India’s recent notification on regulating medical devices is another step on the government’s behalf to raise healthcare standards in the country. These regulations have implications for all stakeholders in the medical device industry, including medical device manufacturers and importers. The actual impact of these regulations will only be felt in next four to five years, once the regulatory regime comes into effect. However, based on some of the specific regulatory requirements, it is not difficult to ascertain what lies ahead for manufacturers and importers.
In 2019, Indian medical device industry was worth US$9 billion and is expected to reach US$14 billion by 2025. India imports nearly 70% of its medical devices, particularly high-end medical equipment including cancer diagnostics, medical imaging, ultrasonic scans, and PCR technologies, among others, the demand for which is met by multinational companies. The key medical devices that India imports include electronics and equipment – 53%, consumables – 14%, surgical instruments – 10%, IVD reagents – 9%, implants – 7%, and disposables – 7%. Domestic medical device market comprises mainly of small and medium medical device manufacturers with a large portion with turnover of less than US$ 1.3 million.
For many years, Indian medical device industry has dealt with a lot of challenges owing to lack of regulations. However, with the new medical device regulatory system, the scenario is expected to improve and reduce concerns among the device manufacturers around the lack of standardization and best practices. We discussed the new regulations of medical devices and their impact on various stakeholders in the healthcare sector in our article Indian Medical Device Rules: a Step towards a Better Future in February 2020.
Impact of new regulations on device manufacturers
Once the new regulations come into play, all manufacturers will have to maintain quality standards to avoid any punitive action by the regulator, as compromise on quality could result in suspension or cancellation of their license disabling them for doing business in the Indian market.
In order to assure quality, manufacturers will have to focus on quality management best practices to meet the quality objectives. This would mean creation of quality manual, documentation and execution of the quality-related procedures, and maintenance of quality-related records. Establishment of a quality assurance unit and installation of IT system to support quality-related processes will be the two key steps towards achieving quality objectives.
However, all this will not be easy to achieve from a financial viewpoint for manufacturers, considering majority of players are small and medium-sized. As an indicator, the average cost per year of having a five member quality assurance team in place can be anything between US$ 27,000 to US$ 34,000, which would account for about 2% of the annual turnover for a medical device company reporting US$ 1.3 million in sales (65% of the Indian medical device companies earn less than that). This would be a significantly high expense and, if incurred, is likely to be passed on to consumers.
The amount of expenditure on IT-related infrastructure for implementation on QA would depend primarily on two things. Firstly – the kind of medical device being manufactured (while some medical devices work on the principle of embedded software others do not require software-related quality checks, such as syringes, masks, head covers, etc.). Secondly – the extent to which a manufacturer wants to invest in IT (based on global standards, it would come to around 15-20% of annual IT budget).
Spending on IT infrastructure should be considered as a long-term investment, considering this would be required not only to ensure compliance on quality assurance but also to be done if the company wants to compete in export markets. In any case, the manufacturer would spend less than 1% of its annual revenue on IT for achieving quality objectives.
The government also wants all the device manufacturers to be compliant with Good Manufacturing Practices (GMP), laid down under the Drugs and Cosmetics Act of 1940, and currently introduced as a self-audit or self-assessment activity.
Getting a GMP certification (that confirms a firm uses quality assurance approach to ensure that products are consistently produced and controlled to the quality standards appropriate to their intended use and as required by the marketing authorization) for a single device is likely to cost less than US$ 135 for the manufacturer. Considering a manufacturer produces a range of devices, most of the small device manufacturing units do not follow the voluntary practice of attaining a GMP certificate citing certification costs (for the entire range of devices manufactured) and renewal fees (for each device after a certain number of years) to be adding to their overall expenses, but not significant enough to be passed on to customers. However, on the positive side, if companies were to get GMP certification, it would make their products compliant as per international standards making them more competent in the export market.
Road ahead for importers
Imports constitute a sizeable part of the medical device market in India. It is easier for importers now to place their products in the Indian market considering that there is a streamlined regulatory standard in place highlighting regulatory approval procedures to be followed in India, as against only the FDA (US Food and Drug Administration) or CE (Conformity Europé) approved products that were allowed to enter the market earlier. This will limit the importers’ cost required for approvals to market in India, rather than requiring marketing approval from international agencies.
