On December 24, 2014, the Union Cabinet approved 100 percent Foreign Direct Investment (FDI) in the manufacture of medical devices on an automatic route. What this means is that foreign companies in the business of manufacturing medical devices will be allowed to set up plants and manufacturing processes in India. They may also make takeover bids and acquire existing Indian plants.
Prior to this, the medical devices manufacturing sector was considered part of the pharmaceutical industry and was thus subject to the FDI limits and regulations applicable to all pharma plants. It shall now be easier for foreign investors, both individuals and institutions, to buy 100 percent stake in domestic medical device makers, and will not be required to seek the approval of the Foreign Investment Promotion Board (FIPB). The medical devices manufacturing sector in India is currently estimated to be worth USD 7 billion.
Make in India
The decision to allow 100 percent FDI in medical device manufacturing has been seen as another move by the NDA Government to promote manufacturing in India. The Modi-led Government’s flagship campaign – Make in India – has identified 25 domestic sectors that shall receive special focus from the Government. The Government has committed to promote foreign investors to set up business and manufacturing in these sectors by easing existing norms.
It is estimated that the Indian medical device manufacturing sector received about USD 539 million (approximately INR 3,500 crore) FDI between 2000 and 2012. Industry watchers believe that this is a low figure given its potential for growth. According to a Government statement, the domestic capital market “is not able to provide much needed investment in the sector.”
Also having been considered part of the pharmaceutical industry, this sector has been facing a lot of difficulty in receiving Government sanctions and approvals over the past decades. This has been the primary cause of low FDI. But with the decision to allow 100 percent FDI, the Government seems ready to make a commitment towards easing norms in the sector.
Will healthcare become cheaper?
India has hitherto been importing 70 percent of the medical devices used in the country. The Government’s decision to enhance FDI in the medical devices manufacturing sector is likely to bring down the costs of pacemakers, cardiovascular stents, nebulizers and all such surgical equipments produced in the country. Healthcare is a booming domestic industry (estimated to reach USD 158.2 billion by 2017, according to IBEF data) and medical tourism to India has been on the rise over the past decade. The move is likely to further reduce the cost of surgeries and provide an impetus to this field.
Equity markets react
The domestic equity markets reacted sharply to the decision by the Government of India. The shares of Opto Circuits (India) Ltd climbed almost 15.63 percent to INR 25.90. On Wednesday, the stock reached a high of INR 26.50 and a low of INR 23.65 at the NSE. Opto Circuits (India) Limited is a multinational medical devices manufacturing company with its headquarters in Bengaluru, Karnataka. Siemens India stock also gained 2.2 percent following the announcement. Industry body Association of Indian Medical Device Industry (AIMED) and companies manufacturing medical devices have welcomed the Government’s decision.
Auxiliary units and components
Industry experts believe that allowing 100 percent FDI in the medical devices manufacturing industry is just the beginning of a long journey. For the entire sector to receive a boost there is a lot more effort that must come in from the Government.
The production of most critical devices such as cardiac pacemakers require the availability of smaller components – most of which are still imported by the country. A secondary market needs to be developed for the manufacturing process to receive a successful facelift.
Also the matter of market needs to be settled. If production is curbed by the demands of the domestic market the entire effort will become a futile one. Exporters who shall be able to successfully market these devices in foreign markets will need to be solicited.