Why in News:

• India permitted 100 per cent foreign direct investment (FDI) through automatic route in medical devices sector.

Background:

• The government has just removed a clause from India’s foreign direct investment (FDI) policy to clear unintended obstacles which seemed to be delaying potential investments in several technologies, products and services that come under the broad definition of ‘medical devices’.
• The clause that is no longer applicable had earlier restricted the scope of ‘medical devices’ to what is defined in the Drugs and Cosmetics Act, 1940. Now, with the delinking in place, the government has permitted a wide range of items that can attract up to 100 per cent FDI via the automatic route. These include any instrument, apparatus, appliance, implant, material or other articles, whether used alone or in combination, plus any software tool, intended by its manufacturer to be used especially for human beings or animals for diagnosis, prevention, monitoring, treatment or alleviation of any disease or disorder.

FDI: 

• Foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets, including establishing ownership or controlling interest in a foreign company.

Entry Routes for Investment / Procedure under Automatic Route

• FDI in sectors/activities permitted under automatic route does not require any prior approval either by the Government or RBI. The investors are only required to notify the Regional office concerned of RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue of shares to foreign investors.

Procedure under Government Approval

• FDI in activities not covered under the automatic route require prior Government approval. Such proposals are considered by the Foreign Investment Promotion Board (FIPB), a Government body that offers single window clearance for proposals on foreign investment in the country that are not allowed access through the automatic route.

Definition of Medical Devices In FDI:

• The definition of medical device for FDI purpose also includes accessories to such instruments, apparatus, appliance, material or other articles, a device which is reagent, reagent product, calibrator, control material, kit, instrument, apparatus, equipment or system, whether used alone or in combination, intended to be used for examination and providing information for medical or diagnostic purposes by means of in-vitro examination of specimens derived from the human body or animals.

Center eased several norms in FDI:

• Approval – In the single-brand retail, the Centre has allowed 100% FDI through the automatic route, from the 49% at present.
• 100% FDI is allowed in construction development relating to building townships, housing and infrastructure and real estate broking services.
• Local Sourcing – The mandatory 30% requirement could be relaxed for companies with ‘state-of-the-art’ or ‘cutting edge’ products, for which local sourcing was not possible.
• However, the absence of a definition for ‘state-of-the-art’ or ‘cutting edge’ technology has stalled the applications of global companies. The mandatory local sourcing is now relaxed for the first five years. Thereafter, single-brand retailers will be required to meet the 30 per cent local sourcing norm.
• Power sector- The government has removed the restrictions on investment in power exchanges through the primary market.
• This applies to foreign institutional investors and portfolio investors. Till now they could do so only through the secondary market.

Impact of foreign investment in hospitals in India:

• Such hospitals are likely to focus on more advanced procedures and specialty areas. They are more likely to focus on curative and intervention-oriented treatment than on preventive and long-term kind of treatment.
• They are likely to employ a higher ratio of technology to personnel in their healthcare delivery and thus involve a substitution of human resources with technology and equipment. They are likely to invest much more in medical equipment and devices and also in specialized and experienced medical personnel, thus involving a focus on high-end human resources and high-end technology.
• Such hospitals tend to have better systems and processes and usage of IT, which creates a more efficient and professional work environment.
• Foreign funded hospitals pay higher rates to staff at all levels and particularly to senior medical personnel.
• They are more likely to attract overseas doctors and specialists than other hospitals They are more likely to be accredited domestically and/or internationally.
• Their costs are likely to be comparable to or slightly higher than those of non-foreign funded large hospitals. Their costs will tend to be higher than for small and medium size nursing homes and hospitals but this is mainly due to greater capital intensity and focus on quality systems and processes and focus on hygiene
• There could be positive externalities in other areas, some of which could further drive foreign investment in hospitals
• Foreign funded hospitals could draw away medical personnel at all levels from other hospitals (both large non-foreign-funded and medium and small size hospitals/nursing homes, and public sector hospitals) and could adversely impact the quality of medical manpower available to competing institutions
• There is likely to be closure of substandard institutions, some consolidation of the hospital segment, and new kinds of arrangements could emerge between larger and smaller players as the healthcare sector evolves
• There could be greater segmentation between the public and private sector with resource flows towards the latter, greater wage disparity, unless innovative arrangements emerge between the two segments and reforms are undertaken in the public sector hospitals

Way ahead:

• While there are clearly concerns about the equity, affordability, and market segmentation implications of growing foreign investor presence in India’s hospital segment, it is evident
• that the root cause lies in structural problems that are already present in the healthcare sector, such as lack of affordable health insurance schemes or inappropriate regulations on medical education providers.
• Foreign investment and greater corporate presence in hospitals could aggravate such structural problems. The insights obtained from the discussions with stakeholders suggest that the solution lies in strengthening the public healthcare system, in amending certain regulations that affect all players, and in introducing schemes, which provide affordable access to healthcare for all and not in restricting foreign investment. The benefits of foreign investment in hospitals are likely to outweigh these adverse effects.