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Medical Devices Manufacturing Industry

Estimation of Market Size and Import Dependence in India

Pritam Datta (pritamdatt@gmail.com; pritam.datta@nipfp.org.in) is Fellow II, National Institute of Public Finance and Policy, New Delhi.Sakthivel Selvaraj (shakti@phfi.org) is Director, Health Economics, Financing and Policy, Public Health Foundation of India, Gurugram.

Not much is widely known about the market size and dynamics of the Indian medical devices industry. The size of the market for medical devices and equipment in India and its dependence on import is estimated. The market size of medical devices and equipment has been estimated for the period from 2010–11 to 2013–14, which was found to have accelerated from $2.7 billion to $4 billion, while imports served 70% of the total domestic needs in 2013–14. The share of medical devices-based diagnosis in households’ out-of-pocket expenditure on health has increased from 2.2% in 1993–94 to 7.6% in 2011–12. Regulatory mechanisms must be put in place to bring all key medical equipment under price control in order to drive down prices.

A preliminary draft of this paper was presented at the International Conference organised by the Indian Health Economics Association, 2013 and PHFI Fourth Research Symposium, 2014. The authors also thank the organisers, as well as the participants of the workshop for critical discussions. A preliminary draft of this paper was published as a working paper under the ISID-PHFI Collaborative Research Programme in 2013.

The authors would like to thank the anonymous referee for comments on an earlier draft.
 

Health technology has come to play a critical role in prevention and treatment of disease conditions in modern- day health systems. After the 60th World Health. Assembly in 2007 (WHO 2007), it has been widely acknowledged that health technology, in particular medical devices and equipment, is necessary for an efficient and effective healthcare system in terms of equipping healthcare providers with more tools for diagnostic, preventive, and curative care. Medical devices can range from a simple surgical needle, to complex orthopaedic implants or sophisticated ultraviolet or infrared ray apparatus used for medical purposes. In vitro medical devices are one subclass of medical devices that are used for the in vitro examination of specimens derived from the human body solely or principally to provide information for diagnostic, monitoring, or compatibility purposes. The term “medical devices and equipment” used in this paper stands for medical devices (including in vitro medical devices) as well as accessories used together with the devices.

Past literature suggests that there is an increasing diffusion of medical devices in the Indian health system over time (Mahal et al 2006; Mahal and Karan 2009). It is also recognised that the use of medical devices is one of the major drivers of healthcare expenditure growth. Experiences of the Organisation for Economic Co-operation and Development (OECD) countries suggest that with increasing dependence on medical technology in health, costs of healthcare provisioning have gone up significantly (Sorenson et al 2013). A World Health Organization (WHO) study also reveals that 95% of medical devices in developing countries are actually imported (WHO 2006). An increase in the use of imported medical devices and equipment with a limited domestic medical devices manufacturing industry can accelerate the catastrophic health expenditure in developing countries, where out-of-pocket (OOP) health expenditure is colossal. There is limited academic literature addressing the issue of diffusion of medical devices and potential increase in health expenditure in India (Mahal et al 2006; Mahal and Karan 2009), but there are very few studies addressing the supply-side scenario of medical devices in India (Chakravarthi 2013), largely designed by private consultancy firms and chambers of commerce. Developing countries like India have much to gain from effective use of advanced medical technology. But, whether diffusion of health technology will help in enhancing access to healthcare or only add fuel to the inflation of medical expenses would critically depend on few basic factors, namely domestic production capacity and import intensity, as well as how well the government is regulating the market to promote the interests of public health.

