Budget should rationalise import duty for the healthcare sector

The upcoming Budget is expected to create an enabling healthcare ecosystem with higher allocations and reforms pertaining to long-term credit facilities, a big push for public private partnership (PPP), and tax incentives and relief. High import duty on medical equipment is a major pain point for the hospital sector.

In the upcoming budget, 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 significantly increased. In 2021-22 imports went up by 41 per cent. 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 per cent hike in the cost of medical equipment import 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. Until 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. Patients would be the ultimate winner. Currently, with heavy import duties on medical equipment, big hospitals’ costs of operations significantly increased and they tend to pass on the burden to patients. So, heavy import duties on medical equipment come as a penalty for patients and must be rationalized.

Yet another pain point of the hospitals is pricing and delay in payments from Government schemes like CGHS and others. The segment would be expecting clear guidelines from the government.

The hospital segment expects 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.

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 per cent. And the providers do not get any input credit facility. 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.

Overall, it is the right time to introduce some radical structural changes combined with the rationalization of taxes. The sector would keep its fingers crossed to see the government’s measures and policy reforms.

So far, the government has shown its willingness to address the challenges of the sector and hopefully, this time Finance Minister Nirmala Sitharaman would walk some extra mile with regard to further strengthening the Indian Healthcare sector.

(The author is Director, Finance & Strategy, TR Life Sciences Private Limited)