Registration fees, license fees, and all duties levied for importing devices in India have been explained paving a clearer pathway for importers to operate in the market. Additionally, a list of forms specific for import purposes, required to apply for medical device approval has also been revealed.
All these practices and clarifications from the regulatory bodies have made it more convenient for manufacturers to import products. Clarity on import-related regulations is expected to make it easier for the importers to bring products to India thereby creating more challenges for the domestic players; however, it is too early to say how the market will evolve and which product segments will witness intensified competition in the next four to five years.
From the healthcare industry’s standpoint, governments’ step to ensure that medical devices available in the market meet quality standards in the future is positive and welcomed as it brings assurance of superior quality products for the people using them.
It is the small and medium sized enterprises that make up the low priced, high volume market segment of the medical device industry in India, that will need to make major operational changes and keep a close watch on the cost of compliance on quality aspect. The added cost aspect, if encountered, for developing high-quality products is most likely to hit them the hardest (especially the micro units and small-scale manufacturers) leaving them with no option but to pass on the increased cost onto the consumers. Larger players (5% manufacturers) are likely to remain practically unaffected. Nevertheless, it will be interesting to watch how these regulations shape the operations of device manufacturing companies functioning in India.
Healthcare sector in India is witnessing a churn as a result of the government’s attempt to make healthcare more affordable and to promote domestic healthcare industry. Recent medical devices-related notification is also part of the government’s vision for a better managed healthcare market, though it has ignited a debate about the future of medical device industry. There is hope as well as an apprehension among the stakeholders, as they wait for the notification to become fully effective in next three years.
In the second week of February 2020, India’s Ministry of Health & Family Welfare announced that all medical devices sold in the country would be treated as drugs from April 1, 2020 onward and would be regulated under the Drugs and Cosmetics Act of 1940. To understand the context of this announcement, we will have to turn the clock back by about three years.
In 2017, Indian government announced Medical Device Rules-2017 (MDR-17) – a set of rules, which included:
Classification of medical devices into four classes (A, B, C, and D), based on the associated risks, i.e. low, low moderate, moderate high, and high risk devices
Procedures, including the required documents, for registration and regulatory approval of devices
Details regarding manufacturing, quality audit, import/export, and labelling-related requirements
There was no risk-based classification of medical devices prior to 2017 and it was also difficult to introduce new products, as the approval procedures were undefined. In case of imports, only the products approved by Conformité Européene (CE) and the US Food and Drug Administration were allowed. MDR-17 were expected to unlock the potential of Indian medical device market by introducing a well-defined regulatory regime, while assuring quality products to consumers.
Under the rules, a medical device had to be notified as ‘drug’ under the Drugs and Cosmetics Act to be regulated by Central Drugs Standard Control Organization (CDSCO):
Initially, 15 categories of medical devices (syringes, stents, catheters, orthopedic implants, valves, etc.) were notified as drugs
In 2019, the government notified (effective April 2020) another eight categories – MRI equipment, PET, bone marrow separators, dialysis machines, CT scan and defibrillators, etc., thereby placing a total of 23 categories of medical devices under drugs
The February 2020 notification, called Medical Devices (Amendment) Rules, 2020, has made the entire range of medical devices available in India (about 5,000 different types) under the ambit of drugs, as opposed to 23 categories before the announcement. The compliance requirements are to be enforced in a phased manner, with 30 months given to low and low moderate risk devices and 42 months for moderate high risk and high risk devices.
The February notification has drawn reactions, most of them positive, regarding the future from those associated with the industry. There are some concerns as well, such as:
What if the device rules accord unrestrained power to drug inspectors due to medical devices being regulated under the Drugs and Cosmetics Act?
Would the cost of quality compliance be substantial for device manufacturers?
Would the government resort to price control of medical devices, as it does in case of drugs?
