A sky scraper could house the best medical college and hospital in Mumbai but it would not pass muster the Medical Council Of India guidelines. Any start-up venture, like a medical college, must have at least 25 acres of land to get going, say the guidelines. This means that planning a college in the hinterland of renowned hospital in South Delhi will mean a cost of Rs 2500 crore for land acquisition alone.

No wonder almost a decade after the government allowed 100% FDI in hospitals, there are very few takers. A recent report on the plight of FDI in the sector commissioned by the World Health Organisation and the ministry of health has pointed out that difficulty in acquiring large tracts of land especially in big cities, escalating and prohibitive land prices at favourable locations and non-availability of institutional land at a discount for non-trust or non-society modes of operation are some of the major constraint that hold up foreign investors from moving in. Rupa Chanda, professor at IIM Bangalore who authored the report, notes the other delays are lack of transparency in getting clearances for buildings apart from varying efficiency levels across state governments that keep foreign direct investors miles away from hospitals.

The report recommends relaxation of such infeasible norms and opening up FDI in higher education to bridge the gap between education and vocation in the sector. In the list of FDI receiving establishments, well-known corporate hospitals were conspicuous by their absence, according to the report. Whatever FDI came in, was mostly aimed at small individual investor type hospitals in smaller cities, where the amount of investment in most cases remained below $1 million.

Just sample the cost factors. It takes an investment of about close Rs 50 lakh for a bed, (implying Rs 100 crore for a 200-bed hospital). Yet the returns are often less than 13% or less with a long gestation period of 7 years. The sector can only be approached by investors with deep pockets. In addition, the report points out there is a deficiency of assured quantity and quality of human resource at all levels. There is a dearth of manpower with respect to doctors, nurses, paramedics, front and back end support staff, managers and even administrators. Couple this with attrition problems and the problems really look humongous.

The investors are therefore forced to shell out money to train personnel to overcome quality deficiencies that often creates over capacity. They also have to tie-up with overseas institutions for continuing medical education and share resources across centers.

While the health care sector has overall seen a significant growth in private equity investments with over $448 million in 2007 and expected PE investments of $5 billion between 2008 and 2011, direct investment in hospitals therefore remains bleak. Some of the PE players who are in the process of investing or have announced their intent to invest in health care sector include ICICI Ventures, IDFC, HSBC, JP Morgan Private Equity Fund, American International Group Inc. Evolvence India Life Sciences Fund, George Soros?s fund Quantum, Warburg Pincus etc.

Limited liberalisation of insurance sector manifesting itself in low market penetration, non payment of bills, lack of transparency in cost recovery are some other reasons that have kept the direct investors away, the report observes. The report projects a gloomy picture about the future FDI prospects saying that huge amount of FDI is unlikely in near future for instance, investments of $100 million or more only possible in corporate hospitals or chains and such chains are unlikely to enter in the backdrop of the dearth of in-depth knowledge of local market and unpredictable business and returns prospects.

The report also observed that few countries like USA, UAE, Singapore, UK, Mauritius, Australia, Canada accounted for the bulk of FDI in the domestic hospital subsector.