considering the volume and range of medical devices that continue to be imported.
Nath mentions that AiMeD had recommended this model to the Government of Andhra Pradesh and Chief Minister Chandra Babu Naidu for the state’s AMTZ which is now con-sidered a model medical park.
He mentions that the other locations coming up in a planned manner are possibly at Hyderabad and possibly at Nagpur, Bangalore, Gujarat, Haryana, Tamil Nadu and Kerala, Noida and Baddi whose state governments have been in contact with AiMeD and indicated interest.
Nath is of the opinion that“we need to make India great again, not only by attracting overseas MNCs but supporting the Indian champions who are the only fallback option in every crisis including COVID, vis a vis overseas MNC owned company who historically wish to profit from our market but are shy of risking investments in creating factories.”
So, while he is thankful to the Department of Pharmaceuticals (DOP) for announcing this Scheme in March and giving further details, AiMeD’s request that as in the case of MeitY’s PLI Scheme, DOP should consider a special provision to recognise the role of domestic companies (owned by Indians) who “have valiantly fought competition and risked investments within the adverse 12 per cent to 15 per cent disability factor and not only survived but tried to grow.”
According to Nath, the growth of the local medical device sector has been stunted due to lack of adequate infrastructure, supply chain and logistics; high cost of finance; inadequate availability and cost of quality power; limited design capabilities; and finally, low focus on R&D and skill development.
Interestingly, Nath specifies that AiMeD doesn’t seek direct subsidy for their members /investors. Instead, they seek a revenue support model and CAPEX reduction assistance by way of a coordinating role of state/ centre/medical device park developer and most important, supporting policies that don’t cost (and will bring more revenue to Government) by making manufacturing in India gain a competitive advantage over imports. Otherwise, he warns that “these parks will remain as greenfield parks and not create humming factories that generate employment.”
AMTZ: A model medtech zone
Choudary of MTaI as well as others single out the Andhra Pradesh Medtech Zone (AMTZ) as an example of a medical device park that is already doing very well. He urges that the other parks should also be developed around either the defence manufacturing corridors which are re-energising thanks to the impetus the government is providing there or the already existing manufacturing/ancillary hubs.
Furthermore, MTaI’s view is that all the PLI schemes should be seen holistically and whenever synergies are possible these should be maximised to alter the manufacturing profile of the country. Larger PLI schemes that have significant synergy with medtech should be kept in mind and driven together interdepartmentally. The large players will create the currents which will assist the small players in their flight and the small players will bring the frugality and innovation which will bene-fit the large players and push the ecosystem forward, is Choudhary’s reasoning.
PLI for IVD sector
However, Vazirani is disappointed that currently, the PLI scheme offers incentives of just three to five per cent for the IVD industry. “Such low incentive is too small to make India a global player. There is a need to increase the PLI incentive to at least 15 per cent for five years to help local manufacturers become global players,” is his take.
He points out that the current COVID-19 pandemic has shown that diagnostics is an essential part of preventive health-care in every country. He does concede that the domestic diagnostic industry is still at a nascent stage, estimated at $9 billion (around Rs 675 billion) and is expected to grow at a CAGR of approximately 15 per cent over the next five years.
“Make in India and the goal for an Atma Nirbhar Bharat can provide the required fillip to achieve this growth. To add to that, the pandemic has further provided the necessary impetus to scale-up domestic production,” is Vazirani’s analysis.
He alludes to the fact that the Government of India is to recognise the importance of diagnostics in preventing and treatment of diseases, pointing to the allocation of Rs 64,000 crores in the budget for FY 2021-22, with a focus on preventive healthcare. He feels this should aid in boosting local manufacturing of diagnostic equipment and test kits in India.
In fact, the med-tech park model has already benefited Transasia Bio-Medicals with a partnership with AMTZ for various launches like the mobileCOVID-19 test lab to help faster and safer testing across India, called Infectious Disease Diagnostic Lab (iLAB), made at Transasia’s Vizag manufacturing facility at AMTZ.
Thanks to the facilities and expertise from AMTZ and DBT, I-LAB was conceived and developed at a lightning speed and manufactured and assembled in a record time of eight days. I-LAB was conceived by the government to ensure testing facilities in lakhs of villages that do not have any COVID testing labs.
I-LAB functions like a typical pathology lab with sample collection, diagnostics, and reporting. The entire process of collection, testing and issuing of reports is governed by the guidelines issued by ICMR.
But though it was a great initiative, Vazirani rues the fact that the GoI did not decide to provide an I-LAB to every district of India to cater to the needs of all the villages in each district. If this was done, he feels it would have greatly helped contain the recent spread of COVID-19 in thousands of villages.
Good policy, slow implementation?
The consensus is that while there is nothing wrong with the PLI and med-tech cluster schemes, policymakers need to speed up the implementation. And tweak it as per the requirements of this sector.
In fact, more sectors are clamouring to be part of the PLI and cluster scheme. Sanjaya Mariwala, Founder President of the Association of Herbal and Nutraceuticals Manufacturers of India (AHNM) and Executive CMD, Omni Active Health Technologies makes a case for the nutraceutical sector, pointing out that if the PLI scheme is extended to the nutraceutical industry, it will stimulate the needed investment to grow in size and scale. This will help make India one of the best manufacturing hubs in naturals and botanicals.
As Mariwala points out, nutraceutical manufacturing is a complex process and heavily dependent on raw material availability. Proximity to the farms is very critical for both research as well as manufacturing. While this is an advantage for India, not enough investors are considering this sector due to a fear of technology, lack of willingness to involve themselves in agriculture and supply chains, disinclination to invest in marketing new concepts, and lack of standard guidelines/ policies for manufacturing and quality control.
The medical device sector is relatively one of the more recent additions to the PLI scheme and while the work done has been commendable, the pandemic makes the rollout of the PLI and med-tech park scheme more crucial than other sectors.
In fact, one of the completed projects listed on the Invest India site is an oxygen manufacturing plant in a hospital. Another project is an instant diagnostics devices manufacturing unit in Pune, Maharashtra.
Thus no other sector saves lives, creates jobs and makes the country part of a global manufacturing ecosystem. Hopefully, med-tech and med device companies, as well as the state governments who hope to partner with them, will not have to wait much longer for their proposals to become a reality.