India makes the leap25 November 2020
Indian manufacturing’s response to Covid-19 has shown the country’s potential to become one of the world’s top five medical device producers. Even so, though ‘Make in India 2.0’ aims at self-reliance, medical device imports have been rising steadily for the past five years. With a new stimulus package, more robust regulation and a host of other incentives, is India poised to compete with China? Abi Millar finds out from Rajiv Nath, forum co-ordinator at the Association of Indian Medical Devices Industry, and Rohit Anand, practice head of medical devices at GlobalData.
Back in 2014, Indian Prime Minister Narendra Modi launched the ‘Make in India’ initiative. Geared around making India more self-reliant (or atmanirbhar), the initiative sought to ramp up domestic manufacturing, attract foreign direct investment (FDI) and create more jobs.
“India is the only country in the world that offers the unique combination of democracy, demography and demand,” Modi told investors at the launch. Even at the time, it seemed achieving the stated objectives might be a difficult ask. Manufacturing accounted for only about 15% of Indian GDP, and was growing at just 4% a year. The government wanted to boost the growth rate to 12–14% per annum, create 100 million extra jobs by 2022 and climb into the top 50 (from a dismal 134th) on the Ease of Doing Business Index. With 25 sectors in focus, the scope was perhaps untenably broad.
Six years (and one global pandemic) later, Make in India’s goals haven’t entirely come to pass. While there has been some progress – India now stands at number 64 on the Ease of Doing Business Index, for instance – manufacturing has stalled at around 16–17% of GDP, and continues to face competition from cheap imports.
Rising to the challenge
This is particularly the case within the medical devices sector, which, until very recently, remained dependent on China for materials, components and finished products. Around 85% of medical devices sold in India are imported, and the numbers have been rising steadily for the past five years.
“Despite all the right intentions and soundbites from the government, domestic medical device manufacturing is not picking up, and the industry is still struggling against Chinese imports,” explains Rajiv Nath, forum co-ordinator at the Association of Indian Medical Devices Industry (AiMeD). “The weaknesses in India’s medical system were exposed when imports from China were disrupted in February and March. Had the Indian medical device industry been stronger and better protected, manufacturers of masks and PPE kits would have been better placed to ramp up capacity.”
In short, the pandemic shone a light on the importance of domestic manufacturing. But it also marked a turning point for India’s medical devices industry, which was able to dramatically scale up production in a short space of time.
With the help of AiMeD – which acted as a single point of contact to manufacturers – the government spurred the industry to meet demand. AiMeD also reached out to other industries such as auto parts, providing them with quality management training so they could start making medical essentials.
“Before the outbreak of Covid-19, there were only 20 firms manufacturing 6.2 million PPE kits per year, but within two to three months, the number of manufacturers listed with AiMeD increased to 140, with a 255.5 million annual capacity,” says Nath. “Similarly, the number of Indian ventilator manufacturers went up from eight to 17, mask manufacturers from 30 to 108, swab manufacturers from zero to five, sanitiser manufacturers from 35 to 49, and RT PCR kit manufacturers from zero to eight. The Covid-19 crisis has shown that the Indian medical devices sector can rise to the challenge.”
Make in India 2.0
Heartened by these successes, the government announced a policy known as Aatmanirbhar Bharat Abhiyaan (Self-Reliant India Movement) to bring the economy back on track. This movement includes a $283.7bn stimulus package, which will cater to a wide range of sectors and support domestic industry. It has been touted as paving the way for ‘Make in India 2.0’.
“Under the Make in India 2.0 initiative, the government has renewed focus on ten sectors including capital goods, auto, defence, pharmaceuticals and renewable energy,” says Rohit Anand, practice head of medical devices at GlobalData. “With China facing a trust deficit, many companies are likely to shift manufacturing facilities to India. On the other hand, improved FDI policies, investor-friendly business regulations and a competitive workforce will encourage foreign investors to invest in India.”
“The healthcare sector in India has rapidly progressed in the last decade. Today, the country is favourably positioned in the medical devices domain for outsourced contract design, development and manufacturing. We have costeffective operations and a robust ecosystem to support production.”
Rajiv Nath, Association of Indian Medical Devices Industry
As Modi’s government has reinforced, the policy is not inherently protectionist in nature. Prior to the 1990s, India strove for a form of selfcontainment – an economic isolation that will not be replicated here. That being said, it does spell a departure from unfettered globalism, in a nod to the realities of a post-Covid world.
“This movement aims to make the country and citizens self-reliant,” says Anand. “It seeks to make India a net exporter and to reduce the country’s dependency on imported products. This will encourage domestic companies to be a part of the industry’s ecosystem and allow them to compete with dominant global players.”