Objective and Research Questions

India is one of the largest markets for medical devices in Asia. Though there was no regulatory system for medical devices till 2005 in India, nor any official estimate of the size of Indian medical devices market other than a few estimates from the National Institute of Pharmaceutical Education and Research (NIPER 2009), India Electronics and Semiconductor Association (ISeA 2010), Associated Chambers of Commerce and Industry of India (ASSOCHAM 2014), and Deloitte and Federation of Indian Chambers of Commerce and Industry (2011) for different years. The report on the medical devices sector in India in 2015—prepared by the task force formulated by the Department of Pharmaceuticals of the Ministry of Chemicals and Fertilisers—is the very first attempt by the government to estimate the size of the Indian medical devices market (DoP 2015). The task force estimate of indigenous production is based on figures provided by the Association of Indian Medical Device Industry (AIMED) involving their members. According to the task force report, there were 800 medical devices manufacturers in the country and their average turnover was ₹ 20,500 crore during 2012–13 (AIMED reported figure). And, thereby, domestic production was estimated to be ₹ 16,400 crore. The size of the market of medical devices in India has been estimated by adding domestic production and import, and deducting export value of the medical devices industry, which is equivalent to ₹ 30,900 crore. Though the task force report took export and import figures from the Ministry of Commerce and Industry (MoCI), one may still question the reliability estimates based on the data provided by the AIMED.

This paper, however, makes an attempt in trying to estimate the size of the Indian medical devices market and industry purely from the secondary data available from several sources of the Government of India. Besides capturing the size of the Indian medical devices market in India, this papercomputes the import dependence of India for medical devices. Specifically, this paper attempts to define the medical device industry using industry and product classification system in India, and address the following questions. What is the value of medical devices market in India? What is the intensity of import dependence for medical devices in India?

Data and Methodology

The primary aim of this paper is to analyse both the domestic production and trade profile of the Indian medical devices industry in detail, using unit-level disaggregated figures from the Annual Survey of Industries (ASI) and the Export Import Data Bank (EIDB) (Version 7.1)—Tradestat. The ASI is theofficial source data on the Indian-registered manufacturing sector,1 annually published by Industrial Statistics wing of the Central Statistics Office (CSO-IS wing). The EIDB (Version 7.1)—Tradestat, is an online databank on Indian trade (export and import) provided by the MOCI. The estimation time period spans four years from 2010–11 to 2013–14. The latest available ASI data was published in 2015–16 for the year 2013–14. There are two kinds of classification systems used in the ASI data, namely National Industrial Classification (NIC-2008) to classify industry activities, and National Product Classification for Manufacturing Sector (NPCMS-2011) to classify products produced. The NIC-2008 is a five-digit classification system with four digits equivalent to the International Standard Industrial Classification of All Economic Activities (ISIC Rev 4), and the last digit is added to fulfil the national requirement of detailing. The NPCMS-2011 is a seven-digit classification system, where the first five digits are equivalent to the Central Product Classification (CPC Version 2.1), and the last two digits fulfil the national requirement of product detailing.2

The NIC-2008 system can be used to identify any particular industry from the ASI data set. But, unlike other economic activity, manufacturing of medical devices and equipment is not classified together under a single division (two-digit level). This research work crosses this hurdle by setting a working definition by taking all possible manufacturing activity (five-digit level) that may produce medical devices and equipment under one envelope (Table 1, p 47).

We also use the task force report (DoP 2015) as one of the reference frames while preparing the first step of our working definition based on the NIC-2008. In the task force report, Harmonised System (HS) Code 9027 (henceforth, HS 9027) is included as medical devices and equipment. Also, in the United Nations (UN) concordance table, HS 9027 is matched with ISIC 2651 (partially). So, in our NIC-based table we incorporate 2651 (partially).

The NIC-based approach of identifying the medical devices industry may not be the most meaningful way to set a working definition for the medical devices industry in India. A single industrial activity identified through the NIC-2008 systemmay produce different types of products. And, some of them may be medical devices. For example, broad industrial activity NIC: 3250 (that is, manufacture of medical and dental instruments and supplies) products produced, like “contraceptive tablets (NPCMS: 3529009),” “hair tonic, medicated (NPCMS: 3529022),” etc, are not medical devices at all. Thereby, to estimate the size of the Indian medical devices and equipment manufacturing industry truly, this study excludes all those non-medical devices products. It has been found from the ASI 2013–14 unit-level data that only 41% of the value of the product produced in Indian medical devices and equipment manufacturing industry are truly medical devices or equipment, and the remaining 59% are other products and by-products (for example, other general-purpose machinery and parts, plastics products, etc). The estimation of the domestic production of medical devices and equipment includes only those products that can be identified as medical devices from the detailed list of NPCMS provided by the CSO. In other words, for each NIC value of products manufactured at the product level (NPCMS), those products that are not medical devices are filtered out to get the actual value of medical devices and equipment produced indigenously, using the ASI microdata.

