India’s Medical Devices Industry: Choosing an Investment Model

By Samuel Wrest and Melissa Cyrill

Foreign business now have more freedom to invest in India’s medical devices industry than ever before.

In 2015, India’s medical devices industry was opened up to 100 percent foreign direct investment (FDI) via the automatic route. But the scope for investments was restricted by the narrow definition of medical devices in the Drugs and Cosmetics Act, 1940.

This year, the government clarified that medical devices will no longer be defined by the Act and widened the range of items defined as ‘medical devices’ in the FDI Policy. These two measures greatly expand the scope for FDI into India’s medical devices industry.

India presents an attractive market opportunity for global medical device manufacturers, but the country has never been able to fully tap into its potential as a domestic manufacturing base. Despite having a medical device market that ranks in the world’s top 20, the industry has a long history of being under-resourced.

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Foreign companies looking at India’s domestic medical device industry should, however, be careful when planning their entry strategy. The type of entity a firm selects, and the state they choose to locate it in, is influential, and a thorough understanding of the industry’s various regulations is absolutely necessary.

Foreign direct investment

When foreign entities invest in India, their investment will go through one of two FDI routes, which affects the amount they are able to invest and the investment timeline. The two routes are:

• The government route – For investment in business sectors requiring prior approval from the concerned federal ministry or department, and
• The automatic route – For investment in business sectors that do not require prior approval from the government.

Meanwhile, the list of medical devices that can now attract FDI are as follows:

• Any instrument, apparatus, appliance, implant, material or other articles, whether used alone or in combination, plus any software tool, intended by its manufacturer to be used especially for human beings or animals for diagnosis, prevention, monitoring, treatment or alleviation of any disease or disorder.
• Any product or software that will assist diagnosis, monitoring, treatment, alleviation of, or assistance for, any injury or handicap, investigation, replacement or modification or support of the anatomy or a physiological process, supporting or sustaining life; disinfection of medical devices, control of conception and which does not achieve its primary intended action in or on the human body or animals by any pharmacological or immunological or metabolic means, but which may be assisted in its intended function by such means will now be considered as medical device irrespective of its status in the eyes of the drug regulator.
• Any accessories to such instruments, apparatus, appliance, material or other articles, a device which is reagent, reagent product, calibrator, control material, kit, instrument, apparatus, equipment or system, whether used alone or in combination, intended to be used for examination and providing information for medical or diagnostic purposes by means of in-vitro examination of specimens derived from the human body or animals.

Although the changes in FDI policy will go some way to improve the sector, there are a number of other problems that could deter foreign investors from manufacturing in India. High tax rates imposed on domestic manufacturers have made investment unappealing to some foreign companies, especially given the comparatively low amount of tax levied on imported medical goods.

It is, therefore, hardly surprising that foreign firms often choose to access India’s medical market without establishing a direct presence – many companies establish factories in neighboring China and export devices into India.

Importing into India

Accessing India’s medical devices industry through an indirect route remains attractive to foreign firms. India is heavily reliant on foreign imports: over 80 percent of its medical devices and equipment are outsourced from other countries, particularly from the U.S.

Medical device companies that have already been approved in the U.S., Europe, Canada, Japan, or Australia are able to legally sell in India. Prior to starting the import process, firms must prepare and submit a technical dossier: documents that clearly detail the type of devices intended for import and their associated risks.

Devices with higher levels of risk to patients, and which necessitate greater control for safe use, will require a longer dossier and will further be subject to stricter checks. Should the dossier be found to lack all relevant information, it will likely be rejected.

If a company does not have a branch office in India, it will have to contract an importer that possesses a valid import license. Doing so is often a difficult process for companies that have not sourced a consultant, and should not be completed without first conducting a thorough due diligence of the prospective candidate.  

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Local regulations

Whether a foreign business intends to invest in India, or import into India, it will need to take time and patience to navigate the Drugs and Cosmetics Act, 1940, the Drugs and Cosmetics Rules, 1945, and the Medical Device Rules, 2017.

A peculiar feature of the Indian medical device industry, historically, has been that it was largely unregulated, aside from certain types of medical devices. The Medical Device Rules, 2017, which came into effect on January 1, 2018, should fill this legislative void. 

There are, however, plenty of other regulatory challenges that require diligence from multinational businesses. Certain medical devices in India are subject to additional scrutiny:  “Notified Medical Devices” are governed by the Drugs and Cosmetics Act, 1940 and the Drugs and Cosmetics Rules, 1945. From January 1, 2018, they will also be subject to the Legal Metrology (Packaged Commodities) Rules, 2011 – they were previously exempt from this compliance.

These Notified Medical Devices are overseen by the federal government and state governments, and require licenses or permissions for the manufacture, import, distribution, and sale of medical devices.

The list of Notified Medical Devices are as follows:

• Disposable Hypodermic Syringes;
• Disposable Hypodermic Needles;
• Disposable Perfusion Sets;
• In vitro Diagnostic Devices for HIV, HBsAg, and HCV;
• Cardiac Stents;
• Drug Eluting Stents;
• Catheters;
• Intra Ocular Lenses;
• V. Cannulae;
• Bone Cements;
• Heart Valves;
• Scalp Vein Set;
• Orthopedic Implants;
• Internal Prosthetic replacements; and,
• Ablation Devices.

In addition, the following substances are regulated as “Drugs” under the Drugs and Cosmetics Act, 1940 and administering Rules, 1945:

• Blood Grouping Sera;
• Skin Ligatures, Sutures, and Staplers;
• Intra-uterine devices (Cu-T);
• Condoms;
• Tubal Rings;
• Surgical Dressings;
• Umbilical Tapes; and,
• Blood/ Blood Component Bags.

India’s domestic market 

The global size of the medical devices sector is predicted to reach US$400 billion this year. However, India – a key player in the global pharmaceuticals industry, under which medical devices used to be covered – is underperforming.

Medical devices in India hold a market share worth US$5.2 billion presently, contributing around 4 to 5 percent to the US$96.7 billion healthcare industry in the country. India has about 750–800 medical device manufacturers, with an average investment of US$2.7 to 3.1 million (Rs 170 to 200 million) and an average turnover of US$7.09 to 7.87 million (Rs 450 to 500 million).

Despite such figures, India’s medical devices sector is expected to see unprecedented growth over the next decade. By 2025, the industry is projected to be worth US$50 billion. This can be attributed to the country’s growing middle class, an increase in the number of hospitals, and, consequently, a greater need for sophisticated medical devices and better healthcare.

(Editor’s Note: This article was originally published in January 2015, and has been updated to include the latest legal and regulatory developments.)

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