Once again we hear that custom duty may be hiked on some medical devices. Last time this happened was in 2016. The custom duties on medical devices and equipment were increased almost across the board by 7.3%. Since, most of the items affected were falling in the 11.6% range which went up to 18.9% now, it meant an effective duty increase of 62.7%. The only stakeholder this increase hurt was the patient. As the industry, as is wont, passed the duties on to him.
Since the patient community is not well organized, someone must take up the matter for them. So here is why custom duties on devices except the most basic ones, in whose manufacture we specialize, should not be increased.
Advanced medical technologies (not only equipment, but also many types of catheters implants, and several other devices) require an enhanced technological ecosystem, deep pockets for investment and continual inflow of technologies. This alone makes quality, which is so essential for sustained growth and reputation building, possible. As a general rule whatever is not import substitutable to the desired level of quality, should be imported at the lowest custom duty tariffs.
In fact, for high risk complex medical devices, the barrier isn't customs duty, or lack of preferential market access, they are:
a. Lack of a sizeable local market (Indian Market accounts for less than 2 % of the world medical device market. This situation is not going to change in a hurry. Despite J.P.Nadda asking for a 33% hike in health budget he has just got an 11% increase)
b. Lack of a medical research and clinical trial environment
c. As mentioned above a lack of a local supplier ecosystem. Medical devices develop and grow based on a dynamic medical technology innovation and manufacturing ecosystem. Such a system is often born with the help of global legacy technology companies and also helps indigenous entrepreneurs and physicians to create and bring to market local medical technology.
d. General lack of a strong policy (dilution through price control, no R&D subventions, etc)
e. General challenges with Ease of Doing Business.
Clarity needs to prevail at a sub-segmental level. Broad brush un-nuanced thinking just won’t do.The Make in India initiative for Medical Device should be implemented in a phased manner. It must focus on the devices that have the potential to be made locally in the short term. Since indigenous quality manufacture may not necessarily mean lower cost, an attempt should be made to continue to source quality products from most affordable global destinations and simultaneously choose the spectrum of products which can be made in India to a global quality level and export robustly. Simultaneously, learning from the example of those countries which have succeeded in medical device manufacturing, prepare a long-term phased calendar for manufacture of products of increasing complexity. This would require a lead time of 3 or more years. Therefore, increasing custom duties on Medical Devices which cannot be manufactured in India now will only lead to increased healthcare cost to the patient.
Additionally, since the custom duty regime in the neighbouring countries (Nepal, Bangladesh, Sri Lanka, Bhutan, Pakistan & Maldives) is now much lower than in India, the differential in duties created is likely to lead to the smuggling of many of the low-bulk-high-value devices. If that happens, not only will the Government lose revenue but also the patient will be beset with products without adequate legal & service guarantees. Even in China, where they are on the verge of achieving self-sufficiency for Medical Devices, the custom duty has been brought down from 4.3% to 3%.
MTaI (Medical Technology Association of India) recommends that for products where the ability to import substitute is still far away, the high custom duties should be rolled back to the earlier figures (Pre January 2016 increase).
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