The announcements in the Union Budget 2020 for the pharma and healthcare space seem to centre more on the healthcare delivery space. The medical devices sector, which has been reeling under pressure as the post-GST regime made imported medical devices cheaper by 10-11 percent, has received some relief.

Currently, India imports over 70 percent of its medical devices with a fourth of them from the US. Medical device imports rose 24 percent YoY in 2018-19.

The FM announced a scheme that will help in the production of medical devices. The scheme is expected to be a part of an initiative to manufacture mobile phones and equipment. Additionally, the government will be imposing a 5 percent health cess on imports of medical devices. The proceeds are expected to be used for building health infrastructure in aspirational districts. The government will begin with those districts that do not have an Ayushman Bharat hospital.

Health cess

While the impetus towards medical devices is positive with the health cess which will help expand the market, the industry is awaiting more details of the scheme and which medical devices will benefit since it is a large space. From the listed space, Poly Medicure with a market cap of Rs 2300 crore that manufactures medical devices for therapies from oncology to dialysis is expected to benefit.

Talking about healthcare delivery, a few measures are focused on hospitals. The budget mentioned that there are 20,000 hospitals under the flagship healthcare scheme Ayushman Bharat, but there is a need for more hospitals in Tier 2 and Tier 3 cities. The budget proposed setting up viability gap funding for hospitals in public-private partnership (PPP) mode. Viability gap funding will also be provided on the proposal of attaching a medical college to a hospital under PPP. While the scheme is expected to be a long term positive for hospitals current asks such as low rate of procedures still have to be addressed, say analysts.

The head of a private hospital, speaking on condition of anonymity, expressed reservation to PPP arrangements as they come with a lot of strings attached and one would rather concentrate on building their current hospitals. A bigger problem for hospitals is doctor shortage and the focus should be on training more doctors.

Other proposals from the budget included expanding the Jan Aushadhi scheme. The scheme, which was relaunched in 2015 by the government, currently has around 5000 stores. The aim of Jan Aushadhi stores is to provide quality generic medicines at cheaper than market prices.

While the prospect of expanding the availability of significantly cheaper drugs would be daunting for India-focused pharma companies, the street seemed unaffected. The reason being, the scheme, according to pharma company heads who spoke on condition of anonymity, has not made enough of a dent to begin with. Some reasons for that include the fear of quality of drugs available and the already low prices of drugs due to price control and high competition.

To encourage innovation and R&D in medicines, the budget also mentioned setting up two National Science Schemes for the genetic database. This is expected to be used for drug innovation and would be more of a new economy initiative, a long term positive to encourage R&D. ​