MedTech in India: The next medical device manufacturing destination?
According to the estimates by the Department of Pharmaceuticals (DOP), India, the medical technology device market in India was valued at approximately USD 5 billion in 2015, which is relatively small compared to mature medical device markets, such as in the US. However, the rapid ongoing development of health care infrastructure in India—including the construction of new facilities, availability of more diagnostic and surgical equipment, and increased training of medical professionals—will continue to improve access to medical care in the country, driving current market growth at a healthy rate of 10-15%.
With the growing demand for medical devices, India needs to devise a strong growth model for local manufacturing while also creating an efficient regulatory system for these devices. Currently, nearly 65% of medical devices in India are imported; this is not a sustainable system, given the high prices of imported devices. The government of India has been actively trying to reduce burdens for local device manufacturers by introducing legislation under the “Make in India” campaign that will make India more attractive for device development. I have outlined key components of this campaign below.
In January 2015, the government introduced a landmark policy that will allow 100% foreign direct investment for medical device manufacturing in India through an expedited process. The reform applies to all kinds of medical instruments, including diagnostic tools and devices like medical implants. Although the new policy aims to increase local manufacturing, there will be a need for strict government control to make it a success. This is because foreign companies can take advantage of this policy and set up local subsidiaries while continuing to import medical devices.
Additionally, in June 2015, the DOP released the long-awaited draft for National Medical Device Policy. Under this policy, there will be a National Medical Device Authority (NMDA), which is a regulatory body that will be responsible for all medical device development in India; this is a milestone for the Indian medical device industry due to the fact that medical devices will now be regulated separately from pharmaceuticals. The primary focus of the NMDA will be to optimize domestic manufacturing, control pricing and quality of devices, and build medical device parks and research centers. The draft is expected to be discussed in the Indian parliament this year.
Similarly, in February 2016, import duties on medical devices—including certain devices for surgical, dental, and veterinary use—were increased from 5 to 7.5% in order to boost domestic manufacturing of medical devices. Furthermore, duties were increased an additional 4% by removing the concessional tax exemption from the Special Additional Duty. This step is a clear indication of the government’s intentions to drive local manufacturing of medical devices.
Given all of these new legislative improvements, large medtech MNCs are expected to increasingly develop manufacturing sites in India. India presents a great opportunity to these companies due to the fact that it is an underpenetrated, high-growth market. In addition, India is attractive because it has the underpinnings to become a major consumer of medical devices and the potential to become a major medical device exporter to countries worldwide. Improvement in health care services for Indian patients will facilitate the treatment of more patients in India, making it even more attractive for investors in the medical technology sector.
The new legislation will also increase medical device research and development efforts within India. For example, large medical device companies—such as GE Healthcare, Stryker and Covidien–are increasingly investing in R&D in India due to the large pool of skilled labor available in the country. These companies are trying to meet the needs of this quickly growing, emerging economy by devising products that are highly efficient and less expensive. For example, one notable solution from GE Healthcare India is a highly efficient CT imaging machine that is expected to be launched globally soon.
India can also learn from successful medical technology manufacturing hubs such as Ireland and China. In the case of the former, Ireland has been the gateway for US manufacturing companies seeking to gain access to European markets. The country boasts some of the lowest corporate tax rates in Europe at 12.5%. Coupled with lenient regulatory requirements, these have been the major drivers of the success of the Irish medical device markets. In terms of the latter, China’s success is derived from the fast approval times for innovative domestic medical devices. In addition, mandatory clinical trials have been waived for class I devices, as well as select class II and III devices. In both Ireland and China, lowered barriers to approval of medical devices give local manufacturers high confidence to develop devices; similarly, policy makers in India can follow suit to incentivize research and development of medical devices in India.
Overall, the Indian government clearly has a renewed focus on providing stimulus for local medical device manufacturing. There remains some uncertainty on when these reforms will be enacted in full; in addition, medical device companies may need some additional incentives—such as corporate tax rate cuts—to begin local production. However, I believe that the initial steps have been taken to help boost medical device manufacturing in India, and in the next five years, I believe India will be recognized as a major hub for medical device manufacturing and development.
Follow Raghav Tangri @RTangri_DRG for more insights into the Indian MedTech markets.