Impact of Economic Slowdown on the Biomedical & Healthcare

The dramatic changes in rupee value affect the billion dollar medical equipment industry. While it proves beneficiary to some it is a bane to many. Let us find out its impact on the current scenario.

The healthcare market in India is estimated to be worth $ 40 billion with the medical equipment industry contributing $ 2.5 billion that is 6 per cent of the total. While the healthcare sector grows at 11-12 per cent annually the medical equipment market is growing at 15 per cent annually. In 2011,India was the forth largest market for medical equipment and is expected to grow at 12-16 per cent according to a report by Pacific Bridge Medical.

India imports about 65-70 per cent medical equipment used in the country. This number is expected to rise due to the promotion of medical tourism, R&D activities of pharma companies and more investment by individuals in healthcare, which calls for better services and state-of-the-art technology.

There has been a dramatic change in rupee value at the forex market and experts predict its effect on the medical equipment market as well. The import and export of medical equipment and the weak rupee situation while disadvantage for many it does appears a trump for some.

 

Situation of importer

The Indian market is competitive and the companies operate at thin margins. The weakening of rupee will be forced to increase the cost of the equipment. Ankit Suri Senior Consultant, Tecnova India, explains this scenario further, “If the manufacturers are forced to increase their price it is likely that major equipment buyers will defer their purchases. This could also mean delay in major government and private projects coming-up inIndia. If manufacturers continues to sell on the same price, this may directly affect their profitability, and this situation becomes more vulnerable if the companies stop importing for a while and this may also lead to shortage of key equipment in the market also.”

Situation of the exporter

Exporters are one the beneficiaries in this situation. The domestic manufacturers, who export their products to various countries are greatly benefited. Suri describes the situation further, “Domestic manufacturers receive their revenue in US dollars, whereas their major expenditure is in the INR. With rupee depreciation, their rupee-denominated revenue will grow and there is no change in expense, resulting into better operating margins.”

Situation of the patient         

The rise in cost of equipment is likely to affect the cost of treatment. Although this has not had any impact on patients directly so far but if the situation continues it will affect the patients greatly. Suri adds, The healthcare facilities will operate on undesirable margins, if they continue to import consumables at higher prices and not increase the cost of the treatment. It looks quite evident that even healthcare facilities cannot take this burden for long and may result in higher costs of treatments to patients in future, if rupee continues to fall.”

Government policies

The rise of equipment cost leading to increase in cost of treatment hampers government’s plans to reduce cost of treatment in India. The budget of 2012-2013 offers concession on import duty regime of 2.5 per cent basic custom duty with 6 per cent Countervailing duty although there has not been any decrease in the customs duty leaved on lifesaving medical devices and diagnostics reagents. Suri suggest that a boost in domestic manufacturing will make the industry less dependent on the imports. He also adds “Government must look to promote global manufacturers to set-up manufacturing units inIndia. Government should also device duty structure that promotes domestic manufacturing than imports.”

Company strategy to deal with the situation

The companies that are largely dependent on import will be the worst hit by the volatility in the forex markets. To avoid the uncertainties that may rise in the future the hedging activities are adviced. Suri suggests “Generally in Indian medical equipment space, there exists small and medium enterprises and they do not use hedging to a greater extent. These companies need to do hedging activity to protect from stark depreciation in rupee from exchange rate volatility. This could be one of the strategies for local importer to protect against excessive losses and maintain the price of the equipment. However, this is only a short term strategy.”

Healthcare is one the most important industry which affects the lives of individual greatly. The government on the global platform should look for a solution to make the state of the art technology available in India. Rupee depreciation will also increase the cost of the treatment for Indians wanting to seek treatment abroad. Medical tourism will develop greatly if rupee continues to weaken and technological advances will available inIndia. The situation might also have a negative impact on global manufacturers wanting to invest in India with the fear of losing their money.

(shibani.shah@infomedia18.in)

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