India’s diagnostic services market is expected to grow at a CAGR (compounded annual growth rate) of 12% over the next five years, reaching $15-16 billion by FY30, driven by rising preventive healthcare awareness, demographic shifts, and expanding health insurance coverage, said a report from CareEdge Ratings.
The ratings agency said that the revenue expansion in the sector is primarily driven by patient volume growth (CAGR of 12%) and an increase in the number of test samples (CAGR of 17%). “Consolidation and expansion by leading organised players have further supported volume growth, accelerating the sector’s transition towards a more structured and scalable model. Revenue per patient and per test declined from Rs 786 and Rs 233 in FY21 to Rs 759 and Rs 187 in FY25, respectively, reflecting competitive pressure but improving affordability and access,” it added.
CareEdge Ratings on sectoral competition
However, the sector faces intense competition due to the entry of several large pharma companies, hospital chains, and e-pharmacies who are leveraging their strong balance sheets and cash flows. “Over the past five years, average realisation per test has marginally declined, reflecting heightened competition. CareEdge Ratings expects pricing per test to remain stable or grow modestly (1-2% annually) over the next 4-5 years. Volume growth, innovation, and efficiency improvements are the key drivers to support profitability in the industry,” the report said.
Need to rely on volume growth
Despite consolidation and expansion by the organised players, the sector still remains highly fragmented, characterised by low entry barriers and the presence of numerous standalone labs and hospital-based diagnostic centres. The share of organised chains accounts for about 20-25% of the total market. The ratings agency expects the consolidation to accelerate which will enhance growth and profitability for large diagnostic chains.
“Diagnostic chains will need to rely on volume growth and operational efficiency to sustain profitability. Smaller standalone labs and regional chains are already facing margin pressure and are likely to continue experiencing challenges in the near to medium term,” the report said.
Another factor that is going to work in favour of the sector is the rising awareness of preventive healthcare and the introduction of specialised packages. Even though nearly 60% of the population resides in rural areas, urban markets account for over 70% of diagnostic revenues. Major diagnostic chains are expanding their presence into tier-II, III, and IV towns, which are expected to contribute significantly to industry growth, as per CareEdge Ratings. “Rising per capita income, increasing healthcare awareness, an ageing population, expanding healthcare infrastructure, and growing insurance penetration will continue to drive demand for diagnostic services,” the report stated.
Meanwhile, genomic testing is emerging as a significant growth driver for the domestic diagnostic sector. By analysing DNA to detect genetic mutations, genomic testing aids in disease diagnosis, cancer treatment planning, predicting drug response, prenatal screening, and informed preventive healthcare decisions. Leading diagnostic chains are investing heavily in this segment, building advanced labs and platforms to deliver faster, more precise results. However, this capability requires substantial investment in equipment, software, and skilled talent, creating entry barriers for smaller players and single-location diagnostic centres, the agency said.