Though the concerns are valid, they are unlikely to cause immediate disruption, as there would be at least 30 months (time given for enforcement of compliance for class A and B devices) after the notification date for the rules to start impacting the industry. An increased cost of compliance is a possibility, however, it would be found across the industry and should not impact only specific companies or a specific product segment.
At present, for price control purpose, four medical devices – cardiac stents, drug-eluting stents, condoms, and intrauterine devices – are in the national list of essential medicines that can be further expanded. However, the expansion cannot be directly linked with the medical device rules, which were primarily framed to ensure a better operating environment for industry players. For instance, from the initial list of 15 categories (i.e. about 350 devices) under MDR-17, only cardiac stents and knee implants were brought under price control (condoms and intrauterine devices were already under the price control regime when MDR-17 were introduced).
Impact on stakeholders
Indian medical device industry is expected to evolve under medical device rules (including the February 2020 notification). Even if the impact of the rules is speculative at present, it is interesting to take a look at their potential effect on key stakeholders in the coming years. While the patients appear to be the greatest beneficiaries due to improvement in quality of treatment, wholesalers and retailers of medical devices may have to prepare for a more demanding operating environment.
Decision to notify all medical devices as drugs for regulatory purpose was a result of a long consultative process, which involved various stakeholders and experts, including Drugs Technical Advisory Board (DTAB). The industry was expecting such an announcement, as the government had previously shown its intent to do so. Hence, the February 2020 notification was only part of the process that was initiated in 2017 with the introduction of medical device rules. The notification is a show of intent by the government of India towards building a better regulated industry offering more quality products, thereby raising the standards of healthcare in the country. The phased implementation of rules is likely to provide enough time for the industry to adapt according to new regulatory requirement.
Any comment on the future of Indian medical device industry on account of probable price control measures would be purely speculative, as it is difficult to predict the outcome of such steps at present. The case in point is of stents, which were brought under price control regime in 2017. There were fears that the move might kill the sector; however, the stent-related procedures have not witnessed decline despite the multinational companies taking their high end products off the shelf, indicating that the domestic manufacturers have been able to cater to demand.
While the end-users can view the medical device rules as a means to provide better care to them, the device manufacturers can also look for positives, especially when the rules are seen along with the government’s other efforts, such as Make in India initiative, to boost domestic manufacturing. Device classification and the associated regulatory requirements have removed ambiguity for the manufacturers of medical devices in India. This clarity might also fast track investments in the sector, as the potential investors now know what to expect while operating in India. Under Make In India, up to 100% foreign direct investment is permitted in medical devices through automatic route.
Medical device industries in India and China have long been dominated by international players, especially when it comes to high-end devices. High investment requirement, long gestation period on ROI, limited support from the government, and relatively low demand and awareness about medical procedures have resulted in limited domestic investments. However, the industry has been evolving as more and more local players are realizing the scope of this high-potential market that is still in its nascent growth stage in India and China. Moreover, increased government support is further expected to boost indigenous production in the industry.
Similar market structures, a whopping difference in size
While the medical device sector in China is far ahead of that of India (with respect to sales, number of players, and investment), they both have a similar market structure, i.e. being dominated by large multinational players, who have built strong relationships with large hospitals, healthcare organizations, and influencers.
Very few local players have had any significant presence in this industry, and those that did hold some share in the market, limited their focus to the low-investment, low-price product range. However, with healthcare spending in the two countries rising significantly, more and more domestic players are entering and expanding into this space.
India’s healthcare industry is poised to reach US$280 billion by 2020 registering a CAGR of 15% during 2016-2020, while China’s healthcare spending is projected to reach US$1 trillion by 2020, growing at a CAGR of about 12% during the decade.
The rise in healthcare spending in both countries is underpinned by rising disposable income, availability and growing awareness about medical care, expansion of health insurance coverage, rising burden of lifestyle diseases and increased stress levels, as well as ageing population (especially in China).
In addition to this, the governments in both countries are providing instrumental support to companies interested and engaged in medical device manufacturing on domestic soil.
Government takes initiative to promote Indian domestic manufacturing
India’s medtech market, which was valued at close to US$4 billion (INR 260.5 billion) in 2015 is expected to reach about US$8 billion (INR 550.4 billion) by 2020, registering a CAGR of 16.1% during 2015-2020, which is significantly higher than the global industry growth of about 4-6%.
