Pre-Budget Recommendations

Sanjay Bhutani
Director,
MTaI

MTaI, which represents leading research-based medical-technology companies with large footprint in manufacturing and training in India, said the government should streamline tax and duty structure in Union Budget 2020-21 to ensure people get long-term access to quality medical devices.

Its recommendations include:

High customs duties. The high customs duties have adversely impacted the costs of products in India, which contradicts the government’s efforts to provide low-cost healthcare available to masses through AB-PMJAY. We seek reduction of customs duties (at the minimum, bring down to 2.5 percent) at the earliest to affect the margins lost due to currency depreciation. The INR depreciation, combined with the high customs duty rate, has already increased the cost to the patients, making it harder for them to have access to quality medical devices.

Additionally, since the custom duty regime on most medical devices in neighboring countries of Nepal, Bangladesh, Sri-Lanka, and Bhutan is lower than in India, the duty differential could lead to smuggling of low-bulk-high-value devices. The result will not only be loss of revenue for the government, but also the patient will be beset with products which are not backed by adequate legal and service guarantees.

The recently hiked customs duty on IVDs (from 10 percent to 30 percent) that are imported from USA is also likely to have an impact on accessibility and affordability of diagnostics services in India. India imports 60 percent of its diagnostics, most of which include tech-intensive testing methodologies, such as molecular testing, which serve the priority diseases like HIV, hepatitis, cancer markers, among others, and are not domestically produced. Increasing customs duty on such preventive tests for critical diseases like cancer and HIV will severely affect the accessibility to affordable healthcare.

GST on medical devices and spare parts. GST should not be charged on free goods and samples of healthcare products as it is needed to promote expansion of healthcare sector through reduced costs, improving patient accessibility. GST on medical devices is levied @ 12 percent; it should be brought at par with preferential products and taxed at lower rate of 5 percent. Spare parts to be used for medical equipment should be charged at the same rate of customs duty and GST.

Tax holiday for R&D. Tax holiday should be provided to medical device R&D centers under the Transfer Pricing Act to boost investment in setting up in-house R&D capabilities. We also seek tax incentives for the industry for developing global patents from India, and tax deduction on income made by individuals or a company for rewards earned on patent development or patent licensing.

GST on healthcare services. Healthcare services are currently exempt from GST. As a result, hospitals are not able to claim GST input. This results in higher cost of treatment for the patient. Once zero rated, hospitals will be able to avail GST credit on inputs, leading to lower healthcare services cost.

Expenditure on CSR. Expenditure on CSR is being disallowed in tax computation. CSR expenditure has been mandated under law and, therefore, should be claimable as tax-deductible expenditure.

Tax incentives on exports. Currently, there are no tax benefits on export income. Export being a growth engine for the economy, it is important that efforts should be made to make it competitive in the international market. India’s export performance in the last 2–3 years has been on a decline, which impacts the balance.

Rajiv Nath
Forum Coordinator,
AiMeD

Indian medical device manufacturers want to place India among the top five medical devices manufacturing hubs worldwide by ending 80–90 percent import dependence forced upon India. AiMeD’s recommendations include:

Reasonable tariff protection for enabling Make in India. Incentivize traders to become manufacturers as was the status a decade ago, rather than the current status where we encourage manufacturers to import and sell under their brands.

To promote domestic medical device industry that will subsequently reduce India’s heavy reliance on import, the current basic import tariff of 0–7.5 percent needs to be over 15 percent for medical devices (the bound rate under WTO is 40 percent duty) and concessional duty on raw material may be retained at 2.5 percent for now, for the next 3 Years.

GST regime is in favor of imports and has been detrimental to Make in India. MSME sector has been worst hit with huge job losses. After GST, imported devices are cheaper by 11 percent and at times we are unable to compete with Chinese import in government tenders. In other countries like Iran, as soon as a factory is put up, they start to support the domestically produced product with import restrictions and duty protection.

Level playing field for domestic manufacturers. If the government can boost manufacturing of mobile phones and consumer electronics by levying 15 percent to 20 percent duty and for automotive, bicycles, and motorcycles, we request the same treatment for medical devices.

Unless the Indian manufacturers get level playing field and visible benefit to manufacture in India in comparison to the imports, nobody will venture out to this tedious job of putting together men, machines, and capital for manufacturing of medical devices in India to make quality healthcare affordable to common masses, which is a dream and mission of Prime Minister Narendra Modi.

Encourage a phased manufacturing plan of components by increasing basic duty to 5 percent on import of parts or accessories for medical devices, up from 2.5 percent done in January 19, 2016, by Notification No. 4/2016 and then increase to 7.5 percent in the second year under heading HS Code 90.18, 90.19, 90.20, 90.21, and 90.22.