Among other measures, the government will give tax breaks to companies manufacturing locally and protect their intellectual property rights. Several state governments are in the process of setting up manufacturing parks, creating six medical device manufacturing clusters overall.
“These clusters would provide a huge boost to domestic manufacturing of high-end medical devices at a lower cost and significantly enhance job creation,” says Nath. At the time of writing, AiMeD is hoping for further policy announcements that would help end the sector’s dependence on imports. This might include further medical device regulation, and increased import tariffs.
“Aatmanirbhar Bharat Abhiyaan is definitely a ‘Make in India’ enabler,” says Nath. “We are hopeful that Aatmanirbhar Bharat Abhiyaan will make domestic medical devices manufacturers competitive so that they can compete locally as well as globally. It will strengthen India’s resolve to vie for being the second factory in the world for medical devices.”
So, what might this mean for OEMs looking to outsource their production to India? The good news is that India already has numerous advantages as a manufacturing hub.
“It has a large skilled and semi-skilled workforce, an English-speaking population, availability of land at a cheaper cost, a conducive regulatory framework, and a large domestic market,” says Anand. “India holds a significant position in the global pharmaceuticals outsourcing market as many generics and biosimilars are manufactured here to achieve cost efficiencies. It is quite possible that many medical device OEMs will follow the same footsteps and are hoping to achieve the same outcome.”
This does seem to be a goal for the government, which is working hard to remove all roadblocks. Niti Aayog, a government think tank, is working on a roadmap to promote medical device manufacturing in India, while new strategies are under way to improve the ease of doing business.
“The healthcare sector in India has rapidly progressed in the last decade,” says Nath. “Today, the country is favourably positioned in the medical devices domain for outsourced contract design, development and manufacturing. We have cost-effective operations and a robust ecosystem to support production.”
As to whether India really can compete with China over the long term – unlikely though this sounds, it may be more than a pipe dream. Already, many companies are showing a willingness to relocate their manufacturing units from China to India.
“Turning India into a global manufacturing hub looks realistic but it may take more time than expected,” says Anand. “India can compete with China in the long run only if it aims to produce even the smallest of components needed to manufacture a medical device locally. India is going through significant reforms, investment and development, and it’s likely that its medical devices manufacturing sector will grow by leaps and bounds.”
He adds that the original goals of Make in India are attainable. However, in the wake of the Covid-19 crisis and subsequent economic slowdown, they may take an additional three to four years to achieve. Nath believes the aim of competing with China is 100% realistic – but only with support from the government. He points out that, in countries like Iran, domestic production is supported with import restrictions and duty protection, and he would like to see India doing the same.
“India has to evolve imaginative policies and usher in reforms that will accelerate its economic revival,” he says. “The Covid-19 crisis has shown that the Indian medical devices sector can rise to the challenge, that Indian manufacturers are the ones you can bank upon. India’s manufacturing industry is on the cusp of a great opportunity, and developing and supporting our own domestic medical industry to be aatmanirbhar is the best way forward.”
Making India a global hub for medical devices
India’s recent move to propose an improved regulatory framework under the new Medical Devices (Safety, Effectiveness and Innovation) Bill will improve the ease of doing business by providing a sound environment for innovation and approval of medical devices in the country, according to GlobalData.
In May, the Ministry of Health and Family Welfare and the Niti Aayog think tank reached an agreement on establishing a separate regulatory body for medical devices sold in the Indian markets. The government also plans to include India’s top technical institutions, such as the Indian Institutes of Technology (IITs), by utilising their world-class laboratories to help set benchmarks and safety guidelines for providing certifications to medical devices.
Abhinav Purwar, medical devices analyst at GlobalData, comments: “The government’s decision to involve IITs clearly indicates that it is aiming to achieve global standards with the help of the new bill and to make India a hub for medical device manufacturing. This will provide the desired momentum to take the Make in India initiative forward.”
GlobalData’s research reveals that the Indian medical devices market accounted for more than 14% of the Asia-Pacific medical devices market in 2019 and is expected to grow at a compound annual growth rate of 7% through to 2025.
The proposed regulatory framework will focus on the safety, efficiency and quality of medical devices, and will be operating under the Central Drugs Standard Control Organisation, further enhancing its expertise in regulating the safety and efficacy of medical devices. As compared with the current scenario, where only 23 categories of medical devices are regulated, the Ministry of Health plans to cover all medical devices sold under the new bill.
Purwar concludes: “A strong and independent regulatory framework is needed to promote domestic manufacturing and to reduce dependence on imported devices. The Medical Devices Bill will provide domestic manufacturers a level playing field to compete with multinationals. This will help local manufacturers to produce a variety of innovative medical devices for the domestic market and exports.”