Budget draws cheers from medical equipment industry

Rita Dutta - Mumbai

The Rs 1,800 crore medical equipment market is all agog with excitement and reveling in jubilation because of the sops announced by Finance Minister Jaswant Singh in his maiden budget. The industry which was reeling under a high excise and customs duty and the Pre Natal Diagnostic Test Act which dipped the sale of ultrasonography machines, is expected to get a big push with “the best budget so far.”

The incentives given are the reduction of customs duty on specific life-saving equipment from 25 per cent to five percent and exemption of CVD (life saving equipment) for these equipment. In respect of life saving equipment already exempt from CVD, it is proposed to exempt them from excise duty as well, so as to encourage indigenous manufacturers.

According to J V Vaidya, vice-chairman of medical equipment division of Confederation of Indian Industry (CII), jt genreal manager and head of strategic business unit, L& T, Mumbai, “The budget did meet CII’s expectations. Most CII members are satisfied with the budget proposals.” The medical equipment division of CII has been pressing for changes in the tax structure knocking the doors of Jaswant Singh to Shatrughan Sinha to V P Singh, as the 2002-03 budget increased the duty from 19 to 40 per cent for equipment like patient monitor, CT Scan and analysers. The pre-budget memorandum submitted to the department of revenue, ministry of finance included proposals that the government waive off excise duty and customs duty on life-saving medical equipment and reagents, recognise healthcare as an infrastructure and simplify procedures for purchase of imported spare parts and return of defective equipment or parts. Jaswant Singh relented to a few.

Experts say that the extension of 10(23 G) of IT act to above 100 bed hospitals implies the income earned by financial institutions by way of interest on loans to such hospitals would not attract any tax now. Hence funds would be available at lower costs to the hospitals thus encouraging investment in this sector. According to Anjan Bose, chairman, CII, and managing director Datex-Ohmeda, Delhi, “The loosening of purse strings of financial institutes, would result in newer hospitals and expansion of hospital, which would turn give a fillip to purchase of medical equipment.”

At any given point of time a hospital invests around 30-40 per cent of its budget on healthcare. The increase in rate of depreciation from 15 to 40 per cent would also lead in faster ownership of the equipment and fast disposal of the equipment and hence more equipment purchase, he added. However, speculation are on whether the hospitals would pass on the benefit to the patient. According to medical equipment experts and M D of Technicon, Dhanraj Chandriani, “The hospital must pass on the benefits, but they are not bound to.”

Experts say that in the short run the patients may not get any benefit in terms of costs for diagnostic charges since there will already be a large installed base of CTs, MRIs etc. However in the long run, investment in these expensive equipment will be higher, due to reduced payback period for new projects. A few experts complain that the budget has been more favourable to the MNCs with the reduction of customs duty. Admits Rohit Mehta, Senior DGM, Head, Medical Equipment and Systems, Larsen and Toubro Limited, Mysore, “Though the budget has been more favourable towards the MNCs, the domestic manufacturers may gain due to expansion of the market due to the higher investment that the healthcare industry may now draw.”

Experts are also unhappy with the extension of service tax of eight per cent annual maintenance charge for hospital equipment. “The service tax will increase the operating costs of the hospitals and even discourage them for going n for maintenance contracts. This will only result in poorly maintained equipment and therefore lower service levels to the patient. All such contracts should be exempt from service tax,” says Mehta.

Analysts predict that the medical equipment industry which was growing at a rate of 15 per cent annually, would now grow at a faster pace. “We would be able to assess the growth only after six months. But according to estimates it might be 20-25 per cent annually,” said Bose. The boost would create employment opportunity in hospital and medical equipment sector.

For the unfulfilled demands, the CII would be still pursuing the matter further. “It is also hopeful that progressively the duty structure would be aligned and further rationalized. One or two omissions, however, such as PET scanners and linear accelerators, covering the entire required range in life saving are being pointed out,” says Vaidya.

For changing the policy for return of defective equipment, the CII is going to pursue the matter with the import and export policy which would be declared in April 1. The other issue which needs to be addressed according to Mehta is “a rampant import of second hand refurbished machines, this is hurting the manufacturers. This is an area of revenue leakage for the government.”