Consider 2.5 percent basic duty on import of medical-grade raw materials for medical devices under heading also for HS Code 90.27, 30.06, and 38.22 on actual-user condition, as had been done earlier for 90.18, etc., to include items in the Notification 50/2017 dated 30.06.2017 to ensure there is no inverted duty structure.

India needs to regulate all medical devices under a patient safety medical devices law to protect patients and aid responsible manufacturing.

Need to protect consumers from exploitatively high MRP in medical devices by rationalized price controls and aid ethical marketing by capping markup over import-landed price.

Need to encourage employment and Make in India of medical devices and address 80–90 percent import dependency by a predictive nominal tariff-protection policy as done for mobile phones to ensure a vibrant domestic industry and encourage competitiveness and price stability driven by competing domestic players.

Need to incentivize quality in healthcare products in public healthcare procurements by preferential pricing for quality Q1, e.g., ICMED (QCI’s Indian certification for medical devices) instead of L1 (lowest price) to ensure patients access acceptable quality for healthcare.

Dr Sudarshan Ballal
President,
NATHEALH

Facilitating ease of access to capital, NATHEALTH recommends a dedicated fund for healthcare infrastructure and innovation, not only for encouraging entrepreneurship with newer business models but also for improving accessibility, availability, and quality in Tier-II and Tier-III cities including rural areas. Emphasizing on the problem of low penetration of health insurance being a major reason behind the rising out-of-pocket spending for healthcare services in India, the government should undertake additional efforts to make mandatory coverage for all citizens. Organized sector employees could be given the option of paying their ESI contribution or purchasing insurance from any IRDA-regulated insurance company. Gradually, the focus can be then shifted to the middle and upper middle classes, respectively, in order to ensure access to preventive and curative care of sufficient quality and safeguard the entire community from financial distress. The industry rightly expects that the Union Budget 2020-21 will be announced, keeping in focus the incentives for medical value tourism, zero-rating GST on healthcare services and health insurance premiums.

Sangita Reddy
President, FICCI; Joint Managing Director,
Apollo Hospitals

The GST for healthcare was put at zero but all the input costs from vendors are taxed higher and in some cases as much as 18 percent for housekeeping. It is very important that this is changed. The government must also increase the budgetary allocation toward healthcare. With under 2 percent of GDP as budgetary allocation currently, it is very important that it goes up to 2.5 percent of GDP.

Dr RP Singh
Secretary General,
Quality Council of India

The Union Budget 2020 holds tremendous potential to ease doing business, encourage manufacturing, and enhance competitiveness of Indian industry. Provisions in the Budget can become enablers for the industry to move toward quality-driven competitiveness. For starters, at the consumer and demand side, the Budget can propose a reduced tax structure on inspection, certification, and testing services availed from NABCB and NABL-accredited laboratories, which would encourage millions of citizens to approach accredited conformity-assessment bodies for certifications or reports. This will incentivize citizen demand for quality products and services. On the other hand, Indian manufacturing industry, having facilities in India with annual turnover of less than Rs 100 crore, can be given tax rebate if they hold accredited certification under the national accreditation system established by the Quality Council of India. This can be amplified further by an additional rebate if these units demonstrate compliance to sectoral voluntary-certification schemes, for example, medical devices manufacturers with ICMED certification. Supply side quality can also be incentivized with industrial quality schemes, such as the Zero Defect, Zero Effect scheme. ZED rating may be treated as a deemed compliance (prospectively) to a number of regulations related to quality, safety, and environmental processes. Regulatory authorities should still be free to undertake surprise inspections to verify. This will ease pressure on the relevant authorities and instill a self-compliance regime amongst the MSMEs and reduce Inspector Raj. This will also reduce the number of compliances for MSMEs, thereby increasing the EODB. Direct/indirect tax benefit should be provided to SMEs, which are awarded with minimum ZED Silver rating.Such interventions becoming part of the Budget will give deeper impetus to boost quality in manufacturing, voluntary compliance to standards in India, as well as promote exports competitiveness.

Zoya Brar
Founder and CEO,
CORE Diagnostics

The government should set aside funds to support the development of a federation of healthcare data. This will be the biggest lever for research and growth in the sector, and without a government level push, individual players will be unable to do a whole lot. Second, the government should set aside incentives for organizations that are collecting, storing, and streamlining their data assets in a manner that allows for the deployment of the Data Protection Bill. Despite the intention of the government to promote data privacy through proposals, such as the Digital Information Security in Healthcare Act (DISHA), the reality on the ground is fraught with a lack of systems to collect, de-identify, store, or control access for data. I hope that the budget will allocate funds to support data-privacy initiatives as well. I strongly believe that this next decade will be a decade of data in healthcare; the budget must reflect this focus as well.