Although about 65-70% of the market value is characterized by imports, the current government’s initiatives in the sector (including the Make in India initiative) are expected to reduce the country’s dependency on imports in the medium-to-long term. Some of the initiatives undertaken by the government include allowing 100% FDI in the sector, setting up medical technology and devices parks across selected states to bring down indigenous manufacturing costs by as much as 30%, developing two testing and quality certification labs aimed at monitoring and improving quality of manufactured devices, and issuing Medical Device Rules 2017, which promote domestic manufacturing.
Before the Medical Device Rules 2017, medical devices were regulated as drugs and this resulted in several regulatory bottlenecks with regards to medtech manufacturing. The new set of rules ease the process of obtaining licenses and undertaking clinical trials, encourage self-compliance, and promote a single-window digital platform for the processing and easy tracking of applications and licenses for import, manufacture, sale/distribution, and clinical investigation of medical devices. In addition, the new medical device rules classify medical devices into four categories based on the risks these devices may pose, in line with global standards for classifying and registering medical devices.
In addition to this, the government also corrected the inverted tax structure faced by the industry in the past (i.e. import of finished goods attracted lower duty compared with import of raw materials for domestic manufacturing). Under the 2016-2017 budget, the government relaxed import duty on components and raw materials required to manufacture medical devices to 2.5% and provided full exemption from additional customs duty (SAD). Further, it increased duty on import of finished medical devices from 5% to 7.5% (in addition to imposing an additional duty of 4% on medical devices by withdrawing exemptions.)
While the move of reducing duty on raw materials has been appreciated by the industry, the rise in duty of imported medical devices has met with mixed reviews. India is highly import-dependent with regards to medical devices and a rise in duty on most categories will make medical care more expensive for the consumer.
Further, in June 2017, the union cabinet announced a US$250 million initiative as a part of the National Biopharma Mission to fund bio-tech start-ups in the field of medical devices, bio-therapeutics, etc. The government is also looking to encourage innovation in this space by setting up R&D incubation centers in association with leading research institutions in this field.
Apart from easing the supply side, the government’s initiatives, such as Free Diagnostics Service Initiative also play a vital role in boosting the demand for medical devices(especially in-vitro devices) in the country. Through this initiative, the government, under the National Health Mission aims at providing a minimum set of diagnostics to the underprivileged population in the country.
In addition to this, the program has worked on devising an integrated approach to combat prevalent non-communicable diseases such as hypertension, diabetes, and cancer by undertaking year-round screening and testing. This will result in large government orders for IVDs and other medical devices.
Another initiative undertaken by the government to both support the domestic industry and ensure a more widespread reach of medical devices has been price capping of coronary stents and orthopedic implants. Observing the huge distributor margins on these medical devices, the government undertook a bold step to cap the prices at which stents and knee implants can be sold in India.
Prior to the price control, the average retail price for a bare metal stent was about US$700, while that for a drug-eluting stent was about US$1,800-2,000. In February 2017, the government fixed a ceiling price of ~US$106 (INR 7,260) for bare metal stents and ~US$431 (INR 29,600) for drug-eluting stents.
In a similar move, the government capped prices for knee implants in August 2017. Knee implants, which ranged from ~US$2,308-US$13,121 (INR 158,300 – 900,000) were limited to ~US$791-1,661 (INR 54,270-113,950). In mid-2017, the government published a list of 19 medical devices (including catheters, heart valves, other orthopedic implants, etc.) that will be monitored for pricing, thus similar price capping may be expected for other devices as well.
Large players may withdraw their latest generation products from India, while Indian players will focus only on cost-effective products instead of innovations.
While the intent for the price capping is noble and will provide a boost to the domestic manufacturers who are better equipped at producing low-priced products, several leading international companies, such as Abbott Vascular and Medtronic, have criticized the decision and submitted applications to increase the ceiling price for the premium quality products or allow them to withdraw the products from the Indian market (as per the government’s rules, no manufacturer can withdraw their products from the market for a period of 12 months from the date of the price ceiling without prior approval from the government). This may be detrimental to the overall industry as large players may withdraw their latest generation products from India in the long run, while Indian players will focus only on cost-effective products instead of innovations.
