“To give impetus to domestic industry, and to generate resource for health services, it is proposed to impose a nominal health cess of 5 percent on imports of specified medical equipment,” said Finance Minister Nirmala Sitharaman in her budget speech.
The Union Government in its Budget 2020 has imposed 5 percent health cess on the imports of medical equipment to provide for funds to set up hospitals in backward districts and encourage local manufacturing.
“To give impetus to the domestic industry, and to generate a resource for health services, it is proposed to impose a nominal health cess of 5 percent on imports of specified medical equipment,” said Finance Minister Nirmala Sitharaman in her budget speech.
The Finance Minister in the Budget proposed to set up Viability Gap funding window for setting up hospitals in the public-private partnership (PPP) mode.
In the first phase, those aspirational districts will be covered, where presently there are no Ayushman empanelled hospitals. This would also provide large scale employment opportunities to youth.
There around 112 aspirational or backward districts, many of which don't have empanelled hospitals under Ayushman Bharat. Sitharaman said there now more than 20,000 hospitals already empanelled under PM Jan Arogya Yojana (PMJAY).
The medical device industry in India is presently valued at $5.2 billion and is growing at 12-15 percent.
India imports about 80 percent of its medical devices.
No significant impact
Most medical devices fall under 7.5 percent custom duty category. So with 5 percent health cess on custom duty it will likely go up to 8 percent.
“As I understand, this cess is for medical devices in a finished form and not on spare parts,” said Krishnakumar Sankaranarayanan, Executive Director at PwC India.
The domestic companies are largely involved in manufacturing low-end products for local consumption and exports, though a few have have started making devices of higher complexity such as stents, orthopedic and dental implants, and assembling other medical equipment like ultrasound machines, ventilators, among others.
The medical device imports have jumped 24 percent to Rs 38,837 crore in FY19, according to the latest export-import data.
The government is trying to reduce import dependence.
Sitharaman said that there would be a detailed scheme announced soon to promote manufacturing of mobile phones, electronics and semiconductor packaging in the country, and that this scheme could be extended to medical devices as well.
“While 100% FDI in medical devices manufacturing has been open for a while, it remains to be seen how the new scheme for electronics’ manufacturing will play out, and more importantly how will this scheme be customized to encourage medical devices manufacturers to make in India,” Sameer Sah, Partner Khaitan & Co.
Fails to enthuse device makers
To be sure 5 percent cess, however, failed to satisfy both the domestic and multinational medical device makers.
Association of Indian Medical Device Industry (AiMeD), the domestic industry lobby that claims to have around 300 members, which demands that the government seek 15 percent duty on imports of devices, said the 5 percent cess was too meagre to protect domestic manufacturing and motivate traders to become manufacturers.
“It is frustrating that against our expectations, the government has not included any measures to help end the 80-90% import dependence forced upon us,” said Rajiv Nath, Forum Coordinator of AiMeD.
While the Medical Technology Association of India (MTaI) – the lobby group of MNC device makers wasn’t happy.
“A 5% cess on custom duties for import has been imposed on medical devices in the budget today which will increase the cost of the imported medical devices,” said Sanjay Bhutani, Director, Medical Technology Association of India (MTaI).“Ultimately patients will bear this cost and affordability will decrease. This is a retrograde measure and goes against the global companies which provide more than 80 percent of the critical care medical devices as well as the patient who gets exposed to the danger of smuggling of these low bulk and high value devices, without service and legal guarantees from neighbouring countries where the tariffs are already lower,” Bhutani said.