Investment Outlook , Published Feb 18, 2020
It was in the Early Iron Age when the first texts on medicine were introduced in India. Today, the Indian healthcare industry with renewed focus on healthcare by the Government, is an attractive destination for foreign investors given the low cost of healthcare delivery coupled with world-class medical expertise.
Healthcare is one of India’s largest sectors and continues to grow at an impressive pace. As India strives to become a US $5 trillion economy, the healthcare sector along with its multiplier effect on other industries has a significant role to play in India’s growth story in this decade. Prosperity and economic development of a nation are highly correlated to the well-being of its populace. Hence, provision of accessible healthcare is not a consequence but a pre-requisite of economic growth.
The government launched its ambitious $1.5 billion per annum health insurance scheme – Ayushman Bharat, to serve the less privileged in our country. The hospital industry in India has the potential to not only address the burgeoning requirement of healthcare delivery to the vast under-served population but also to be a sector with potential to generate thousands of jobs.
Ageing population and high cost of healthcare are huge strains on treasuries of developed countries along with self-paying individuals in countries who are unable to sponsor healthcare for their citizens. In India, tertiary care medical services are priced at less than 4 percent of the cost incurred in the US; waiting time in European countries for elective surgeries are over 20 months and most smaller but affluent nations don’t have sizeable populations to enable development of tertiary care programs. In addition, most developing nations neither have the talent nor the infrastructure to address these requirements.
While nations globally face the challenges of providing affordable healthcare, the Indian healthcare industry is geared to address both domestic and global requirements. The low cost of healthcare delivery, global recognition of skills, availability of medical talent, worldwide connectivity, language compatibility, alternative medicine options, etc., enable our domestic industry and provide us with a significant comparative advantage over other nations in the field of healthcare.
While there is unanimity on the burgeoning domestic and global demand, there is also an acute recognition of the woeful inadequacy of hospital infrastructure in our country.
High domestic demand and talent, vast export potential and inadequate infrastructure are music to global investors who can play a role in financing the existing lack of infrastructure. These investors primarily look for opportunity, scalability, viability, and predictability as key considerations for their investment thesis. Therein lie the challenges. While the opportunity and scalability clearly exist in the sector, viability has systematically eroded and policy has become increasingly unpredictable.
Each tertiary care hospital requires over 25 licences to be renewed regularly. Further, policy changes such as a sudden increase in minimum wages by 45 percent in certain states or no GST on output while the same applies to input costs, capping of margins on drugs and medicines which cross-subsidise other activities in hospitals, are suffocating the industry. The recent news regarding the pharma sector agreeing to cap trade margins at 30 percent will have a debilitating impact on the hospital sector as it would wipe out 40-60 percent of the profits and have existential implications on the generic Medicine Industry in India. Moreover, unionisation of this sector is rampant in large parts of the country leading to inefficiencies in the service sector.
The Central Government through its agencies could reverse auction land in metropolitan areas and cities to offer maximum beds to the Ayushman Bharat Yojana. With the help of readily available medical talent, medical colleges and government hospitals, Ayushman Bharat patients could be cohered with domestic and international patients. This would attract large FDI that can create and improve medical infrastructure. We can further increase viability and attractiveness by providing single-window clearance for construction, uniform building codes and lower levels of ongoing compliance. Also, given the long gestation period for investments, the government should consider providing tax holidays and easy credit to facilitate private investments.
International medical tourism can be boosted by marketing developing India as a healthcare destination, coupled with seamless payment gateways in developing countries and convenient processes such as fast-tracking medical tourism visas. Such impetus would lead to an investment cycle and a consequent multiplier effect as it would help support infrastructure activity, job creation and provision of healthcare to the needy.
In summary, with the low cost and high value proposition of healthcare in India, this industry is poised to become a global leader, making it one of the most attractive investment destinations for global investors. With the right focus and support, this sector has the potential of becoming the sunrise sector of this decade and a source of soft power for our nation.
About Abhay Soi
Abhay Soi is the Founder & CMD of Radiant Life Care Private Limited and Chairman of Board & Executive Council of Max Healthcare Institute Limited. Prior to Radiant, Abhay co-founded a US $350 mn Special Situations Private Equity Fund, where he made investments across various sectors.
Investment Outlook 2020