Why India’s efforts to boost its medical devices industry are falling short

In the 1990s, as the Indian economy liberalised, among the flood of imports that entered the country were medical devices ranging from knee and hip implants to pacemakers for the heart, ventilators and high-precision imaging machines.

Sensing a business opportunity, Ashok Patel expanded his Vadodara-based company AB Industries to manufacture ventilators in 1995. Two-and-a-half decades later, the company’s turnover is less than Rs 100 crore. Multinational companies continue to dominate the sector in India, Patel pointed out, while smaller domestic industries, such as his, suffer from lack of investment in research and development.

India is known as the pharmacy of the world but when it comes to medical devices, it lags far behind. Its domestic industry accounts for just 1.6% of the global medical device trade. Eighty percent of the medical devices used in the country come from abroad. In 2018-’19, India imported medical devices worth Rs 43,365 crore – exports were valued at just Rs 16,300 crore, data from the Ministry of Chemicals and Fertilizers shows.

Then in 2020, the Covid-19 pandemic disrupted trade, especially from China, and the import of supplies.

Later in May 2020, the Centre launched the Production Linked-Incentive, or PLI, scheme to boost the domestic production of medical equipment and reduce imports. Apart from all kinds of implants, which account for a bulk of the imports, the scheme covers equipment related to cancer care, radiology, imaging, nuclear imaging, anaesthetics, cardio respiratory and renal care.

Patel’s company does not qualify for the incentive since ventilators are not covered under the scheme. But even if it had, Patel would not have applied as he felt the return assured by the government is “peanuts” compared to the investment required and the tax he has to pay.

Difficult scheme criteria

About 80% of India’s 1,500 medical device makers are micro, small and medium enterprises, or MSMEs, and the bulk of them do not stand to benefit from the scheme, say industry experts.

The scheme allows for a 5% incentive on incremental sales of medical devices over the base year 2019-’20. For instance, if a company makes sales of Rs 250 crore in 2020-’21, and Rs 100 crore in 2019-’20, the additional sales of Rs 150 crore between the two years is termed as incremental sales. The incentive will be in the form of cashback to the company’s account.

The minimum incremental sales under the scheme have to be Rs 60 crore in first year, Rs 120 crore in second and gradually Rs 280 crore by the fifth year.

KL Sharma, former joint secretary in the Ministry of Health and Family Welfare, said due to low investment, micro enterprises cannot meet the high standards. A micro enterprise has an annual turnover of upto Rs 5 crore.

“That leaves small and medium scale industries,” he said. A small enterprise has a turnover of up to Rs 50 crore and medium enterprise upto Rs 250 crore.

“Small scale industries cannot manage incremental sales of Rs 60 crore mandated by PLI. Medium-scale industries may apply but this is not a profitable scheme for them,” he said.

The criteria also require the company to manufacture in India, invest in research and development, and set up a greenfield project, which means manufacture a new product from scratch in the country at a new or existing facility.

“For MSMEs, where is the money to build a greenfield project or increase investment to bring in research and development?” asked Rajiv Nath, coordinator of AiMeD, a network of medical manufacturers in the country.

Small manufacturers struggle

The case of Pune-based manufacturer Vivek Mangalwedhekar illustrates just how challenging the eligibility criteria can be.

Mangalwedhekar’s orthopaedic implant manufacturing unit – SH Pitkar Orthotools Pvt Ltd – is a small-scale enterprise with an annual turnover of over Rs 30 crore. It manufactures plates, screws and all types of orthopaedic implants – a niche sector in India but with great scope for domestic growth and export.

Mangalwedhekar wanted to apply but did not have funds for a Greenfield project. “We cannot afford the kind of investment the government wants us to make under the scheme,” he said. “This is beneficial for only big players.”

The scheme also requires a bank guarantee equivalent to the cost of the project, which is another financial constraint for many.

N Yuvaraj, joint secretary in the Department of Pharmaceuticals, said officials held several consultations with the associations of medical devices before framing the scheme. “The objective is to create manufacturing capacity for products where we are dependent on imports,” he said. He added that there is no lower limit on the minimum investment for the project and only a benchmark for minimum incremental sales.

Yuvaraj said that the Greenfield rider is to ensure a product is entirely made in India and not imported and assembled. “This is a targeted scheme, it cannot benefit everyone,” he said.

