‘Make in India’: Indian Customs Duties Raised in Bid to Promote Local Med Device Manufacturing

The Indian government has raised custom duties of medical devices for surgical, dental and veterinary use as part of a government push to encourage local manufacturing. The new policy may have a more positive effect on local device makers than the negative impact it is likely to have on multinationals operating in the country.

The Indian government raised the rate of basic customs duty on certain devices from 5 percent to 7.5 percent. It also eliminated exemptions from special additional custom duties (SAD) on these devices.

“The increase in basic customs duty is not a big increase though it will impact foreign companies in India,” Rana Mehta, PricewaterhouseCoopers partner and healthcare leader in India, told Medical Device Daily. “Foreign companies may have to renegotiate their contracts with the hospitals or absorb the cost increase and have lower margins.”

The move is part of the recommendations put forward by a government task force created to examine the domestic medical devices sector and look for ways to promote domestic manufacturing. All this is part of a Make in India campaign launched by the government of Prime Minister Narendra Modi.

“The effect of this duty increase is immediate but the impact on the medical device market is likely to be seen in two to three years time,” said Mehta.
The government also reduced the basic customs along with a full exemption from SAD on raw materials, parts and accessories for manufacture of medical devices to boost domestic manufacturing.

“For Indian manufacturers, this is a good sign because the government has also reduced the customs duty on raw materials needed for manufacturing from 5 percent to 2.5 percent,” said Mehta. “It will not dramatically change the current landscape in India, but will have an impact on the prices and profitability of the companies.”

India mainly imports medical devices from the U.S., Germany, Japan and China.

“Around 75 percent of India’s medical devices needs are met through imports,” said Mehta. “The government of India is looking to reduce this import dependence and encourage domestic manufacture of medical devices under the Make in India plan.”

MAKE IN INDIA ENCOURAGES DOMESTIC MANUFACTURING

Modi launched the Make in India campaign in September 2014 to boost manufacturing in the country by both international and local companies. The plan not only emphasizes local manufacturing but also aims to offer better access for foreign direct investment in key manufacturing sectors including biotech, pharmaceuticals, wellness, electronic systems, chemicals, IT, automobile and others.

Foreign direct investment is 100 percent allowed for the medical device sector under the Smart City plan that aims to create industrial corridors between India’s big metropolitan cities.

“The main purpose of the Make in India plan is to encourage domestic manufacturing,” said Mehta. “However, many companies are also customizing their products for the Indian market by performing research and development locally.”

“These changes are expected to provide impetuous to the domestic medical devices sector, support the Make in India campaign of the government and generate employment,” said the Central Board of Excise and Customs in an announcement. “The concessional basic customs duty on hospital equipment for use in hospitals run by central or state government or registered societies and specified assistive devices, rehabilitation aids and other goods for disabled will, however, continue.”

BMI Research forecasts that the Indian medical device market will grow to Rs310 billion ($4.6 billion) in 2019. Manufacturing will be a key driver of economic growth boosted by the Make In India campaign, which will help to offset the sluggish growth footprints of the agricultural and construction sectors.
“However, market growth will be a long way off the dynamic growth rates achieved up until 2012, reflecting an increasingly competitive operating environment and expanding market share for lower cost domestically produced products in some sectors,” noted in BMI’s 2016 India medical device forecast report.

Download this free issue of Medical Device Daily to continue reading >>

Start your 10-Day Risk-Free Subscription of Medical Device Daily here >>