On a growth curve

An analysis of the medical devices market in India to examine the current landscape and identify the key growth agents. By Lakshmipriya Nair

Economic progress, growing demand for quality healthcare among consumers and a surge in lifestyle diseases, among other factors, are transforming the dynamics in Indian healthcare. Yet, the country continues to battle several challenges in its attempt to ensure the three ‘As’ – affordability, accessibility and availability – crucial determinants of a functioning healthcare system.

In such a scenario, from increasing access and reducing disease burdens to early diagnosis, improved clinical outcomes and shorter recovery times, the role of medical devices in the care continuum is constantly enhancing at a rapid pace. As Pavan Choudary, Director General, Medical Technology Association of India (MTaI) highlights, “The medical devices industry is the smallest of the wheels, contributing to about seven to eight per cent of the healthcare spend in India. However, it is the most critical contributor to the improvement of healthcare outcomes in India.”

Hence, in a review of the medical devices market in India, we examine the current landscape, identify key growth agents and look at the efficacy and efficiency of the measures implemented to reform the sector.

In the present day

The medical devices market in India is still in the nascent stages of its growth. Despite featuring among the top 20 markets for medical devices, and being the fourth largest in Asia after Japan, China and South Korea, India’s share in the global devices market is fairly small. A report by the SKP Consulting Group reveals that the Indian medical devices industry accounts for just over 1.3 per cent of the global medical devices market of $335 billion.

It comprises four segments – consumables and implants, diagnostic imaging, instruments and appliances and patient aids and others. Multinational firms dominate the high-end segments offering more value in terms of technology, price and quality while domestic players have more prominence in the low-priced, high-volume segments. Himanshu Baid, MD, Poly Medicure informs, “It is estimated that there are about 800 manufacturers present in India. Majority of them are SMEs and MSMEs – approximately 65 per cent have an annual turnover of less than Rs 10 crores. Only two per cent of them have an annual turnover of Rs 500+ crores.”

A complex regulatory framework, fragmented domestic industry, inadequate healthcare spending and a disproportionate dependency on imports have long plagued the Indian medical devices market and hindered its progress. The above mentioned report also highlights that India’s per capita spend on medical devices is the lowest among BRIC nations. Choudary points out, “The per capita spend of $3 (2014) is significantly lower than not just the developed countries but also the other emerging economies, with Brazil at per capita spend of $28, Russia at $43, China at $178 per capita.” Probir Das, Chairman – FICCI Medical Device Forum further clarifies, “Its (India’s) very low per capita consumption of medical devices is indicative of the fact that the market still remains largely underpenetrated.” Moreover, it is also an industry which is hugely import-reliant. Over 70 per cent of the country’s total demand are served through imports and only around 30 per cent of devices are indigenously manufactured devices.

But, all that is set to change. As per a study by research and consulting firm GlobalData, the Indian medical devices market will witness remarkable progress, escalating from $10.4 billion in 2014 to touch $17.6 billion by 2020. A double digit growth of 15 per cent CAGR is being predicted for the industry, much higher than the growth rate of the global medical devices market which is pegged at a CAGR of around four to six per cent.

But, what are the factors which will usher in this transformation? Industry experts share their views.

Agents of change

Changing demographics: An increasing burden of communicable and non-communicable diseases, ageing population, increasing need for diagnostic services etc. are some of the major reasons for a growing medical devices market. Das explains, “It has a huge potential for growth in India from the demographic and disease burden points of view as medical devices play a very significant role in diagnosis, therapy, and even point of care forms of healthcare service.”

Fuelled by economic progress, rising education levels and urbanisation, there is an increase in the paying capacity if citizens in the country. This, in turn, has led to an increase in the demand for quality healthcare services. A report released by Deloitte and NATHealth reveals, “The size of the population earning more than $5,000 per annum is estimated to increase to around 450 million (~28 per cent of the total population) in 2025 from the current 145 million (~12 per cent of the total population).”