Big companies fare well

So far under the scheme, 21 of 28 companies have been shortlisted for 49 medical devices and most of them are medium or large-scale manufacturers. Out of Rs 3,420 crore allocated for the scheme, these companies will receive incentives of Rs 2,541 crore till 2027-’28.

Among them is Sahajanand Medical Technologies Private Ltd, a two-decade-old company that exports cardiovascular devices to 69 countries.

The company had just planned a new facility in Telangana when the Centre announced the PLI scheme. With comfortable operating revenues between Rs 100 to 500 crore, SMT was quick to apply and get shortlisted.

“We applied to manufacture stents, catheter, balloons, transcatheter aortic valves,” said Dr Rajiv Chhibber, SMT vice-president. “We were already setting up a plant for this and the scheme came around the same time. Luckily for us it fits under the greenfield requirement.”

Ravish Mittal, group chief financial officer in Trivitron Healthcare, said the company applied under both the original version of the scheme, as well as after it was expanded to include active pharmaceutical ingredients and in-vitro diagnostic devices.

Mittal said that if a company invests the amount promised and meets targets given at the time of proposal to the government, then the incentives are high. “The minimum incentive a company will receive is Rs 43.5 crore and maximum is Rs 120 crore over five years,” he said. “This incentive will help invest more in our business.”

To make these benefits available more widely, Nath, the coordinator of AiMeD, suggested that the government introduce a separate category for small and medium scale units, like it did during the PLI scheme for the mobile phone industry. “One for large companies like Samsung and Apple, and they [government] also wanted domestic champions to come forward so one slot was kept for them,” he said. “Something similar is required for the medical device sector in India.”

Chibber agreed: “We have given this feedback to the government, we have asked them to soften criteria to cater to MSMEs.”

Affordable healthcare?

Beyond financial incentives, medical devices manufacturers say they need other forms of government support. India suffers a manufacturing disability of 12-15%, which means that compared to other countries, the cost of producing a medical device is 12-15% higher. Nath summed up the reasons for this: poor infrastructure, lack of research and development, and high cost of finance.

Mangalwedkhar, of the Pune-based SH Pitkar Orthotools, emphasised that companies like his need help in obtaining soft loans and better infrastructure. High costs also mean that it is difficult to make inexpensive products and lower treatment costs.

Valli, director at Panacea Medical Technologies Pvt Ltd, which manufactures radiation machines, said the goal is to bring down healthcare costs for patients. But, as she is finding out, that can be difficult.

Panacea partnered with the Bhabha Atomic Research Centre and few other organisations to create an indigenous, low-cost technology for linear accelerator radiation machine, or linac. The company has been approved to manufacture linac under the PLI scheme.

Such machines can cost Rs 30 crore in the international market. “Our cost is Rs 10 crore,” said Valli. “But it is challenging to convince hospitals to test and buy Indian products,” she said.

“[The] government has promoted ‘Make in India’ but government hospitals themselves don’t buy products made in India,” she said.

Dr Avinash Supe, medical director at Hinduja hospital in Khar in Mumbai, said this is because hospitals prefer imported products. “...Where there is precision required like MRI, CT scan, or endoscopy, we go for imported products,” he said.

Corporate and reputed hospitals also prefer European certification or the US Food and Drug Administration approval as a benchmark. Valli said manufacturers have to shell out a large sum to get these certifications.

Supe said hospitals look at the market value of the equipment, patient demand and the cost of maintenance before deciding on the package rates for treatment. For instance, he said an MRI test may cost more at one hospital than another due to the higher cost of the machine. “If the cost of equipment reduces, in five or 10 years the cost of treatment will come down too,” he said.

Omprakash Sadhwani, an independent consultant on medical devices and drugs, said it will take several years for changes in the market to reduce the cost of healthcare. “Not every Indian medical device is cheap,” said Sadhwani. “First, they need to compete with other players, manufacture in bulk, and then they can reduce cost. Something like this can take years.”

Correction: An earlier version misstated the turnover of SH Pitkar Orthotools Pvt Ltd.

This reporting was supported by a grant from the Thakur Family Foundation. Thakur Family Foundation has not exercised any editorial control over the contents of this article.