The Reserve Bank of India formalised 100% FDI in the medical devices sector under the automatic route in February 2015, following the government’s decision to allow higher FDI caps in this sector. Foreign investors can now acquire an existing business or establish new manufacturing businesses in the medical devices sector without needing to seek the authorisation of the Foreign Investment Promotion Board (FIPB). This comes as a major change, as the medical devices sector used to be under the pharmaceutical sector policies, where 100% FDI is permitted for existing units but only after the FIPB has given its permission.
Attracting investment in the medical devices industry is essential for India, as the country currently imports 70% of its required equipment in this sector. “India's presence in this industry is small, accounting for just $2.5bn," said Dr GSK Velu, founder and managing director of healthcare group, Trivitron. "The new FDI policies would facilitate foreign investors to use India as a place to produce medical devices for other countries."
Sanjiv Goyal, president of mecical imaging equipment specialist RadMedical and a vice-president of India's association of pre-owned medical equipment suppliers, said: “We have a new government in place that is trying to speed up economic growth by promoting a 'Make In India' culture. I think that the new FDI policies will make big companies, such as Siemens or Phillips, invest more in India." Greenfield investment monitor fDi Markets shows that Siemens has already announced interest in expanding its existing clinical products manufacturing base in the country.
“At this moment, the impact of these policies on pre-owned medical equipment suppliers is not clear,” said Mr Goyal. "It could be a good opportunity for some of us to tie-up with foreign companies and start something bigger. To me, it is clear that the business environment and business prospects will change and some will scale up, some will change field.”
However, Mr Goyal added that these new policies are likely to affect pre-owned equipment sellers in due course, as real local manufacturing will bring down the costs while customers may prefer new instead of pre-owned equipment.
Domestic market growth potential, proximity to markets or customers, industry cluster and critical mass were some of the key motives for investment by existing foreign companies operating in India's medical device sector, according to fDi Markets. But, Mr Goyal noted that the prevalence of bureaucratic red tape as well as the lack of grassroots support for business makes things difficult for every business in India. "It will take time for that attitude to go away. I see only this as a threat for local as well as international businesses," he said.