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April 06, 2013

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Infrastructure Status To Healthcare - A Dawn Yet To Break!


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Infrastructure

India is world famous for the oldest forms of infrastructure. Harappa and Mohenjo-Daro are classic examples of how the country had innovative town planning even back then. We boast of the longest railway platform and the great Grand Canal Route.

Pandit Jawaharlal Nehru had enshrined our buildings, roads, bridges, dams, ports and railways as the modern temples of India. The world, as well as India, has come a long way in terms of development of infrastructure. However, despite being the second most populous country, we lag behind in healthcare.

Growing Population and Economy with Growing Healthcare Sector.


One of the drivers of growth in the healthcare sector is India’s booming population, currently approximately 1.1 billion and increasing at a rate of 2% per annum. By 2030, India is expected to surpass China as the world’s most populous nation. By 2050, the population is projected to reach 1.6 billion.

Another factor driving the growth of India's healthcare sector is a rise in both infectious and chronic degenerative diseases. While ailments such as chicken pox, polio, leprosy, MMR and neonatal tetanus will soon be eliminated, some communicable diseases once thought to be under control, such as dengue, viral hepatitis, tuberculosis, malaria, and pneumonia, have developed a stubborn resistance to drugs.

In addition to battling infectious diseases, India is grappling with the emergence of autoimmune diseases such as AIDS, HIV, type 1 and type 2 diabetes, hypo and hyper thyroidism, cancer, hypertension and many ailments of unknown origins. These are mainly attributed as lifestyle diseases. Over the next 5-10 years, lifestyle diseases are expected to grow at a faster rate than infectious diseases in India, and result in an increase in cost per treatment.

India's healthcare infrastructure growth is not keeping pace with its needs. Of the 20,000-odd known and accounted hospitals in India, about two-thirds are public. Most public health facilities provide only basic care. With a few exceptions in the Public Sector, such as AIIMS, public health facilities are inefficient, inadequately managed and staffed, and have poorly maintained medical equipment.

However, the total healthcare financing by the public sector is dwarfed by private sector spending. In 2003, fee-charging private companies accounted for 82% of India’s $30.5 billion expenditure on healthcare. This is an extremely high proportion by international standards. It is estimated that nearly 70% of all hospitals and 40% of hospital beds in the country are in the private sector. The major super specialty hospitals in the Private Sector Hospitals also give booming rise to medical tourism in India. To name a few, we have Apollo, Fortis, Wockhardt and Max Hospitals.

Health and medical insurance too haven't received the kind of impetus from the public sector and the private players are still struggling to cross over the long gestation periods to break even into making their organizations viable. This further goes to show that the government policies in this regard have been quite discouraging. Telemedicine is another area, which has tremendous potential and reach, but only a few private players in healthcare, in conjunction with ISRO, have promoted this line of treatment.

According to a joint study by the Confederation of Indian Industry and McKinsey, Indian medical tourism was estimated at $350 million in 2006 and has the potential to grow into a $2.2 billion industry by 2012. An estimated 200,000 medical tourists were treated at Indian facilities in 2004 (up from 10,000 just five years earlier), and the number has been growing at 25-30% annually. India has the potential to attract one million medical tourists each year, which could contribute $5 billion to the economy, according to the Confederation of Indian Industry. The Indian Medical Association of Great Britain too has decided to refer wait-listed patients to India for treatment.

Infrastructure Status-LARGE PICTURE?


While the above story calls for a lot of introspection by stakeholders and has so much potential for growth, our lawmakers have really not been charged up to meet the ever-growing challenges. India is a signatory to the Millenium Development Goals (MDGs). These goals, agreed to by a community of nations and international organizations in 1992 represent the most comprehensive and specific development goals ever agreed upon by the world. The importance of healthcare in the MDGs is highlighted by the fact that 3 out of 8 goals, 6 out of 21 targets and 18 out of 60 indicators pertain to healthcare.

Inspite of the significant demand-supply gap, healthcare projects in India are not seen as attractive now for investment. Return on capital employed (RoCE) for a hospital in India (5%) is much lower than other sectors of the economy like power (9.8%), telecom (13.7%), engineering and construction (18%).

RoCE in hospitals in India is also lower than those of Europe (about 9%), South Africa (about 10%) and South East Asia (about 6%). With poor healthcare financing mechanisms in India, the breakeven period for hospitals in India is also longer at around 3-5 years. Given these constraints, the private sector needs adequate incentives to enable them to make the huge investments needed to narrow the demand-supply gap. Additionally, equity funding for healthcare sector has not been upbeat.

