Medical Technology Association of India (MTaI) has asked the Government for an increase of up to 18 per cent on MRP of medical devices. What’s your take on this?
We don’t think there is a need for it because MRP on most Medical devices is already very excessive as high MRP is being a tool to induce hospitals and retailers to push one’s product and is not having any direct correlation to import or manufacturing ex-factory prices currently. Long-term cross subsidisation to keep the supplies is not healthy for the growing MedTech sector. Current basic import tariff of 0 per cent to 7.5 per cent needs to be over 15 per cent for medical devices and on their components to be 5 per cent, next year 7.5 per cent. At present, the domestic medical device industry is suffering from the onslaught of cheap import from countries like China who subsidies their export by 17 per cent. The existing manufacturers are becoming importer/trader as they find it cheaper to import than manufacture in India with lots of other hassles. The 70 per cent to 90 per cent imports dependent medical device sector got a huge shock after implementation of Goods & Services Tax (GST). Earlier, the domestic manufacturer was getting CENVAT Input Credit (6.45 per cent CVD+E.Cess & 4.57 per cent SAD+E.Cess) on the basis of manufacturing whereas traders/importers were not getting CENVAT input credit. In the GST regime, there was no difference between manufacturer and trader/importer. Simply anybody, whether he is a manufacturer or trader/importer, can get GST input credit on the basis of supply. Comparatively, trader/importer became beneficial to the extent of 11 per cent cost reduction. This is nothing but further disenchantment to the manufacturer for manufacturing the medical device in India. Did the importers pass on the 11 per cent cost reduction to consumers by reducing MRP? If not, why seek increase now?
What’s your comment on the demand-supply scenario?
Demand-supply in India is already 70-90 per cent import dependent. India needs to take out rapidly policies, statements and decisions so that manufacturing takes place in India. It’s not viable to manufacture most medical devices in the country in case the customs duties continue to be less than 7.5 per cent. After the GST was implemented the cost of imports came down by 11 per cent. But the cost of our production did not come down by 11 per cent. Until we’ve got robust regulations it is imperative that India needs to curb imports of any refurbished or pre-owned medical electronic equipment. In most cases, we cannot compete with any brand-new equipment and to compete with pre-owned equipment is next to impossible. No industry can survive. Our country does not allow pre-owned imports for cars nor for iPhones, then why is our country allowing for medical equipment? Medical equipment requires calibration and covers a higher risk for patients’ safety and its vital that even more than cars and iPhones, that patient safety concerns need to be addressed.
How significant is the import dominance?
Last year the Indian import bill was over Rs 31,000 Crore and in medical electronics, it grossed around Rs 16,000 Crore. As far as dominance is concerned, in most categories, imports are dominant, in electronics, it is 90 per cent dominant and 70 per cent in the case of other devices. Among the imports, the USA alone has a dominant 24 per cent – 25 per cent import market share. This dominance by both USA and China is being harmful to Indian interest for the long-term in terms of our own healthcare security and we need to be self-reliant. If we compare other large developing countries, i.e., BRICS Countries, we will find that India is levying the lowest import duty. Though, in theory, China levies less import duty, but they have very high non-tariff barriers that none of the countries including India can effectively export medical devices to China, whereas India is one of the most liberal countries in the world for imports of medical devices with very low tariffs and virtually non-existent non-tariff barrier. In fact, India puts non-tariff barriers for its own Indian manufacturers for exports by not permitting issuance FSC (Free Sale Certificate) for devices not notified as drugs, by MOH&W or in the form of USFDA mandatory regulatory approval clause in Government Bids.
Do you see any impact of ‘Make in India’ over domestic medical devices manufacturing?
‘Make in India’ till now has pretty much failed to deliver whatever was promised for medical devices. Unless the policies that succeeded in enabling Make in India of other sectors are replicated, the medical devices manufacturing will not get a boost. For example – the automobile industry, steel industry, mobile phones, power sector, consumer electronics, these all have increased the import duties to a minimum of 15-20 per cent and even higher. Also, these are aided additionally by non-tariff barriers in the case of steel or air-conditioners by having quality control order to curb imports by seeking quality based regulations. If these strategies are also replicated for medical devices, immediately the manufacturing activity will start increasing. India failed to initiate corrective steps because the Government after getting suggestions from AIMED, begin to consult associations like FICCI and CII who are dominated by importers lobby, who claimed to be the voice of the Indian industry without putting factories in the country. This opposition has lobbied to protect their market share and thus hurt the interest of manufacturing in India. They usually do not make in India nor allow others to make medical equipment in India. ‘Make in India’ had promised many things and these aren’t accomplished. It’s been a huge disappointment for our sector.
Healthcare will become a huge agenda for the public when the country goes for the election next year. The pricing of medical devices and unaffordable access to the medical devices and healthcare are going to be the key critical issues.
