Medical devices: Why we need a strong local ecosystem

Published: June 24, 2020 7:31 AM

The penal system in the Drugs Act is a disincentive for medtech investors. The Act is not appropriate for innovative engineering products like medical electronics.

The focus needs to shift from chasing investment value by foreign brands and onto creating an ecosystem for making in India.The focus needs to shift from chasing investment value by foreign brands and onto creating an ecosystem for making in India.

By Rajiv Nath

Amid growing Indo-China tensions, India has to address every issue linked to national security. Healthcare being the most critical, India has to evolve imaginative policies and usher in reforms that will accelerate its economic revival. Developing our own domestic medical industry is the best way forward.

Covid-19 has given India an opportunity for diverting industry to India from China. PM Narendra Modi’s call for self-reliance, Atmanirbhar Bharat, will not only see India emerging as a manufacturing superpower, but will also strengthen India to vie for being the second factory in the world for medical devices.

The Department of Pharmaceuticals has recognised that indigenous manufacturers have a disability of 12-15% on account of:
1. Lack of adequate infrastructure, supply chain and logistics;
2. High cost of finance;
3. Inadequate availability and cost of quality power;
4. Limited design capabilities; and
5. Low focus on R&D and skill development.

There is no mechanism to address these disabilities in manufacturing of medical devices. The Department of Biotechnology (DBT), the Biotechnology Industry Research Assistance Council (BIRAC), the NITI Aayog and the Office of the Principal Scientific Adviser have been working to create an ecosystem for nurturing start-ups and incubators. But once they create a commercial product and graduate to MSME entrepreneurs, the real challenge comes for these start-ups to cope up with the above-mentioned 12-15% disabilities and marketing challenges.

The focus needs to shift from chasing investment value by foreign brands and onto creating an ecosystem for making in India. Consider nurturing Indian manufacturing champions who will lead other mid-size and small-size manufacturers to follow. The Covid-19 crisis has shown that Indian medical device manufacturers can scale up manufacturing to tackle spiked demands for ventilators and other life-saving medical supplies.

In addition, investment always follows demand or capacity-utilisation. Firms will only invest if they can utilise existing capacity, which, in most cases, is low during Covid-19, as patients are scared to go to hospitals for treatments other than Covid-19. Forcing businessmen to invest when existing capacity levels are low may convert healthy businesses to be laden with non-performing assets post-investment.

For manufacturers, demand comes from local consumption or exports. Imports of medical devices are a negative demand as domestic purchasing power is diverted to foreign goods. Converting negative demand to positive demand is the key, as successfully done in the policy of mobile phones and consumer electronics—in mobile phones, a nominal customs duty of 15-20% transformed the sector from 60 million handsets in 2014 to 290 million in 2018. The negative demand of medical devices can similarly be converted to positive demand.

Import of pre-owned medical equipment is again a negative demand. Such imports are restricted as is already the case of mobile phones and cars. We must have robust regulations for ensuring patient safety as well as perform calibrations by restricting imports, and can convert negative demand to positive demand and boost economy as well as create jobs.

The third area is addressing artificial inflation where labelled MRP of medical devices, instead of protecting consumers, has become a licence to charge full MRP, which may lead to profiteering at retail/hospital-end. By rationalising trade margin over import landed price, a consumer can gain and not feel exploited post-Covid-19. This will also help Make in India, as already proven in stents and knee implants, and lead to demand creation for domestic manufacturing.

The penal system in the Drugs Act is a disincentive for medtech investors. The Act is not appropriate for innovative engineering products like medical electronics. Ventilators could not have been made by multiple new manufacturers in a matter of 3-4 weeks, had the Drugs Act already been applicable on ventilators. How many garment manufacturers or automakers will make PPEs or ventilators post the visit of a drug inspector to their factories remains to be seen. At the same time, consumers do need access to high-quality PPEs and ventilators. An appropriate legal framework envisaged by the NITI Aayog is awaited as a medical devices law that would decriminalise most oversight and regulatory lapses and will have risk-proportionate penalties. This will encourage new entrants to venture into medical devices—as being engineering products and not drugs.

The recent welcome move to use government procurement to give strategic advantage to domestic manufacturers with products having over 50% domestic content is baiting potential manufacturers by disallowing suppliers with less than 20% domestic content to participate in tenders less than Rs 200 crore. The government needs to ensure that the concessional 20% domestic value should be at least from assembly of Indian parts/materials, not salaries and marketing overheads, else India will start promoting pseudo manufacturing, which has been undermining efforts of sincere manufacturers.

The Covid-19 pandemic has taught us to be self-reliant and self-sufficient first, and not seek solutions outside the country. We are hopeful that Atmanirbhar Bharat will strengthen the domestic medical devices industry to compete globally and make India a global medical devices manufacturing hub. It will also make India powerful enough to cope up with the challenges to its healthcare security emanating from China.

The author is forum coordinator, Association of Indian Medical Device Industry (AiMeD)

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