Benefits of Infrastructure Status


Providing infrastructure status to healthcare would enable long-term funding from institutions such as IDFC at low rates of interest. Providing infrastructure status to healthcare would also exempt healthcare facilities from payment of service tax to commercial or industrial construction companies, reducing input costs of healthcare projects.

With quantitative easing in place in some major developed economies, capital is available in plenty in overseas markets. Healthcare companies can channelize this capital to projects in India through the ECB route. At this point, the ECB limit for hospitals is $100 million per year providing infrastructure status will raise this cap to $500 million per year.

Large Corporate Healthcare chains like Apollo Hospitals, Fortis Healthcare and Wockhardt Hospitals want the government to extend the tax holiday for new hospital projects from five years to 10 years. Healthcare projects in select non-urban areas that commence operations in the period April 1, 2008 to March 31, 2013 will enjoy a five-year tax holiday under a Section 80 IB as per Budget 2008. Infrastructure status to healthcare would enable them to enjoy a 10-year tax holiday under Section 80IA.

This is particularly important for the healthcare sector since the five year tax period is too little given the fact that hospital projects take 3-5 years to break even. One of the top hospital groups also wanted healthcare to be classified as an Industrial Undertaking for purposes of Section 72A of the I-Tax Act to enable hospitals to carry forward their tax losses upon mergers and amalgamations. This would promote consolidation in the healthcare industry. This is a good suggestion for expansion of this industry as a whole.

Budget Provisions 2012-2013- What does the Finance Minister Offer?


The new hospital with at least hundred beds was earlier eligible for the 100 per cent deduction for capital expenditure. This deduction has been stepped up to 150 per cent of the capital expenditure. However, this amendment will be effective from April 1, 2013.

    • At present, a deduction is allowed in respect of premium paid towards a health insurance policy for insurance of self, spouse and dependant children or any contribution made to the Central Government Health Scheme up to a maximum of Rs 15000 in aggregate. Interestingly, a further deduction of Rs 15000 is also allowed for buying a health insurance policy in respect of parents. This also includes any payment made by an assessee on account of preventive health check-up of self, spouse, dependant children or parents, not exceeding in the aggregate of Rs 5,000.
    • Notably, The Government increased funds allocation for National Rural Health Mission (NRHM) by 15 per cent to Rs 20,822 crore.
    • Also, the Government is modernizing existing units and setting up a new integrated vaccine near Chennai and plans to achieve vaccine security and keep the pressure on disease eradication and prevention.
    • The concessional rate of 5 per cent of basic customs duty is being extended to six life saving drugs/vaccines and the bulk drugs used in the manufacture of said drugs. Also, excise duty is fully exempted on these. These are used for the treatment or prevention of ailments such as HIV-AIDS, renal cancer etc.
    • The excise duty is being reduced to Nil on specified raw materials viz stainless steel tube and wire, cobalt chromium tube, Hayness Alloy-25 and polypropylene mesh required for manufacture of coronary stents/ coronary stent system and artificial heart valve on actual user basis.
    • Also, The excise duty is being reduced to 6 per cent on specified raw materials viz polypropylene, Stainless Steel Strip and stainless steel capillary tube for manufacture of syringe, needle, catheters and cannulae on actual user basis.
    • The full exemption from basic custom duty, CVD (Countervailing Duty) and SAD (Special Additional Duty) is being provided to specified raw materials viz stainless steel tube and wire, cobalt chromium tube, Hayness Alloy-25 and polypropylene mesh required for manufacture of coronary stents/ coronary stent system and artificial heart valve on actual user basis.
    • The basic customs duty is being reduced to 2.5 per cent along with 6 per cent CVD and Nil SAD on specified raw materials viz. polypropylene, stainless steel strip and stainless steel capillary tube for manufacture of syringe, needle, catheters and cannulae on actual user basis.

Conclusion


The Indian healthcare sector can be viewed as an hour glass slowly working. The government should encourage more reforms and provide more tax benefits and become the harbinger for taking world class super specialty healthcare to the poor and the needy simultaneously with the global population who choose India as the most preferred healthcare destination. This is a target and policy which would have unanimity with all political parties!

 

Disclaimer - This article is dedicated to the author's guru in healthcare and reflects her own research of published data and her views. It does not depict the views of Wockhardt Group.

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