Budget 2020: A mixed bag for healthcare services, pharma sector; additional duties on medical devices to hike costs for consumers

On the positive front, with this Budget, the government is effectively trying to widen the ambit and affordability of healthcare in the country through emphasis on eradication of tuberculosis (TB) by 2025, expansion of Mission Indradhanush to cover 12 more diseases, including five new vaccines, expansion of Jan Aushadi Kendra Scheme to all districts offering 2,000 medicines and 300 surgicals by 2024, etc. This is a positive note for overall wellness theme. While one of the key focus areas for this Budget 2020-21 on socio-welfare front is to widen the reach of affordable healthcare services, it also lays emphasis on government policy of ‘Make in India’. The announcements like a scheme to encourage manufacturing of medical devices in India, additional levy on imports on medical equipment, attracting foreign investment through reduction in corporate tax rate (undertaken earlier) and withdrawal of dividend distribution tax or DDT (through this Budget) are seen as steps undertaken by the government to potentially increase investment in India and thereby boost the economy. [caption id=“attachment_4498515” align=“alignleft” width=“380”] Representational image. Reuters[/caption] On the infrastructure front, the government proposes to set up more hospitals in tier 2 and tier 3 cities through public-private partnership (PPP) model under the Pradhan Mantri Jan Arogya Yojana (PMJAY). Also, acknowledging that there is a shortage of qualified medical doctors, both general practitioners as well as specialists, the government proposes to incentivise hospitals that allow attachment to a medical college through a PPP model. Additionally, those states that allow such synergies and wish to provide land at a concession, would be able to receive viability gap funding. The negative is really that a lot of funding for some of the above initiatives would come out of levy of duty (in form of health cess at of 5 percent ad valorem) on import of medical devices. Additionally, it is also proposed to levy social welfare surcharge at 10 percent on the import of certain medical equipment. While attracting foreign investments and ‘Make in India’ will be good for the country in the long-term, in the short to medium-term, the announcements such as additional import duties on medical devices and equipment will increase the costs for the consumers and put more margin pressures on companies and hospitals. Also, it would have to be seen whether the current demand for such medical devices (especially the high-end ones) in India makes the manufacturing of such products viable in the country, in spite of the additional duties levied. To really support the pharmaceutical and medical devices sector growth and ability to perform exceptionally, the government may have to look at: 1)  Innovation-linked tax benefits or funding 2) Stronger Intellectual Property (IP) regulations – especially for foreign investment 3) Stable pricing and policy environment favourable for long-term investments decisions There are some futuristic pushes from the government in healthcare with the proposition of two new national-level schemes to support mapping of India’s genetic landscape which will be critical for next-generation medicine. Also, the government’s overall focus on digital and technology has its imprints on healthcare sector as well, with the proposed digital platform to facilitate seamless application and capture of Intellectual Property Rights (IPRs) and institute of excellence for working on complexity and innovation in the field of IP which is encouraging for the sector. Overall, while the Budget is positive for the sector, it would have been better for the consumers if the medical devices levy would not have been imposed. (The writer is Partner and National Leader, Life Sciences at EY) Follow full coverage of Union Budget 2020-21 here