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Panel asks govt to reduce GST, custom duty on components to support domestic manufacturing of medical devices

Gireesh Babu, New Delhi
Monday, February 12, 2024, 08:00 Hrs  [IST]

The Department-related Parliamentary Standing Committee on Chemicals and Fertilisers has recommended to the government to support domestic manufacturing of medical devices through reduction of Goods and Services Tax (GST), and short-tem custom duty concessions on the import of components and extension of Phased Manufacturing Programme (PMP) to more medical devices, in order to overcome the high import dependence in the sector.

The Committee, in its 50th report on Promotion of Medical Device Industry, observed that the promotional schemes of the Department of Pharmaceuticals has so far proved unproductive and it needs to aim at inter-ministerial and inter-governmental strategies for the implementation of the promotional schemes by offering manufacturers competitive advantage for manufacturing in India, so that it is more profitable to manufacture in India than to import the medical devices.

Discussing on the GST and customs duty structure for the sector, the Committee noted the domestic manufacturing disabilities such as high GST rates of around 12% to 18 % on domestically produced medical devices and low custom duty on imported finished medical devices in comparison to Basic Custom Duty on raw material, subparts, parts etc. have created a vicious circle of high dependence on imported medical devices. The Department of Revenue has, however, clarified that the reduction in GST rates creates an inverted duty structure and blockage of input tax credit.

The inverted duty structure occurring due to anomaly in the levying of Basic Custom Duty Rates has caused major disadvantage to domestic medical devices manufacturers as the cost of domestically produced items is higher in comparison to the imported item. In this regard, the DoP has introduced PMP, wherein the Department of Revenue has to increase the basic custom duty in a phased manner on the Medical X-Ray Machines and specified subassemblies/ parts/sub-parts.

In addition, based on industry requests and sufficient domestic manufacturing capacity, the Department has also requested the Department of Revenue to increase Basic Custom Duty on 40 finished products to protect the interest of the domestic manufacturers.

"The Committee are of the view that the medical devices sector is at a nascent stage of development and in order to promote private players investment, it is necessary to make the domestic products competitive, which require Government support in terms of reducing the GST rates for domestically produced medical devices considering international competition in export market and the ‘Make in India’ initiative," said the panel headed by Member of Parliament Dr Shashi Tharoor.

"Moreover, there is also a need to support the domestic manufacturers by giving them attractive custom duty concessions on the import of electronic components, metal compounds, plastics resins, reagents etc. used for manufacturing medical devices as a short term measure till the time the industry does not attain self-sufficiency in the manufacturing of raw material, subparts, parts, etc. The Committee further desires that the Phased Manufacturing Programme (PMP) may gradually be extended to other medical devices in a time-bound manner," it added.

India’s medical device industry manufacturing is limited to low to moderate-end medical devices like consumables, disposables and implants and there is a high import dependence to the extent of 70 per cent in the case of high-end medical devices like electronic equipment, advanced surgical instruments and IVD Reagents to meet our domestic requirements.

Various issues impeding the growth of the medical device industry include a miniscule investment in research and development, less tax concessions, problem of inverted duty structure for domestic manufacturers, low capital investment, long gestation period in the induction of new technology, lack of skilled manpower, less trained healthcare professionals, lack of industry academia collaboration and limited price and quality regulation etc., which need immediate attention of the Government, said the Panel.

The sector is growing at a fast pace and the market in the country is expected to grow to $50 billion by 2030. The import value of high-end technology medical devices, viz. surgical instruments, electronic equipment and In-Vitro Diagnostic Reagents during 2019-20 was $180 million, $3647 million and $527 million, respectively. Further, during 2022-23, the import value in these segments was increased to $210 million, $4,884 million and $767 million, respectively.

This is despite the fact that the Department in the year 2020 launched various schemes to promote the medical device industry like production linked incentives (PLI) and Promotion of Medical Device Parks, etc. Besides, during 2022-23, even the quantum of exports in these segments was only $72 million, $1,335 million and $191 million, respectively, which was far less than the imports during the year.

"In view of the foregoing, the Committee finds that the promotional schemes of the Department have so far proved unproductive," observed the Panel.

"Again, in view of the fact that it would be extremely difficult to sustain exports of medical devices in the absence of a strong and stable domestic medical device industry, the Committee impress upon the Government to make all out efforts to remove the bottlenecks for effective implementation of their promotional schemes. There is no denying the fact that India has a huge growth potential in the manufacturing of medical devices," it added.

 




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