In addition, health insurance penetration is also set to rise from the current 300 million people to 655 million by 2020, as per the same report which also highlights that the share of spend on healthcare as a percentage of total household spend is expected to increase from seven per cent in 2005 to 13 per cent in 2025.

Policy reforms: The government, in the recent years, has  brought in several changes at the policy and regulatory level. Some of the noteworthy ones have been:

• 100 per cent FDI in medical devices under automatic route
• ‘Make in India’ initiative to promote indigenous manufacturers and encourage foreign players to set shop in India
• Harmonising standards with international ones to assure quality, safety and efficacy of medical equipment
• Announcement of New Medical Device Rules 2016

Some of these measures have already started bearing fruit. The Deloitte NATHealth report reveals, “The inflow of FDI in medical devices was ~$ 90 million between December 2014 to August 2015, post the government permitting 100 per cent FDI under the automatic route. Several MNCs have been increasing their manufacturing footprint and locating research centres in India to serve both the Indian and global markets. Increased funding and investments have also reflected in other supply side changes in healthcare delivery in India.”

The industry has lauded these efforts and believe that they will accelerate growth in the sector.

Choudary states, “A colossal growth in the sector has been made possible due to free cross border flow of technologies, healthcare worker training, market development, and progressive recent measures like the announcement of 100 per cent FDI in medical devices industry. Just the latter has led to the FDI jumping from $60 million per annum to $160 million per annum.”

Similarly, Das opines, “Of late a much clear understanding is beginning to prevail in the Government of India and there are efforts to identify medical devices separately from drugs. Along these lines, a legacy of regulatory issues are also likely to be put on path of resolution with the introduction of a digital regulatory approval system called ‘e Sugam’ and the announcement of New Medical Device Rules 2016.” He further states, “As focus on med tech emerges in policy decisions it is likely that the supply side will be reinforced with ease of doing business reforms, fast regulatory approvals, infrastructure development to support Make in India.”

Supporting the move to have a separate law for medical devices in the form of New Medical Device Rules 2016, Baid opines, “This will definitely be a game changer as medical devices industry will get a separate recognition from drugs and the regulations will be in line with global best practices.”

The Make in India campaign, launched with the intention of making India a global manufacturing hub, has also resonated well with the healthcare industry players. It has also  opened up avenues to reduce our dependency on imports. Presently, India imports approximately ` 23000 crores worth of medical devices. A research paper released by Deloitte and NATHEALTH on the current landscape in medical devices industry and the imperatives to optimise the opportunities thrown up by ‘Make in India’ initiative, highlights, “With 70 per cent of the demand for medical devices being met through imports, the import bill will be significant for both growth trajectories — organic and inorganic growth of the medical devices industry in India. Apart from reducing the import bill, ‘Make in India’ has the potential to attract investments, generate revenues for the exchequer, earn foreign exchange earnings through increased exports and generate direct and indirect employment.”

Medical devices parks: Another significant move from the government to boost the sector has been the decision to set up medical devices parks in Tamil Nadu and Gujarat. Dr HG Koshia, Commissioner, Food & Drugs Control Administration, Gujarat, says, “Medical devices parks are required to boost the medical device industry and provide common facilities within the park. The medical device market is very huge and we are importing large quantities of medical devices and equipment. However, if this emerging sector is supported by the Government, India has the capability to produce world class medical devices at affordable prices.” He states further, “India will be self sufficient in medical devices and equipment and save huge foreign exchange. It will also generate employment under the Make in India vision.”

Baid also reiterates the same vies and says, “The medical device parks will encourage local manufacturing and reduce the country’s dependence on imports. The proposed parks with in-house manufacturing units and facility for consolidated raw material procurement will help reduce cost.” He further states, “These parks offers common facilities like testing, power and effluent treatment plants. Besides, there will be common utilities and services such as storage, testing laboratories, IPR management, import and export facilitation centres and regulatory offices. Low cost rentals and revenue-support services for companies are also being considered. As per various estimates, once these parks become operational, they can bring down the cost of production of devices by at least 30 per cent.”

