Present Import Tariff on Medical Devices is Counterproductive to the Idea of Affordable Healthcare

India is one of the largest market for medical devices, primarily low risk and high-volume devices in the nature of disposable and consumables like syringes, sutures etc. It also holds tremendous potential for devices classified as high risk, which include implantable and prosthesis like pacemakers, defibrillators, heart valves, coronary stents etc. Presently, the penetration of high end technologies is very low compared to developed nations mainly due to lack of awareness, operator skills, and inadequate health financing.

The government wants to promote R&D and manufacturing of medical devices through Make in India initiative. This vision has been backed by Prime Minister’s Office (PMO) with the intention to help India emerge as a major hub for manufacturing and make medical devices more accessible and affordable. The government also permitted 100 percent FDI in the medical devices sector through automatic route to support Make in India further.

After bringing FDI in the sector on automatic route, the steady surge in FDI was seen, which demonstrated the potential of this sector. However, non-tariff barriers like Price Control and Preferential Market Access (PMA), and tariff barriers like increased customs duties have affected the pace of FDI inflow. And it is expected to fall sharply this year.

In the 2016 budget, the government increased the customs duties by 7.3 percent across the board with an effective duty increase of 62.7 percent. This high import duty cannot provide expected impetus to the domestic manufacturing as the ability to manufacture import substitute of sophisticated high-risk devices and equipment is far-fetched at present.

Majority of the sophisticated, high risk and precision devices, which cannot be manufactured currently in India to an adequate level of quality, are highly technology intensive and oriented toward continuous R&D taking years to develop. They are high on investment but low on sales volume. These products are life-saving devices, which are being used in diagnosis and treatment of very critical medical conditions. This is validated by the fact that we have also not seen any indications of top 10 domestic business groups showing interest in manufacturing of medical devices in India. Also, some of the large local manufacturers continue to distribute imported devices.

Manufacturing cost is a function of scale. Hence, it may be cheaper to manufacture low risk and high-volume devices and import high risk low volume devices. It is a simple business problem which is solved by make or buy decision. If the goal is to make affordable healthcare accessible and available across the country, we must prioritize manufacturing of such devices where volumes are high and local manufacturers and large business houses may find attractive. A tariff barrier on high risk medical devices such as increase in customs duty is counterproductive to affordable healthcare as incremental cost will be passed on to patients and will limit the access to appropriate standard of care for people.

Another point to note is that now the customs duty regime in neighboring countries (Nepal, Bangladesh, Sri Lanka, Bhutan, Pakistan, and Maldives) is much lower than in India. Industry fears that this difference is likely to fuel parallel economy for high risk devices, thereby causing a loss to the exchequer while putting needy patients at risk for lack of availability of required devices.

For reasons mentioned, the medical technology industry in India needs urgent positive action like rationalization of the customs duty structure for the sector to provide patient access, foster competitiveness and innovation. There is also an urgent need to do a micro-analysis of sub-sectors to understand their requirements. The customs duty should be lowered on those products that cannot be substituted in short to mid-term by Made in India products without compromising on quality.

The government may further adopt measures to create a policy environment conducive for proliferation and acceleration of medical devices sector. Incentives (including lowest possible tariffs on raw material and components), research and development, skill development, greater health expenditure or better insurance coverage, low regulatory costs, and assurance of predictable policy will benefit the cause of Make in India rather than creating tariff and nontariff barriers.