Indian domestic players might go beyond high-volume low-end products
The Indian medical device market is largely import driven with a very fragmented domestic players landscape. While there are around 800 local medical device manufacturers across the country, only 10% have a turnover of more than ~US$7.3 million (INR 500 million).
The small-scale domestic players focus primarily on the consumables and disposables segment of the medical device industry, which include high-volume low-end products such as syringes, needles, and catheters.
The patient aids segment, including mostly hearing aids and pacemakers, is largely import dependent.
While the equipment and instruments segment and the implants segment are largely dominated by foreign players, they have recently seen an influx of local players that have customized their offerings to the Indian market. Karnataka-based Remidio Innovative Solutions has come up with a retinal imaging system, wherein the fundus of the eye connects to a mobile phone camera to take pictures of the retina to detect diabetic neuropathy. The device can also be used in remote areas and the images and results can be shared in real time on the treating doctor’s phone. Similarly, Karnataka-based Tricog Health Services has developed a cloud-based ECG machine for faster diagnosis. Several other players include Sattva, Cardiotrack, Forus Health, etc.
Understanding the needs and price-sensitivity of the Indian market, several leading global players have also created customized offerings for Indian consumers. For instance, GE Healthcare has come up with a compact CT scanner, which consumes less power, while Skanray Technologies has developed affordable X-ray imaging systems to meet the Indian needs.
We can expect a transition in the domestic sector, which will not only focus on high-volume low-end products but also look at entering the high-end innovative segment offering more affordable and locally customized solutions.
Since the Indian government has fixed the inverted duty structure and provided other instrumental support to the domestic sector, we can expect a huge transition in the industry, which will not only focus on high-volume low-end products but also look at entering the high-end innovative segment offering more affordable and locally customized solutions. This may eventually result in a phase of consolidation, with foreign market leaders absorbing several innovative Indian start-ups and established players.
Chinese government also focuses on aiding local producers
China’s medical device market is the third largest globally, after the USA and Japan, and is expected to surpass Japan to become the second largest by 2020. In 2017, the industry was valued at US$58.6 billion, maintaining a double-digit growth over the previous three years.
Similar to the Indian market, the Chinese medical device sector continues to be dominated by foreign players through imports or their locally manufactured products. However, the market is also characterized by the presence of several local players (though smaller in size), especially in the drug-eluting stents, IVDs, and orthopedics segments.
While the foreign players hold the major chunk of innovative medical devices, the government has been taking several and significant steps to promote local companies. The government requires international players to have local legal entities in China for registration and licensing, thus China cannot serve only as an export market.
Another such major step is the regulatory proceedings under Order 650, which mandate clinical trials in China for all class II and III medical devices, with few exceptions. This prolongs the period for obtaining a license to 3-5 years and adds close to US$1-1.5 million (CNY 7-10 million) in costs. However, it has introduced a shorter channel, called the Green Channel, which provides a fast track review option. While the government introduced this to foster domestic innovation, foreign players can use it too. To be eligible for the Green Channel, the device must have a Chinese patent and it must be an innovative product with design progress and records. Products qualifying for the Green Channel are given priority in the registration review and are exempt from the US$90,000 registration fee.
In 2016, the government introduced a second priority review system for certain breakthrough products. Under this fast track channel, the need for a lengthy pre-qualification application process was further eliminated.
The government’s guidelines in its new healthcare reform called The Healthcare Reform 2020 also aim at reducing the share of imported medical devices and promoting locally produced counterparts. Several state-based medical tenders differentiate between local and imported products, giving preference to the former. Moreover, in some tenders a further distinction is made between domestic and foreign-owned local manufacturers. Thereby foreign companies that buy-out local companies to get an easier access into China are also considered as foreign players.
