Regulatory Shift

In March this year, the Indian Central Government and Niti Aayog, the government think tank, reached a consensus on a separate regulatory mechanism for medical devices, ending months of wrangling on this issue. Medical devices were largely unregulated in India until as recently as 2006, when the Central Drugs Standard Control Organization (CDSCO) first issued notification of 15 devices which would require compulsory registration. However, there remained no specific law for regulation of medical devices in India; rather oversight of medical devices occurs via a list of notified devices which are regulated as “drugs” under the Drugs and Cosmetics Act, 1940. The scope of this list was further widened in April 2020, and all medical devices sold in India are amenable to the same regulatory oversight as “drugs”. Additionally, medical devices will also be subject to the drug price control law. These are expected to be stopgap measures until such a time that the specific legislation for medical devices is finalized.

The medical device industry has been near unanimous in their opposition to being regulated as “drugs”, and have long advocated for a tailored regulatory mechanism. An archaic 80-year-old law originally meant for the regulation of “drugs and cosmetics” being the principal governing law for one of the fastest growing medical devices globally is an absurdity. The 4th largest market in Asia, (after Japan, China, and South Korea) India is ranked as the 20th major medical market globally. Worth USD 6 Billion, the Indian market accounted for more than 13% of the APAC medical devices market in 2019 and is expected to grow at a CAGR of 7.5% through 2025. The Indian government has recently taken several measures to spur domestic manufacturing – most prominently, allowing 100% automatic FDI into the sector, and setting up of “MedTech Parks”: dedicated industrial areas to encourage manufacturing at lower costs. According to data maintained by India Investment Grid, an initiative of the Department for Promotion of Industry and Internal Trade (DPIIT), the Indian healthcare sector (including pharmaceuticals, diagnostics, medical equipment and supplies) presents investment opportunities worth USD 1.12 Billion. Several states have committed to set-up dedicated industrial parks to boost domestic manufacturing at lower costs, and in late 2019, four Indian states received in-principle approvals to set up such parks.

Turning Crisis Into Opportunity

India is no stranger to the introduction of “big bang” reforms in times of crisis. Game-changing policies in India, from the Green Revolution to the 1991 liberalisation of the Indian economy, were driven by existing domestic crises. Prime Minister Narendra Modi said as much in his recent messages to businesses, exhorting the need to change crisis into an opportunity of “Atmanirbhar Bharat” or “self-reliant” India.

The Covid-19 pandemic has served as the much-needed impetus to the Prime Minister’s Office to shore up domestic manufacturing of medical devices. This in turn is expected to serve a dual purpose of bringing down costs and reducing India’s import dependency. India currently imports 80-90% of medical devices, a significant portion of which is unregulated for quality and safety. This is a huge impediment to both the country’s consumers, who suffer from a lack of adequate protections, as well as producers who are held back by the lack of incentives. Despite the government’s initiatives to encourage investment, FDI inflows into the sector have trickled down in recent years, and outdated policies, and regulatory hurdles are widely understood to be the major culprits. Our preliminary assessment of the proposed new law for medical devices indicates a focus on incentivizing innovation, improving the “ease of doing business”, and tightening approval timelines for medical devices in the country. The inclusion of top technical institutions of India, including the Indian Institutes of Technology (IITs) in the certification process is a significant step, as is the proposal that the oversight over medical devices will be carried out by a technical expert. In the absence of a patient protection law in India, these nuances are critical from the standpoint of boosting investor confidence. If properly implemented, these decisions would go a long way in setting benchmarks and safety guidelines, and cutting through reams of red tape, while adhering to global best practices.

The Way Forward

While the consensus on a separate law for medical devices was reached just before the complete magnitude of Covid-19 was unleashed, the timing couldn’t be more opportune. India is currently among the worst affected nations due to the pandemic, with the quintessential flattening of the curve still far away. The entire national healthcare ecosystem will need to be swiftly revamped:- from improving the quality of care, to the development of affordable treatment and devices, including ventilators, testing kits and PPE among others. While India has so far been able to successfully meet the immediate need of sufficient domestic PPE production, any long-term overhaul in the local production of medical devices will necessitate systemic long term changes. So far, efforts towards devising specific sectoral regulation for medical devices has been a bumpy journey, largely due to a lack of common ground among stakeholders. However, current circumstances dictate that the various entities involved simply have to pull up their sleeves and work in conjunction to push through comprehensive and effective regulatory oversight of this sector.

The challenges of doing business in India must be recognised as well. Lack of adequate infrastructure and logistics, concentrated supply chains, and high cost of finance have been some of the main roadblocks experienced by healthcare players in India. The landscape is complex, marked by the presence of a large number of high-level government bodies at the state and central levels. India’s per capita expenditure on health as a percent of GDP, at ~1.2% in 2019 is among the lowest in the world. The government’s focus on self-reliance dovetails neatly into the need to increased domestic production in the medical device sector. However, any such sweeping changes cannot happen overnight- and sustained financial as well as policy support from the government are indispensable. We therefore welcome the recent announcement of awarding production linked incentives for domestic manufacturing, which is slated to provide financing to the tune of USD 425 Million, and an additional USD 52 Million infrastructure financing in medical parks. Coupled with the upcoming new law for medical devices, this sets the field for a booster shot for domestic production in the Indian medical device industry. Having said that, the degree to which the government can harness potential into ground reality will depend on the final shape of the policies, and how adequately they address the concerns of the various stakeholders. This sector has experienced a huge amount of activity in a short span of a few months, and regardless of whether the Indian medical device reaches the projected growth figures, we expect both long and short term implications in the larger South Asian region.