Higher duty on medical devices may be counter-productive

The move could have dire implications on the healthcare costs of Indians, besides medical tourism

March 09, 2016 10:28 pm | Updated 10:28 pm IST

New digital Mammography unit. Seventy five per cent of the medical devices used in India, including stents, catheters and cancer-treating equipment, are imported. Photo: G. P. SAMPATH KUMAR

New digital Mammography unit. Seventy five per cent of the medical devices used in India, including stents, catheters and cancer-treating equipment, are imported. Photo: G. P. SAMPATH KUMAR

The Union Budget exempted dialysis equipment from some customs duties to make the procedure more affordable. On the other hand, the costs of other critical, life-saving medical devices have risen by 17-18 per cent and are set to climb further, thanks to a flurry of recent government decisions that include a steep increase in customs duties, notified a month before the Budget.

Seventy five per cent of the medical devices used in India, including stents, catheters and cancer-treating equipment, are imported, and duty hikes are seen as a measure to prod global device manufacturers to make their products in India.

The industry, however, has warned the Prime Minister’s Office, the ministries of Finance, Health, Industry and Commerce and the Department of Pharmaceuticals, that the move will have dire implications on the healthcare costs of citizens, besides medical tourism. So far, their demand for a “complete and immediate” rollback of the duty increases, especially on products that cannot be manufactured in India, has been met with silence, rue industry representatives.

“Why are poor patients being made to pay for Make In India? The Budget has cut some duties on raw materials for medical equipment, but duties on devices were raised ahead of the Budget,” said Pavan Choudary, managing director at Vygon and chairman of the medical equipment division at the Confederation of Indian Industry (CII). “You can’t support Make In India at the cost of unsupporting Heal In India.” Customs duties were raised by 7.3 percentage points for most medical device imports in January, taking the effective rates to the range of 18 per cent to 28 per cent. Taken together with the rupee depreciating by more than 10 per cent since January 2015, it means an effective increase of 17 per cent to 18 per cent in the cost of imported devices that is likely to be passed on to patients.

There was no nuanced look at what devices can be made in India and what cannot, while raising the duties, and lower duties (in the range of zero to five per cent) in neighbouring countries could spur a rise in smuggling of medical devices, industry officials argue.

“A blanket approach has been used to raise duties,” Mr. Choudary said. The “protectionist step will deter new technologies from entering the Indian market, patients will be at risk if small bulk items are imported at cheaper rates from India’s neighbourhood without any legal or service guarantees,” he said. Separately, registration cost for medical device makers, which is currently at $1,000 per product category, is proposed to be raised to a range of $8,000 to $10,000. The registration costs are to be paid once in every three years.

On Tuesday, the Department of Pharmaceuticals under the Ministry of Chemicals and Fertilizers issued a draft notification proposing a 35 per cent cap on trade margins for pharma products and medical devices.

“How will this help Make In India? The government’s policy on medical devices, starting from its decision to allow 100 per cent foreign direct investment last January, has gone from good to worse,” said Himanshu Baid, chairman of Poly Medicure Limited.

“You can’t force people to make in India by raising customs duties, registration costs and stipulating what margins they can earn,” said Mr. Baid, who heads CII’s medical technology division.

“The government has announced many things, including the National Medical Devices Policy in April 2015, pursuing the passage of the Drugs and Cosmetics Amendment Bill (pending since 2013), but we are yet to see any movement on the ground,” Mr. Baid said, adding that India’s fledgling medical device industry was struggling in the “confusing policy environment”.

Industry representatives expressed surprise at the government's move to relax duties on dialysis equipment and were curious as to how it would ensure that dialysis costs would actually reduce for patients as hospitals would not be obliged to pass on the cost savings on the equipment.

A dialysis machine costs Rs.7 lakh to Rs.10 lakh and India has an estimated 25,000 such machines. No Indian firm is in a position to manufacture dialysis equipment.

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