Under its Made in China 2025 plan, the government has also focused on domestic development and manufacturing of high-end and innovative medical devices. These devices include imaging equipment, medical robots, fully degradable vascular stents, and other high-caliber medical devices. The government aims to boost local production of such innovative and high-value devices by supporting the R&D infrastructure and manufacturing capabilities of local players. The government also provides extension of tax benefits for a period of three years if the investment made is used towards the development of medical devices.
Moreover, under the initiative, the government has aimed at increasing the use of locally produced devices by hospitals to 50% by 2020 and 70% by 2025. To pursue this goal, in September 2017, the Sichuan province mandated the use of locally-made devices in hospitals across 15 categories including respirators, PET, and CT scanners.
Just like India, China is also focusing on combating high distribution costs of medical devices, which in turn will make their prices more affordable for the general population. However, instead of capping prices, the government has introduced a Two Invoice System. The system limits the number of invoices between a supplier and the hospital to only two – the first invoice would be from the manufacturer/trading company to a government-appointed supplier/distributor (GAS) and the second invoice will be from the supplier to the hospital. This will eliminate most links in the non-transparent and fragmented distribution network in the Chinese medical device sector, which encompassed several distributors, sub-distributors, agents, etc. (the sub-distributors were engaged due to their personal and long-standing relationships with a set of hospitals). This new system is expected to reduce the corruption level by reducing the number of intermediaries and in turn improving efficiency and reducing prices for the patients.
Chinese players dominate several narrow industry segments
China’s medical device industry is dominated primarily by international players, especially with regards to high-end and innovative devices. Having said that, there are a lot of upcoming local players, although, most of them are still limited to the high-volume low-technology segments.
However, local Chinese players have managed to dominate several narrow industry segments, such as drug eluting stents, which is dominated by three domestic companies, namely Biosensors International, Lepu Medical, and MicroPort. Similarly, local players have managed to capture a significant share of the digital x-ray market, which was dominated by foreign players a few years back.
The orthopedic sector is also characterized by the presence of several large and small local players while a few dominating local players (Trauson, Kanghui, and Montage) have also been acquired by leading international players (Stryker, Medtronic, and Zimmer, respectively). Mindray and Microport, two of the largest Chinese medtech players (who have also successfully internationalized), have strong hold on the country’s patient monitoring equipment and orthopedic segment, respectively.
Moreover, while foreign companies enter the Chinese market to cater to the grade-3 hospitals and the high-end segment, the local players focus primarily on the grade-2 hospitals’ value segment (i.e. products that may not have as many functionalities but serve the basic need). The products in the value segment are more localized in terms of both need and pricing. Several international companies, such as Siemens, Philips, and GE, have also modified their product offerings and have come up with a lower-end range of devices to capture this market (as per experts, the value segment has the potential of becoming much larger in comparison with the high-end segment over the coming years).
Leading Chinese medical device companies are investing heavily in their R&D to move up the value chain with more innovative and high-segment products. Therefore, in the coming years, one can expect intense competition in the Chinese medical device sector.
Similarly, leading Chinese medical device companies are investing heavily in their R&D to move up the value chain with more innovative and high-segment products. Therefore, in the coming years, one can expect intense competition in the Chinese medical device sector, which may also lead to some consolidation. With growing government support to local companies as well as their ease to localize, it is expected that the domestic players will provide a stiff competition to international players unless the latter take action soon.
While the governments in both countries are taking significant and constructive steps to increase the reach of the medtech industry as well as boost domestic manufacturing, it is too far-fetched to believe that this will uproot the leading global players from the market. However, that being said, in case global companies such as GE, Siemens, and Philips do not continue to customize and localize their offerings as per the changing needs of these markets, they will definitely lose market share to domestic players.
If global companies do not continue to customize and localize their offerings, they will definitely lose market share to domestic players.
Moreover, with the upcoming regulatory changes, support to local production, and overall surge in demand (especially from tier-2 and tier-3 cities in India and grade-2 hospitals in China), the sector is likely to undergo a phase of consolidation in both countries.
Dubbed as ‘Modicare’ (named after the Indian prime minister), India’s National Health Protection Scheme (NHPS) is being considered as the world’s largest government funded healthcare scheme. The scheme is expected to benefit 500 million people by providing them with cover for secondary and tertiary care hospitalization. While the recent press around the scheme focuses largely on the implementation and funding challenges, we are looking at Modicare from the perspective of opportunities it will bring to the table for healthcare industry players.