Unlike the ASI, Tradestat—Version 7.1 uses the ITCHS3 2007 classification system. The UNs’ statistical division readily provides the concordance table between the CPC (Version 2.1) and HS 2007. As mentioned before, the first five digits of the NPCMS-2011 are equivalent to CPC (Version 2.1).4 Therefore, we produce a concordance map between the NPCMS and ITCHS at the CPC level (Table A1, p 53). Using this concordance table, domestic production (with NPCMS) and trade data (with ITCHS) are harmonised at the CPC level.

Domestic Production of Medical Devices

Despite being the fourth largest market of medical devices and equipment in Asia (DoP 2015: Appendix 5), India has a small domestic manufacturing industry of medical devices and equipment. A product-level detailed analysis of the registered medical devices manufacturing industry during 2013–14 reveals that 59% of the value of product produced by the Indian medical devices manufacturing industry does not come under core medical devices and equipment. Only 41% of the products included in ASI data sets qualify for inclusion under the medical devices and equipment criteria (Figure 1). The value of the products of this industry that are not medical devices has been filtered out in the estimation of domestic production and market.

Therefore, it is evident that for medical devices and equipment manufacturing industry, the NIC-level codes and categories will be misleading. For example, during 2013–14, out of the ₹ 109.9 million gross sales value (GSV) of medical devices and equipment manufacturing industry identified at the NIC level, ₹ 44.7 million is for medical devices and equipment. The remaining ₹ 65.2 million is the GSV of other products and by-products, which are strictly not medical devices.

Table 2 (p 49) depicts the domestic production of medical devices and equipment basket (defined at the CPC level) from 2010–11 to 2013–14. It is interesting to see that product variation increases over time in the Indian medical devices manufacturing industry. During 2010–11, 73% of the GSV was from manufacturing of instruments and appliances used in medical, surgical, or veterinary sciences (including syringes, needles, catheters, cannula, ophthalmic instruments and appliances nec, and electromedical apparatus nec) (that is, CPC: 48150). But, during 2013–14, CPC 48150 holds only 32% of the total GSV of the domestically manufactured medical devices and equipment. Most importantly, in 2013–14, the Indian medical devices industry have begun manufacturing more sophisticated devices like electrodiagnostic apparatus, used in medical, surgical, dental, or veterinary sciences (CPC: 42121); orthopaedic appliances, splints and other fracture appliances, artificial parts of the body (CPC: 48171); as well as apparatus based on the use of X-rays or of alpha, beta, or gamma radiations (CPC: 48180); and hearing aids and other appliances which are worn or carried, or implanted in the body, to compensate for a defect or disability (CPC: 48172).

It may be noted that the Indian medical devices manufacturing industry is improving its coverage even among high-end sophisticated medical devices and equipment in recent years. Though the industry size is still small (₹ 44.7 billion) to cater to the large domestic demand in India. As a result, India currently relies largely on the international market for its need for medical devices and equipment.

Export and Import of Medical Devices and Equipment

India is a net importer and emerging as a market for medical devices and equipment with a 1.2% share in the total value of the global import of medical devices and equipment.5 Figure 2 shows that import is much higher (almost four times) than export of medical devices in India. There is also a continuous growth of import of medical devices and equipment in India. During the four-year period from 2010–11 to 2013–14, the export of medical devices from India has grown by 15% per annum and import of medical devices has grown by 12% per annum.

