The healthcare service sector in the country has sought clarification on the Union Budget recommendation on the rural expansion policy. Since the definition of 'rural area' remains ambiguous the sector is confused over the tax exemption announced for hospitals set up in the rural area.

Union Finance Minister P Chidambaram in the Budget had announced benefits under Section 80 IB for private parties willing to invest in 100 bed hospitals in rural areas and such hospitals will receive 100 per cent exemption on profits for a period of five years.

However, the private hospitals are confused over the definition of a rural area, which the government has not specified in the budget. Does a rural region confine to the limits of a fixed number of population and low standards of living of its people? Could a semi-urban or a district be considered rural under the current scheme?

According to P N Shah, a well-known chartered accountant in Mumbai, the legal definition of a 'rural' region is a place completely cut-off from the city, with a population of less than 10,000. "If the government is referring to the same definition, then it will be absolutely unviable for private players to set up hospitals in a region with such a miniscule population. Hospitals need to be encouraged in places with a substantial population that can afford quality healthcare," said Shah.

Most of the private hospitals, which spoke to Pharmabiz, were of the opinion that if the government extends the same benefit to a semi-urban or a district, then the response from investors will be even better.

"We would like to know what the government exactly means by 'rural.' No private city will be interested in setting up 100 beds in remote regions with population less than 10,000. It takes Rs. 18-20 crore for a corporate to set up a 70-bed hospital. If the project has to be viable, the government should extend the scheme to semi-urban and district levels, with a population ranging from 1-5 lakh," said Dr. Lloyd Nazareth, general manager, Wockhardt Hospital. Once built, these hospitals would be able to provide good primary and secondary services with effective referral system with city-based hospitals, he added.

Apart from population, number of healthcare institutes in a region also determines the viability of a project, according to K Ravichandran, general manager, Projects at Apollo Hospitals. "We could put up a viable hospital in a non-urban region even with a minimum population of 50,000 to one lakh, provided the region should be devoid of any quality healthcare centre. On the other hand, there is no point in setting up a project in a place with a population of more than five lakh, if there are several institutions providing healthcare services to its populace," he said.

The private company has to recover expenses involved in latest hospital and medical equipments, human resources, compliance of good practices etc, which it will not be able to reclaim from the rural poor, under the present budgetary allowances, said Niranjan Hiranandani, MD, Hiranandani Group, a major Mumbai-based construction company. The government has to make the matter more clear, he said.