Announced during the 2018 union budget, NHPS is a government-funded secondary and tertiary healthcare plan aimed at 100 million financially vulnerable families, referred to as Below Poverty Line (BPL) families, in India. Expected to be launched on 2nd October 2018, NHPS will replace the existing central-government-operated Rashtriya Swasthya Bima Yojana (RSBY), which provides an annual insurance cover of INR30,000 (~US$460) for a family of maximum five members, and is operational in only 15 (out of total 29) Indian states. The new scheme will offer insurance cover of INR500,000 (~US$7,700) per family.
NHPS is expected to provide secondary and tertiary healthcare access to more than 40% of the Indian population, which was earlier deprived of it due to financial constraints. This will create a new healthcare market, giving boost to the entire healthcare ecosystem in India. Companies across the entire healthcare value chain, including medical education providers, healthcare service providers, construction firms, pharmaceutical and medical devices companies, etc., are expected to witness ample growth opportunities. One can expect increased investments in the Indian healthcare sector by private companies as well as foreign investors.
Since the scheme is aimed primarily at making healthcare affordable and accessible for BPL population, opportunities will be up for grabs for companies to tap and expand their reach in areas where the BPL population resides in India. Based on the currently available scheme details, we have tried to identify top five states in India that are ripe for opportunities with the expected launch of the new scheme.
Taking into account various factors, including red tape, electricity supply, political stability, etc., as well as the current state of healthcare infrastructure and BPL population, we project the states of Uttar Pradesh (UP), Bihar, Telangana, Madhya Pradesh (MP), and West Bengal (WB) will be most attractive for healthcare industry players.
Uttar Pradesh offers greatest opportunities on the basis of a large BPL population residing in it. The state boasts of a robust road infrastructure and a stable political climate. UP has legacy issues related to administrative challenges, however, the state has taken major steps in cutting the red tape.
Madhya Pradesh is the leading state in India in terms of ease of doing business. The state has electricity surplus, with good road infrastructure, and reasonably priced real estate (as compared with the remaining four states), making it an ideal destination to invest.
One of the largest BPL populations resides in Bihar, a fact that makes it one of the most attractive markets expected to be created after the introduction of NHPS. However, the administrative bottlenecks and lack of infrastructure (as compared with the other four states) may act as constraints for the market players in realizing the full potential.
Telangana, a newly formed state, offers excellent opportunities due to a reasonably large BPL population. The state has performed well on administrative reforms front, and it is expected to improve infrastructure (including electricity availability) in the future, to make it more attractive.
West Bengal has shown remarkable improvement in the field of administrative reforms (in cutting of the red tape), to make it one of the most attractive destinations for any industry. It has to focus more on further improvement in the infrastructure to make it a natural choice for the industry players to invest in the state.
In the end, the realization of the opportunities will depend on smooth as well as quick implementation of the scheme across India. At the outset, NHPS offers promising future for healthcare industry across the nation in general, and the five highlighted states in particular.
EOS assessed attractiveness (in terms of opportunities for healthcare industry players) of all Indian states on the basis of a scorecard
States were ranked on selected parameters, i.e. size of the market and other factors (termed as ‘market enablers’) that are likely to influence decision-makers to prefer one state over another while planning to invest to tap the opportunities created post the launch of NHPS
Maximum score (awarded for first rank) for each parameter was fixed based on its relative importance (weightage); scores awarded for subsequent ranks (on each parameter) were a percentage (decreasing in accordance with the rank) of maximum score
The final score (and hence the overall rank) was the summation of individual scores on all parameters
The Indian automotive industry has been witnessing a period of recovery and growth over the past couple of years. Every year, automakers look towards the government to provide a stimulus in the form of favorable policies and budget allocations, to spur growth in the sector. A week has passed since the announcement of Indian budget for FY 2018-2019. We take a look at its short and long-term impact across the automotive value chain.