It may be observed that in the recent years domestic production capacity is growing by 8% per annum annually, while there is an expansion of product variation and coverage. But, for most medical devices, India remains a net importer, except for articles for medical or surgical purposes (CPC: 35290). In 2013–14, India became a net exporter of ultraviolet or infrared ray apparatus, used in medical, surgical, dental, or veterinary sciences (CPC: 48122), and invalid carriages (CPC: 49922). But, the value of net import is significantly high at ₹ 103.5 billion in 2013–14 (Table 3).

Harmonisation of Domestic Production and Trade Codes

The foregoing evidence clearly demonstrated that India has a tiny domestic manufacturing capacity to produce medical devices and equipment, while relying on a huge inflow of imported medical devices and equipment to meet its demand. In this section, we attempted to harmonise export and import codes along with domestic products. Each of the three series has been converted into 2004–05 prices using wholesale price index (WPI) (manufacturing products). The Indian market for medical devices has been estimated by adding import with domestic products and deducting export out of it. The estimated value of the Indian market of medical devices and equipment is ₹ 148.2 million (constant 2004–05 prices) during 2013–14 (Table 4). The market for medical devices in India is growing steadily by 10% per annum on an average from 2010–11 to 2013–14. But, domestic production is only able to serve close to one-third (or 30%) of the total domestic need. As a result, India is experiencing a huge inflow of imported medical devices. During 2013–14, 70% of the domestic market was served by imported medical devices.

Other than a few medical devices classes—like medical, surgical, or laboratory sterilisers (CPC: 48140), other articles for medical or surgical purposes (CPC:35290), ultraviolet or infrared ray apparatus, used in medical, surgical, dental or veterinary sciences (CPC: 48122)—for a large number of medical devices product classes, domestic production is not sufficient to meet domestic needs. In recent years, the Indian medical devices manufacturing industry started producing few high-end sophisticated devices like CPC: 48121, 48110, 48172. As a result, domestic production as a percentage of the domestic market for these product classes accelerated from 5.0%, 0%, and 0% in 2010–11 to 61.3%, 7.4%, and 6.1% in 2013–14 (Table 5, p 51).

Discussion and Conclusions

Health technology has come to occupy a central place in the medical industry. But, it is also recognised that use of medical devices is one of the major drivers of healthcare expenditure growth. An increase in the use of imported medical devices and equipment with limited domestic production capacity of these devices is expected to contribute to catastrophic health expenditure, where oop health expenditure is already sizeable. India has a small indigenous medical devices manufacturing industry. About 70% of the total domestic need for medical devices and equipment is served through imports.

Spending on medical devices as a share of the total national expenditure on health is in the range of 5.4% to 6.1% in the United States (US) (King and Donahoe 2012). Whereas, Japan spent 5.1% of its national health expenditure on medical devices and equipment (WHO 2006). But, the share of oop spending in the national spending on health is 16% in the US and 12% in Japan. On the contrary, in India, 68% of the total health spending is oop expenditure. Figure 3, shows the increase in X-ray and ultrasound charges over time. During 2006–15, there was a 100% growth in X-ray and ultrasound charges. Table 6 shows that the share of diagnostic expenditure in the total oop expenditure has increased steadily from 1993–94 to 2011–12. The share of diagnostic expenditure in the total oop expenditure has gone up from 2.2% in 1993–94 to 7.6% in 2011–12. The experiences of OECD countries suggest that with the increasing dependence on medical technology in health, costs of healthcare provisioning have gone up significantly (Sorenson et al 2013).

Unlike developed countries, the medical devices market in developing countries like India is price-sensitive. As a result, there is a strong emergence of the market for refurbished medical devices (PR Newswire 2018). Thereby, the task of any government in developing countries like India is not only the promotion of domestic production of medical devices, but also equipping its regulatory framework to monitor the quality of the imported and domestically produced medical devices to protect people’s health from profit-seeking “fly by night” manufacturers or vendors.

