While the government is soon expected to take a call on liberalizing foreign direct investment (FDI) policy for cash-starved medical devices sector, industry is playing safe and being cautious in its approach. Association of Indian Medical Device Industry (AIMED) clearly stressed that while they are enthused with this idea, the industry is open to this proposal only if 100 per cent FDI is specifically and only for manufacturing and not for trading.
Followed by the centre’s decision to ease FDI rules in defense and construction sector, serious consideration is also being given on opening up the medical device sector as well, for the same. Through this they aim to promote domestic manufacturing and boost investment and economic activity. However industry stalwarts warn that the government needs to seriously consider the pro and cons with the stakeholders first, before taking any action.
This fear stems from the fact that when 100 per cent FDI in medical device was permitted earlier, done with intent of manufacturing medical device in India, it backlashed on the industry. As sources point out that this was misused, as MNC’s instead took the opportunity to set up marketing organizations and warehouses throughout the country and factories.
Rajiv Nath, forum coordinator, AIMED stressed that FDI is welcome for green field project but it should not be for brown field projects. “What is more important is making manufacturing viable in India so that even Indian investors can invest in their field. There is need to review the FDI policy which allowed 100 per cent equity to put manufacturing unit for medical devices. Moreover, there needs to be a stipulation to ensure at least 60 per cent of the turnover would need to be from manufacturing operations in India,” he stressed.
He further pointed out that today there are hardly around total 750 medical devices companies in India, 150 of which have already closed down their manufacturing units due to non conducive market environment. Out of which, there are hardly 50 manufacturers in India with over Rs.50 crore turnover. By making 100 per cent auto approval for brown field investment, he fears, these battered surviving Indian manufacturers would be easy picking for MNC's.
For MNC’s wishing to do mainly trading i.e. over 40 per cent of turnover they should be allowed to put up subsidiaries with restrictive shareholding e.g. to 40 per cent as is case in insurance and branded retail sector and minimal 20 per cent shareholding for Indian public or Indian F.I’s.
He informed that while in Japan, Europe and ASEAN countries there is a thriving environment for small and medium size Industry, India is seemingly following the US model where the MNC’s are inadvertently being allowed to dominate and grow by mergers and acquisitions (M&As). This may ultimately harm the interests of Indian consumers.
“Consumers will be paying extra in absence of strong domestic players. Thus along with the ‘make in India’ campaign, we also need a ‘made by India’ campaign as well to thrive alongside. You can have investment in this industry if the government makes the environment conducive for manufacturing then the country will see investment at rapid rate,” Nath added.