While the government had promised Ayushman Bharat to safeguard and give affordable access to healthcare to the one-third of the population who has got nil income. This, however, wasn’t planned for middle-class people. The middle-class is not able to enjoy access to Ayushman Bharat and with limited public health care access, they are forced to seek support from private health care. So, keeping all this in mind it is important for the government to have regulations, both for the healthcare and medical devices in terms of quality and safety, as well as some rational price controls for enabling affordable access. For the price controls, we have suggested the government cap the trade margins from import landed price in India and the labelled MRP to a maximum of 75 per cent. Same is for Indian manufacturers, cap the trade margin between MRP and ex-factory price. Unless the Indian manufacturers get level playing field and visible benefit to manufacture in India in comparison to the imports, nobody will venture out to undertake this tedious job of putting together men, machine and capital for manufacturing of medical device in India, which is a dream and mission of our beloved Prime Minister’s clarion call of Make in India. If Government of India can boost manufacturing of mobile phones and consumer electronics by levying 15 to 20 per cent duty and even higher for automotive, bicycles, motorcycles and steel, we request similar tariff protection clauses for the medical devices.
How is your association involved in promoting domestic manufacturing?
We have taken many steps in having communication linkages with various Government. Departments like the Department of Commerce, Department of Pharmaceuticals, MeitY, Ministry of Health, PMO, NITI Aayog, what policy changes are required by various departments and sensitised them about our needs. Based on this the Government had initialised the creation of an Inter-Ministerial Task Force under DOP and more recently NITI Aayog had been given this mandate for enabling better inter-ministry co-ordination. They have been holding meetings with ministries to co-ordinate various policy measures required to boost manufacturing for ‘Make in India’ for medical devices. Additionally, we have also been in communication with various state Governments and state CM’s, for example, Mr N. Chandrababu Naidu, who on understanding our needs has acted promptly and even more than what we had hoped for. On our requests, in a very short period of time, a medical device park is under construction at Vishakhapatnam – The Andhra Medtech Zone (AMTZ). The factories have already started the installation and commissioning in the last few months. Some factories have already started functioning and the park will be fully operational by the first quarter of 2019. Department of Pharmaceuticals had supported our case to the Department of Revenue. In budget (Finance Bill) 2018 the duty was increased from 7.5per cent to 10 per cent but the same day in the evening the notification stated at 7.5per cent. We were informed by the Department of Pharmaceuticals and Department of Industrial Policy & Promotion that Department of Revenue is awaiting clarification/response from MOH&FW to Department of Pharmaceuticals proposal. MOH&FW needs to support the Department of Pharmaceuticals/ AiMeD’s submission. AiMeD also serves on the Board of AMTZ and KIHT (Kalam Institute of Healthcare Technologies).
What do you have to comment regarding the standards of manufacturing of medical devices in India?
Indian manufacturers in the absence of regulations are needing to convince doctors and hospitals to use their products on the basis of third country certifications like CE mark or USFDA approval for the safety approval. These approvals are very expensive and quite needless in case the company is not going to targeting exports to these countries. To address this issue, AIMED had initiated with QCI India Certification for Medical devices (ICMED) and this was introduced in March 2016 and this has become way forward for Indian manufacturers for making medical devices that are currently not regulated so that these can be certified by credible certification bodies like TUV, Intertek, UL and they can on these bases convince the customers in India of their quality and credibility. In the case of both public healthcare and private healthcare, it’s a challenge to market our products. There are challenges in both the market segments. In the public healthcare, the challenges on one extreme can be low-cost competition from China or on another extreme, when Americans and Europeans cannot compete with the Chinese on low prices, they like to compete by putting in restrictive specifications in tenders in collaboration with the tendering authorities. This is to keep out the low-price competition from China. But by doing this, even the Indian manufacturers get impacted because typically Americans will seek to put in a clause in tenders which specifies that there is a mandatory condition in the tender for having a USFDA as a regulatory approval, which many of the manufacturers will not be having, especially a new entrepreneur or a start-up will not have it. And with this one will not be able to access our home market.
Normally a manufacturer will be relying on success in public healthcare market before entering the private healthcare market. In the private healthcare market which is more brand conscious and more brand loyal, doctors will naturally patronise an American or European brand which they are more familiar with. It’s a bigger challenge to convince doctors and surgeons to switch over from American brand or a European brand to an Indian brand. Even if an Indian start-up is able to get ICMED or CE Certification he finds it difficult to compete even with lower priced product in private Indian market. To convince purchasers lower prices helped in the past to enable a switch to Indian products but recently in the past 5-10 years this competitiveness has not been working because on the other hand, the more expensive imports have induced hospitals with higher MRP and higher trade margins. To convince them to switch from imports to an Indian brand product, low price is not being advantage strangely, lower price with higher MRP and higher margin is needed to be competitive to enter the market, but when you do that both the purpose of making the product in India at low price and affordable to the consumer is not going to be met with.
What do you predict about the future of medical devices manufacturing in India?
The future can be bright only when the Government will be willing to follow what AIMED is suggesting. The Government needs to follow policy measures as done for mobile phones and consumer electronics and we see within 2 years’ time we see a huge increase in manufacturing and infrastructure. This can also happen with medical devices because once the investors and Indian manufacturers find it worthwhile to expand capacity and stop imports and start manufacturing in the country then even the foreign manufacturers who are importing will also start following the Indians to retain their market share. The cost then will be reduced with a better ecosystem to source components and sub-contract OEM supplies from India. With the support of appropriate policy, India can emerge as one of top five manufacturing hubs of medical devices and can be the next big story after pharma and IT.