The Indian healthcare sector is one of the fastest growing sectors with a high contribution not only in terms of revenue but also employment as it employs 4.7 million people. As per a report published by NITI Aayogthe healthcare market in India was expected to reach US$ 372 billion by 2022. Hospitals or providers are the backbones of the sector and account for 80% of the total healthcare market. Niti Aayog projects the hospital industry to reach $132 bn by 2023 with a CAGR of 16-17%. With rising dual disease burden—Communicable like COVID-19, Flue, and H1NI among others and Non-Communicable—the healthcare sector needs robust funding, infrastructure, capacity building, human resources, and a rational regulatory framework.
The upcoming Union Budget would create an enabling healthcare ecosystem if the government comes up with robust reforms in terms of providing a regulator for the hospital sector, long-term credit facilities, a big push for Public Private Partnership (PPP), and tax incentives and relief.
Breaking Barriers with a Regulator
A hospital has to go over 100 statutory compliances and it takes years to complete that. There is a need for a dedicated regulator in the healthcare sector. The National Accreditation Board for Hospitals & Healthcare Providers (NABH), which is a watchdog for quality and standards for the providers, is well-equipped to fit in as a healthcare regulator. The institution, being an accreditation agency, knows all the quality parameters and it is also aware of ‘hits and misses.’ It is an option already available and the government just needs to entrust it with the required statutory powers. Moreover, the government can also have a wider representation of its senior officials and experts to make the regulatory mechanism robust. The NABH is well-equipped to act as a regulator for the segment and the government should think of it to remove Entry Barriers and streamline the system of compliance. The NABH, as a regulator and facilitator, can easily remove Entry Barriers and can create a Single Window mechanism for over 100 compliances. Ease of doing business, Quality, and Uniformity would become easier to achieve.
Rationalization of Import Duty
Hospitals seek relaxation on imported medical equipment, as they intend to procure state-of-the-art latest technology to treat patients and get the best medical outcome. Over the years, the import of medical equipment has increased significantly. In 2021-22 imports were gone up by 41%. As per the industry estimates India imported medical equipment worth Rs 63,200 crore in 2021-22 compared to Rs 44, 708 crore in 2020-21. On the other hand, Indian equipment manufacturers seek a complete ban on the import of medical equipment or higher custom or import duty and other charges if not a complete ban. The industry has witnessed over 20% hike in the cost of medical equipment imports in the last two years. It would take some more time for large hospitals to work on Indigenous medical equipment. Once Indian manufacturers match the global standards in terms of supply, range, and quality, big hospitals would be in a position to partner with them. Till that time the government should restrict itself in making imports expensive with heavy duties. The industry is always keen to be aligned with the ‘Make in India’ initiative or promote indigenous manufacturers. But, for big hospitals, it is more critical to maintain their global competitiveness. Hence, the sector would be expecting a reduction in import duties on medical equipment.
Call for Credit
For a long time, the sector has been expecting a robust credit mechanism to overcome the shortage of funds. Long-term (15-20 years) credit facilities would significantly reduce the burden. Interest rate, tenure, and collateral are the major concerns. Enabling easy access to capital at lower rates without collaterals would go a long way to creating a new healthcare ecosystem in the country. Lower-cost financing can be seen as a growth driver. The hospital sector has huge NPAs and hundreds of projects are stuck. The reason behind huge NPAs in the hospital sector is the fact that like other sectors, the lending institutions including banks start demanding repayment just after 2-3 years of the disbursement. Less than five years is too short a period. Infrastructure is partially ready and if the government and the RBI give a chance to revive these assets, the policy push will provide a much-needed boost to health infrastructure in the country. The Government needs to impress upon the RBI to look at this pain point seriously for the sake of the financial health of the healthcare sector.
The Goods and Services Tax (GST) on inputs increases the delivery cost by 18%. And the providers do not get any input credit facility. It has emerged as a major pain point for the healthcare sector which expects the government to shift hospitals from the exemption category to the zero-tax rate category which would enable the hospitals to take GST Input credit. Tax incentives for both existing and new healthcare projects are required. For new or green field projects a tax holiday period of 10 years, as given to Special Economic Zones and Tech Parks, would go a long way to transform the sector. It is strongly recommended that the government should create similar zones for hospitals and extend all the benefits including tax incentives. This should not be limited to the hospital segment. Service providers, who are associated with hospitals, should also be included in such promotional schemes.
Push to PPP
The Budget for 2023-24 needs to focus on reviving and strengthening the Private-Public Partnership (PPP) model which has not seen much success. A few pilot projects in the different parts of the country showcase its potential which needs to be tapped fully. The PPP model has great potential to make healthcare more affordable and accessible by using technology to reach the last mile. In the areas of primary and secondary care, diagnostics-imaging, vaccination, and standardization of services, the PPP model can play a critical role. The PPP model has the potential to transform the entire continuum of care, starting from admission to discharge and post-discharge period too. The sector would be expecting a big policy push to bring the derailed PPP model back on track.
Overall, the right policy reforms can transform the way India manages its healthcare delivery systems.
Anurag Kashyap, Director, Finance & Strategy, TR Life Sciences Private Limited
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