How GST failed medical devices

Updated: July 2, 2019 11:21:01 AM

As the Indian medical devices market is barely growing at 10-12% overall, the data of 24% increase in imports indicates further erosion from under 30% market share to less than 20%.

GST, medical devices , domestic manufacturing, Indian medical devices market, imported medical devicesWhile medical device makers in the US allege that the regulatory environment in India has hindered the growth of their exports, the data suggests otherwise.

By Rajiv Nath

The MSME-dominated medical devices’ domestic manufacturing has taken a hit post GST, as imports have become cheaper and shot up by an alarming 24%, up from Rs 31,386 crore in 2017-18 to Rs 38,837 crore in 2018-19.

As the Indian medical devices market is barely growing at 10-12% overall, the data of 24% increase in imports indicates further erosion from under 30% market share to less than 20%.

After the introduction of GST, imported medical devices became cheaper by 11%. But how? The basic import tariff stands in the range of nil-to-7.5% for most medical devices compared to 20% for bicycles and 50% for motorcycles. Before the GST regime, imported medical devices attracted excise duty and special additional duty, over and above the basic import duty. After GST, only import duty and GST are levied. However, since one gets input credit in the GST regime, which was not available to traders in the earlier tax regime, the effective taxation is reduced, making imports more attractive than manufacturing to even indigenous manufacturers.

Unfortunately, no steps were taken to neutralise this by raising basic customs duty. The MSME sector has been worst hit, with huge job losses.

It is ironic that whereas, on one hand, the Narendra Modi government is touting the success of Make in India initiative, on the other hand the beleaguered medical devices domestic industry continues to lose market share to imports on account of lack of adequate tariff protection, lack of non-tariff import barriers and unfair market. In fact, the market favours perceived higher quality of familiar MNC brands with attractive trade margins and higher MRP versus unfamiliar new Indian brands that, even if priced lower as compared to European or American or Japanese brands, if not the Chinese, do not adequately induce retailers and hospitals to push their products, nor do they have the deep pockets to match the sales promotion and marketing budgets of their competitors.

While medical device makers in the US allege that the regulatory environment in India has hindered the growth of their exports, the data suggests otherwise. India imports around 80% of its medical device requirement and nearly a fourth of that comes from the US. The top five countries that India imports these devices from are the US (21%), Germany (14%), Singapore (11%), China (10%) and the Netherlands (7%). Except 23 medical devices under the Drugs Act, the rest of over 6,000 devices have free access to an unregulated market.

Two decades ago, China was in the same boat, importing most of their medical equipment. But, today, they manufacture most of their medical devices because they have a policy that disallowed continued market access unless if you were manufacturing within China. India has no such rules.

There is an urgent need for the government to expedite steps to reverse the 80-90% import dependence forced upon us.

Priority issues

  • Need to encourage employment and local manufacturing of medical devices, and address 70-90% import dependency by a predictive nominal tariff protection policy as done for mobile phones. This will ensure a vibrant domestic industry and competitiveness, and price stability driven by competing domestic players.
  • Need to regulate all medical devices under a patients’ safety medical devices law to protect patients and aid responsible manufacturing.
  • Need to protect consumers from exploitative and high prices in medical devices by rationalised price controls and aid ethical marketing.
  • Need to incentivise quality in healthcare products in public healthcare procurements by preferential pricing for Q1—for example, ICMED (QCI’s Indian Certification for Medical Devices) instead of L1 (lowest price)—to ensure that patients have access to acceptable quality.

These steps are vital to meet the health-for-all national agenda of Prime Minister Modi and aligned to the Health Policy 2017 to make quality healthcare accessible and affordable for the masses, and to place India among the top five medical devices manufacturing hubs—instead of an ever-increasing import bill (Rs 38,837 crore). Pseudo manufacturing and unethical marketing is harming consumers, and is disallowing manufacturing to succeed in India by well-meaning investors.

The government needs to take bold policy decisions, as done for mobile phones, to give a strategic advantage to domestic manufacturing while safeguarding consumers, or else India will remain 80-90% import-dependent in this sector.

The author is Forum coordinator, Association of Indian Medical Device Industry

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