India also has a large unregulated market for most medical devices. Prior to 2005, the regulatory structure to control and monitor the medical devices sector in India was virtually absent. There are a few medical devices that have been brought under the regulatory framework by creating a statutory fiction and deeming those devices as “drugs.” And, by virtue of this fiction, these medical devices (known as “Notified Medical Devices”) get regulated under the “Drugs and Cosmetics Rules, 1945” (Nishith Desai and Associates 2015). Till now, there were only a handful of medical devices (22 notified medical devices) under the regulatory mechanism. India is among the few countries that never distinguish between new and refurbished medical devices while importing (Francis 2008). Therefore, in the absence of a strong domestic market or regulation, India can emerge as a hub for refurbished medical devices. The government should bring all imported as well as domestically produced medical devices under the regulatory mechanism to promote indigenous manufacturing of necessary medical devices and equipment as well as patient security. The government should also take all necessary steps to control the inflow of refurbished medical devices to protect the nascent domestic industry. Finally, price control of medical devices is even more lacking, except for a sole but critical one, the cardiac stent. While this is certainly vital to reduce households’ OOP expenditure for patients undergoing treatment for cardiac diseases, the regulatory mechanisms must be put in place to bring all key medical equipment under price control—imported or produced domestically—in order to drive down prices and eventually the OOP expenditure of households.

Notes

1 Registered under the Factories Act, 1948.

2 The CPC and ISIC are product and industrial activity classification systems developed by the United Nations, and are largely followed by the international community to produce globally comparable statistics.

3 Indian Trade Clarification based on Harmonized System of Coding Trade (ITCHS, 2007) is the eight-digit product classification system used in India to code trade data. The first six digits are equivalent to the HS 2007 system of trade classification developed by World Customs Organization (WCO) and an additional two digits fulfil the Indian requirement.

4 In the 20th meeting of the Standing Committee on Industrial Statistics (SCIS) of India, it has been decided that CPC (Version 2.1) would be implemented for collecting the data from ASI 2010–11 onwards. To fulfil this requirement, the Central Statistics Office–Industrial Statistics (CSO-IS) Wing has developed a new product classification system called the National Product Classification for Manufacturing Sector (NPCMS).

5 Estimated from the online WITS (World Integrated Trade Solution) Database, World Bank.

References

ASSOCHAM (2014): “Growth of Indian Medical Devices Industry Marred by Import–Export Anomaly: Study,” Associated Chambers of Commerce & Industry of India, 16 June, http://www.assocham.net/newsdetail.php?id=4548.

Chakravarthi, I (2013): “Medical Equipment Industry in India: Production, Procurement and Utilization,” Indian Journal of Public Health, Vol 57, No 4, pp 203–07.

Deloitte and Federation of Indian Chambers of Commerce and Industry (2011): “Indian Medical Electronics Industry, Outlook 2020,” http://ficci.in/spdocument/20210/FICCI-Deloitte-Th­o­ugh-paper-on-Medical-Electronics.pdf.

DoP (2015): “Recommendations of the Task Force on the Medical Devices Sector in India, 2015,” Department of Pharmaceuticals, Ministry of Chemicals and Fertilisers, Government of India, http://pharmaceuticals.gov.in/sites/default/fi­­les/MedicalDevicesSector_0.pdf.

Francis, Simon (2008): “Global Import Regulations for Pre-Owned (Used and Refurbished) Medical Devices” (Sixth Edition), United States Department of Commerce, International Trade Administration, Washington, DC.

ISEA (2010): “Current Status and Potential for Medical Electronics in India,” India Electronics and Semiconductor Association.

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P R Newswire (2018): “Global Refurbished Medical Imaging Equipment Market Is Expected to Grow with a CAGR of 13% over the Forecast Period of 2018–2024,” 11 December, https://www.prnewswire.com/news-releases/global-refurbished-medical-imag...­rket-is-expected-to-grow-with-a-cagr-of-13-o­­v­­­­­­­er-the-forecast-period-of-2018-­­­2024-300­­­763­­­6­­­79.html.

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Updated On : 13th Apr, 2019

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