Supply-side scenario (component manufacturers and OEMs)
The current Indian government under Prime Minister Modi has been focusing on promoting domestic production of automobiles and auto components, as a part of its “Make in India” campaign. A 5% increase in customs duty on imported completely knocked down (CKD) cars and automotive components for assembly and sale in India is seen as another step in this direction.
While international OEMs such as Volkswagen and Skoda have been left reeling under the burden of additional costs, this provides an opportunity to spur growth particularly in the domestic components manufacturing.
Another positive news for domestic automotive components manufacturers, most of which are small and medium scale enterprises, is the reduction in corporate tax rate by 5% percentage points (for companies with a turnover of under INR 250 Crores / USD 38.83 million). These tax savings can provide companies with additional capital to invest in their business, aiding their long-term growth.
Investments in road and rural electrification infrastructure also encourage OEMs to bring new products, particularly electric vehicle (EV) portfolio, to the Indian market. However, lack of an established EV infrastructure means that this market development is likely to occur only over a long-term horizon.
Demand-side scenario (individual and corporate consumers)
The key factor impacting the demand for automobiles is perhaps how deep the consumers’ pockets are (or can be) after bearing all the tax burdens – in other words, how high the disposable income is in India. This is even more relevant for the lower-end of the market (or the so-called “mass spectrum”).
Minimal income tax incentives to individuals, coupled with rising inflation, are likely to limit the disposable income of most people (particularly in the low and medium income brackets), which form the largest consumer base for automobiles in terms of volume.
A booming stock market in India attracted several consumers in the middle income group to invest their capital in equities. Levy of a 10% long-term capital gain tax (LCGT) on returns from these equities (although grandfathered till INR 1 Lakh / USD1,553) is likely to put even further pressure on consumers’ pockets, especially for those looking to finance their automobile purchases by getting the most out of their investments.
Moreover, the knee-jerk reaction to this year’s budget was also observed on the equity market. The negative sentiment has led India’s two leading stock exchanges – BSE and NIFTY – witnessing a 5% decline within a 7 day period from the announcement of the budget, thereby eroding consumer’s wealth, which may further impact consumers’ short-term decisions to purchase vehicles.
On the other hand, the support provided to the agricultural sector is likely to spur demand for tractors and small passenger vehicles in rural areas, however this demand growth is dependent on the agricultural output, and derived from it incomes, in the coming year.
Aftermarket scenario (recyclers)
For the past couple of years, automotive companies as well as aftermarket recyclers have been expecting the government to bring in the scrapping policy, which would allow consumers as well as OEMs to benefit from voluntary replacement and scrapping of vehicles older than 15 years. However, lack of any announcements related to this policy has left the aftermarket recyclers and OEMs disappointed. They will need to wait to tap the demand expected to come from voluntary replacement of old vehicles in exchange of monetary benefits.
The scenario for electric vehicles (EVs) looks bright over a long term with significant investments going into development of rural electrification infrastructure, which will impact the development of the EV ecosystem beyond the metros as well. OEMs look at this as an opportunity, and this is evident from the number of EVs and electric concept cars to be unveiled at the Auto Expo 2018, India’s largest automotive exhibition. However, in a short to medium term, the adoption of EVs is likely to be limited to the corporate sector. General mass adoption is likely to lag behind due to vehicles’ high prices, and limited distance range/capacities offered by the current EVs available in the market.
As the mass automobile demand is expected to remain lull in the short term, the market will be driven by luxury and premium segments, which is largely unaffected by the budgetary challenges. A push is evident from OEM-side as well, with a number of premium, high-end products (such as SUVs, large displacement motorcycles, and luxury vehicles) launched at the Auto Expo 2018.
While the budget has left a lot to be desired, there are positives which bode well over the long term. The market is likely to witness a downturn in demand over a short term, as the consumers are likely to turn to preservation of wealth till the negative market sentiment prevails. Moreover, as the government invests in infrastructure projects, demand for both commercial and private vehicles is likely to pick up in the future.
It remains to be seen how soon the market witnesses a recovery in terms of automobile demand. One thing is certain, as always, when the budget comes next year, expectations will be high, partially fed by this year’s disappointments.