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Hike in import duty on devices may decelerate Make in India initiative: MTaI

Shardul Nautiyal, Mumbai
Monday, November 14, 2016, 08:00 Hrs  [IST]

Against the backdrop of government abruptly increasing import duty on medical devices and equipment by 7.3 per cent, Medical Technology Association of India (MTaI) has recommended to the government that custom duty on medical devices could have been moderately increased to further the Make in India programme.

Citing the case of neighbouring countries which have a much lower custom duty regime, MTaI points out that this can lead to smuggling of low-bulk-high-value medical devices into the country.

Since the custom duty regime in the neighbouring countries like Nepal, Bangladesh, Sri Lanka, Bhutan, Pakistan and Maldives is now much lower than in India, the differential in duties created is likely to lead to the smuggling of many of these low-bulk-high-value devices. If that happens not only will the government lose revenue but also the patient will be beset with products without adequate legal and service guarantees.

MTaI is an association of research based medical technology companies. The founding member companies include Johnson & Johnson, Bausch & Lomb, Smith & Nephew, C R Bard, Terumo, Boston Scientific and Vygon.

The recommendation comes in the wake of a steep custom duty increase slapped on almost all sub-sectors/product categories of the medical technology sector irrespective of level or possibility of import substitution in the near term.

Government has increased the import duty on medical devices and equipment by 7.3 per cent. Since most of the items affected were falling in the 11.6 per cent range which has now gone to 18.9 per cent implying an effective duty increase of 62.7 per cent.

Says Pavan Choudary, director general, MtaI, "A micro analysis of the sub sectors needs to be done. Wherever import substitution of an acceptable quality level is not on the anvil, a duty roll back to previous levels should be made. Where such substitution can happen duties can be kept at the levels where they are, since they have had a disproportionately high climb this year, and these can be then gradually increased after a couple of years provided the duty level does not go way beyond what is there in neighboring countries and quality deficient manufacture doesn’t find their way in to the market."

According to the recommendation sent by MTaI to the government of India, “Import duties could indeed have been moderately increased to further the Make in India programme for those sub sectors or product categories where a high level of import substitution of an acceptable quality has been obtained or can be obtained quickly”.

The recommendation presented also underlines the factors which have promoted indigenous manufacture of medical devices in countries like Ireland, Switzerland, Puerto Rico which follow a good taxation policy (corporate tax). Besides this, all these three countries have a nil duty on medical devices. Factors like a good work force in a country like Great Britain and access to a large market size in the US are other encouraging factors for medical device sector. Similar is the case with Germany where market size, accent, proximity to large markets and a heritage of well-developed technological eco-systems are other advantageous factors. Singapore has the advantage of geographical locations, accent, highly developed infrastructure and logistical capability which has helped the country emerge as distribution hub. Besides this, a country like Israel is leading in research and development of medical devices and local low cost advantage as a predominating factor attributed to a country like Mexico.

When we look at these factors, one concludes that it will be a process of incentivization, R&D, skill development, greater health expenditure and better insurance coverage, which will benefit the cause of Make in India rather than custom duty increase. Custom duties for most part are only increasing the burden on the patient, stated MTaI in its recommendation to the government.

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