Rajiv Nath, Forum Coordinator, AIMED, advises, “The parks are needed to aid manufacturing of medical devices in India and address India’s import dependency of 70 per cent. The parks you are referring to are not of today but repackaged park related projects languishing for over 10 years in Tamil Nadu (project lead by HLL) and Gujarat (project by DoP and Gujarat government). These parks will remain green parks until manufacturing of medical devices in India becomes not only viable but profitable. What’s needed is course correction and reversal of earlier policies that made India import dependent.”

Overcoming obstacles

Thus, the Government of India’s ‘Make in India’ initiative, new entrants in the sector, increased investments, and the hope of amendments in the current regulatory scenario are spurring growth in the sector at an accelerated rate. But achieving its true potential would be no cake walk. Despite many steps taken to reform the sector, certain challenges continue to exist and threaten the sector’s progress.

As Choudary highlights, “In the current market, demand is predominantly driven by the major cities while penetration in smaller towns and rural areas has remained low due to the lack of accessibility, awareness, availability and affordability. There are also many challenges faced by the industry in terms of ambiguity in defining medical devices, regulations, lack of dedicated labs for product development, lack of financial incentives and skilled manpower.”

However, the industry players also recommend some more measures to mitigate the challenges and sustain the growth story.

Das lists down his suggestions to tackle the challenges and states, “While the broader policy mechanisms work in tandem, industry and government need to work closely on the following aspects:

• Focus on R&D and Innovation as India’s strengths in overall cost competitiveness globally- has seen key success stories like GE, Philips, Medtronic, Boston Scientific, Stryker, among others creating a large base for R&D and product development in India.
• Exports – Value creation and enhancing exportability in product segments where India is fairly self-sufficient in manufacturing (consumables and surgical etc.)
• Matchmaking of India’s inherent strengths to sectoral MII demands.
• Enhancing India’s competitiveness/ attractiveness as a manufacturing destination in comparison to China, Ireland, Malaysia, Costa Rica etc.
• Enhancing market size to boost attractiveness – by awareness, public health spend etc.

He also suggests, “The primary and secondary healthcare machinery of our country needs to be updated with skilling, awareness of possible medical pathways, technology solutions and scaled implementation of projects through PPP and other models which are inclusive. The medtech industry plays a large role in building awareness and know how among healthcare providers through trainings and extended supply chains especially in critical care segments. This effort also needs to be further augmented with support from state health directorates and civil hospitals, PHCs, SHCs in all states.”

Nath also has a set of recommendations to make. He says, “The market is growing at approximately 15 per cent but it’s got the potential to grow faster once these (devices) can be made in India. That’s not only a huge opportunity for import substitution but also an opportunity to make India one of the top five manufacturing hubs of medical devices. A huge potential is awaiting to be unleashed – what’s required are conducive policies and a supporting ecosystem- we are not asking for subsidies but a revenue support model to help reduce our cost of manufacturing and make India competitive by performance, value delivery and then by price.”

Choudary offers a different perspective, “Currently, in the field of medical devices, the main question to ask is not whether India should go for medical device manufacturing or not, but, ‘What will attract manufacturing in medical devices to India? Protectionism or Incentivisation?’ Protectionism, surely has played a role in spurring manufacturing in some sectors in some countries. But it does not come without side effects. And it does not work for all sectors. Manufacturing in India could work for those medical devices where a high level of import substitution of an acceptable quality has been obtained or can be obtained quickly by virtue of the technological and financial ecosystems being already place, for example, in some cannulae, IV sets, stop cocks, extension lines etc. But, where import substitution is still far away, increasing import duties, the protectionist measure usually employed, is just taxing consumers to subsidise domestic production which is bad economics.”

He further elaborates, “When we look at these factors above, one concludes that it will be a process of incentivisation, R&D, skill development, greater health expenditure or better insurance coverage, which will benefit the cause of Make in India.”

Going forward

Thus, while the sector is on a progress path, there is a long way to go before India establishes itself as a medical devices hub. The need of the hour is that all the stakeholders come together, step up and, make coordinated and concerted efforts to help the sector achieve its true growth potential.

(With Inputs from Usha Sharma)

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