Dr Alok Roy
Chairman,
Medica Group of Hospitals

A new decade calls for newer thoughts, and from the forthcoming Union Budget 2020, the healthcare sector has a wide gamut of expectations. India has one of the lowest spending on healthcare if compared with global data. We know that India is aiming to increase the healthcare spending to 2.5 percent of the GDP by 2025; however, so far it stands at 1 percent only. We hope to see some action around this in Budget 2020. Government needs to declare some sops to raise this percentage. There is an overall slowdown in expansion plans of private healthcare players. The government has to increase its intent to collaborate with private sector, so that they understand the financial modus operandi of the private players better. The Budget must pay attention to the financial viability of private healthcare by relooking at the pricing controls, reviewing the existing rates of the government healthcare schemes, releasing the money stuck with CGHS, ECHS, etc., which hugely affects the already-hit liquidity balances of the existing players. Unless these are addressed in concrete terms, it will be difficult for new entrants to seamlessly operate in the current business scenario.

Cost of medical equipment is another pain point, which requires support in the Budget, as this will make the medical devises and equipment a part of government’s ambitious program of Make in India, which will accelerate growth in this sector. Critical healthcare equipment, such as ventilators, wheelchairs, crutches, and medical equipment spare parts, should be exempted from GST in Budget 2020. This will help make quality healthcare more accessible. Innovative, tech-based, and affordable healthcare solutions are the need of the hour and our expectations from the Budget also revolve around the same. We do hope that the government promotes more healthcare startups, which will digitize healthcare better, increase accessibility and affordability, and give a boost to employment generation as well.

Dr GSK Velu
Chairman and Managing Director,
Trivitron Healthcare

The government should focus on creating the healthcare infrastructure and invest extensively in upgrading primary and secondary healthcare services in Tier-I and Tie-II cities in the country. This can leverage the indigenous medical technologies developed specifically for Indian healthcare needs, and thereby support the Make in India initiative. The budgetary allocation should be enhanced on the primary health and on establishing the health and wellness centers (announced under Ayushman Bharat), which will help to reduce the disease burden. The government should provide support to local manufacturing units in terms of preferred interest rates and priority sector lending and the focus should be on rationalizing the GST rates for the health sector. Also, the medical devices manufactured in India should be given preference in government purchases.

Suresh Vazirani
Chairman and Managing Director,
Transasia-Erba Group

It is that time of the year when India Inc. puts forth their suggestions and expectations from the government in allocating policies and budgets for the year that will be, and healthcare is no exception. The Indian healthcare industry is on a progressive track and the diagnostic industry, in particular, is expected to steadily grow at a CAGR of 13–14 percent through 2020. Having said that, the industry looks forward to crucial government reforms that will help achieve these numbers.

While technology is expected to continue to make in-roads, I reiterate that affordability and accessibility of healthcare need to take center stage. I am hoping that a major focus in the Union Budget 2020 will be given to the diagnostic industry, as it is the starting point to building a Healthy and Happy India.

Hard reality of the USD 7-billion Indian medical device industry is that imports still constitute to be 72–80 percent. While Make in India continues to remain the central focus for the government, as an Indian manufacturer, we wish there would have been some more efforts on reducing the dependency on imports. Ironically, the government wants to reduce the healthcare cost in India; however, there is no beneficiary scheme for the local manufacturers of medical devices. As an industry body member, I expect the following from the Union Budget 2020, to encourage Make in India:

Revision in GST rates requires immediate attention – The implementation of GST has led to imported devices being cheaper by 11 percent. In addition, there being no import duty on blood analyzers, makes it difficult for the Indian manufacturers to compete with the Chinese imports, especially in government tenders. The interests of the domestic manufacturers need to be protected through a revision in the GST regime so that not everyone gets the benefit of input credit.

Providing free healthcare to every citizen of India is the government’s constitutional responsibility. It needs to focus on reducing the medical expenditure burden on general public, which currently bears almost 70 percent of all medical expenditure. While the government has exempted the healthcare services from GST, the taxation on the medical supplies and devices, ultimately is a hindrance in bringing down the cost of treatment.

The common man can get some relief from this burden by a reduction in the GST rate on medical supplies, diagnostic equipment, and devices. The GST rate, which currently stands at 18 percent, should be no more than 5 percent.

Increase in import duty on finished goods – Even now, the import duty on raw materials is higher than that on finished products. In fact, the import duty levied by India is the lowest among all the BRIC countries. To reduce the dependency on imports, we expect the government to provide reasonable tariff protection for enabling Make in India.

Tax holiday. To encourage R&D in India, we expect the government to provide weighted tax deduction on expenditure made on R&D of medical devices.

Encouraging exports – Introduction of export incentives would lead to further encouraging this growth engine for the economy, and help India become a global leader in medical devices.

Preferential pricing for quality. While ICMED (India’s first homegrown quality certification) is a great initiative to encourage quality, the government needs to incentivize it further through preferential pricing for quality instead of the lowest price in public healthcare procurements.