Why PLI scheme for medical device makers won’t deliver

Carrying forward the spirit of promotion of an Atmanirbhar Bharat and with a view to augment and strengthen indigenous manufacturing of medical devices and equipment, the government announced a Production Linked Incentive (PLI) Scheme last year with a focus on four broad categories of medical devices. With an outlay of ₹3,420 crore, the scheme is to extend incentive at the rate of 5 per cent of incremental sales to eligible applicants with the government limiting the maximum number of applicants at 28.

Apart from the fact that the country has a crippling 75- 80 per cent import dependency for medical devices, it has been estimated that the domestic medical device sector suffers from a cost of manufacturing disability of 12-15 per cent as compared to manufacturers from competing economies. And this disadvantage comes from a range of factors.

Furthermore, while domestic manufacturing is limited to surgical, cardiac stents and general medical devices and consumables, electronics and equipment constitute a sizeable 56 per cent of imports, thereby necessitating particular attention towards this medical device segment. So, incentivising domestic manufacturing is one critical step towards addressing these issues and giving an impetus to this sector.

Too many small players
For a country hosting 750-800 medical device manufacturers, the majority of whom operate at medium and small business levels, the question of smaller players being left out of the PLI scheme becomes even more significant. According to Association of Indian Medical Device Industry, which represents the interest of 1,200 manufacturers, nearly 95 per cent of its members happen to be MSMEs.

The progress in number of applications for the PLI scheme has not been particularly encouraging. By early February this year, only nine applicants had qualified with an aggregate commitment of ₹729.63 crore and which was expected to lead to employment generation for a modest 2,304 people only. By April, the number of approved applications had increased to 14 with a total committed investment of ₹873.93 crore and expected employment for about 4,212 people. This is still only half of what the government had originally set out to achieve in terms of number of applicants.

In the face of such tepid response, the government had to invite a second round of applications on April 30, stipulating July 28 as the last date for submissions which was again extended to August 31.

Although the government has replaced minimum threshold investment with committed investment in the revised guidelines, the entry barriers for MSME medical devices have remained high. With a high threshold for minimum incremental sales at ₹60 crore in the first year, ₹120 crore in the second FY and ₹180 crore in third FY, effectively ₹60 crore has to be shown as fresh sales annually for the first three years.

Against these imposing numbers, it is worthwhile to note that a microenterprise is defined as having turnover of not more than ₹5 crore (and investment of less than ₹1 crore) and a small business as having a turnover of not more than ₹50 crore (and investment of less than ₹10 crore).

Moreover, that the scheme is applicable only to greenfield investment is a further deterrent to MSME companies which would have to otherwise set up altogether new plant, machinery and equipment, new R&D etc — all exacting conditions — in order to qualify for the scheme.

From the standpoint of devices, the exclusion of ventilators is baffling.

Although the guidelines have included anaesthetics and cardio-respiratory medical devices, there is no explicit mention of lifesaving ventilators. Indeed one of the applicants so far has been given a go-ahead for manufacturing anaesthetic ventilators. But there is a world of difference between an anaesthetic ventilator and a full-fledged mechanical ventilatorand the former certainly doesn’t amount to being equivalent to the latter in any way. The Hindu BusinessLine