100 % FDI in Medical Devices Sector – What will be the effect ?

India has achieved an eminent global position in pharma sector. However, the same has not been achieved in the medical devices industry . India’s cash strapped medical devices sector needed a new lease of life. Because, we have acche din now, Government relaxed FDI policy for the sector to bolster it.

At present, the medical devices sector falls under the pharmaceutical category and is accordingly subjected to FDI limits and other conditions.  India allows 100 percent FDI in pharma sector. FDI is permitted through automatic route in the case of greenfield investment or new venture. Though 100% FDI is allowed in brownfield investment also i.e. existing Indian company, foreign investors have to seek the permission of Foreign Investment Promotion Board ( FIPB ) before acquiring an Indian company . The sale of medical devices in India is covered under the Drugs and Cosmetics Act (DCA). This is how it happened till now. Government has brought in changes.

What has been done now ?

Government approved 100% foreign direct investment (FDI) under automatic route for companies manufacturing medical devices.  Now Medical devices sector companies do not need to seek the permission of FIPB. Both greenfield and brownfield investment will have 100% FDI under automatic route. The exception for medical devices sector has been done by creating a new sub category within pharma sector.

What will be the effect of this decision ?

♦ India imports at least 70% of medical devices .  To give an impretus to Make in India campaign, the policy has been relaxed. It is hoped that there will be investments and domestic manufacturing will get a boost. This would bring technology to India and as it is the sector is in dearth of new technology to make new devices. This will also lead to co- investments in brownfield projects.

♦  With increase in investments, the overall cost for medical devices is likely to decrease. This will reduce the burden of out of the pocket expenditure on poor people. Also, the district health care has acute shortage of medical devices. With reduced costs and increased availability, the health care system in rural areas will be benefited.

However, the government needs to tread with caution. 

♦  The government needs to make domestic manufacturing more competitive against cheaper imports by hiking customs duty.
Unless the inverted import duty structure is corrected by raising import duty from 0% to 10 % as earlier, and re-imposing 4% special additional duty, the shift from importing and trading to manufacturing by Indian investors and MNCs may not take place .

♦  Local manufacturers are concerned about the misuse of the relaxation in FDI rules. Hardly 50 manufacturers are there in India with over Rs.50 crore turnover in medical devices. By making 100 per cent automatic approval for brownfield investment, surviving Indian manufacturers would be duck soup for MNCs. Manufacturing should be made viable in India so that even Indian investors can invest in their field.

♦  It should be ensured that 100% FDI in medical devices is used for manufacturing only and not for trading purposes. In the past, US MNCs instead of manufacturing, set up subsidiaries with marketing base and warehousing activities for import.

This move should give the medical devices industry much required momentum and capital to focus on capacity building and product development, and set the foundation for India to become a significant player in the global medical devices market just like pharmaceuticals.
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