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Indian Medical Device Industry: Legal and Tax Overview

calendar16 Feb, 2023
timeReading Time: 12 Minutes
Indian Medical Device Industry: Legal and Tax Overview

Drugs, vaccines, and medical devices are the three essential industrial foundations of contemporary healthcare technology systems. Bandages and syringes to complex gadgets using bioinformatics, nanotechnology, engineered cells, and artificial intelligence are all examples of medical devices. These are made to be used by professionals, patients, and health experts people in a range of locations, including clinics, surgeries, and private residences. MNCs with a 90% market share dominated the Indian medical device industry in the 1960s. Following the government’s takeover in 1970 with the passage of the Indian Patent Act and the Drug Price Control Order, Indian businesses began to emerge. After the ‘Make in India’ programme, a government initiative that was introduced in 2014, the medical device industry in India gained independence.

India has achieved considerable strides in building its domestic pharmaceutical and biotechnology industries over the past few decades, mostly because of coordinated governmental policy measures and encouraging institutions. The Indian healthcare sector has grown to be one of India’s top industries in terms of both income and employment, with an estimated $370 billion in sales by 2024–2025, up from $190 billion in 2020, according to the India Brand Equity Foundation.

The COVID-19 pandemic’s effects on India serve as a reminder of the value of making investments in the healthcare industry. Healthcare spending in India is expected to rise significantly over the next years, according to industry analysts, in part due to the lessons gained from the epidemic. With a particular focus on poor communities, the Indian government has proposed raising public expenditure on healthcare from its current level of barely 1.2% of GDP to 2.5 per cent by 2025. The medical equipment market is expected to rise in lock step with rising healthcare spending in India.

Different Segments of Medical Devices – Indian Medical Device Industry

Based on the kinds of devices produced, the Indian medical device industry is divided into following segments:

  1. Equipment and instruments: These make up a substantial portion of the market share and include things like therapeutic breathing equipment, dental items, medical and surgical sterilisers, and ophthalmic tools.
  2. Diagnostic imaging: This market sector ranks second overall in terms of market share and includes items like electro-diagnostic equipment, radiation equipment, and imaging components and accessories.
  3. Patient aids: Wheelchairs, portable aids, orthopaedic and prosthetic devices, and hospital furnishings are the mainstays of this market category, which accounts for a tiny portion of the overall market share.
  4. Consumables and implants: These are items that are injected or used internally by the patient, such as syringes, needles, catheters, bandages, suturing supplies, etc. These items control a portion of the market share overall.

Evolution of Medical Devices in India – Indian Medical Device Industry

Since India’s independence in 1947, the development of the Indian medical device industry has been examined via the regulatory, industrial, S&T, and healthcare policies. There have been four significant eras.

  • 1947 – 1991: From Independence to the Pre – Liberalization Era

Since independence and before the pre-liberalization era, the major goal of industrial strategies has been self-reliance. With the exception of ‘lifesaving’ items, which may be imported duty-free, medical devices were subject to tariffs of 40% to 60%. The domestic market for medical equipment was quite tiny in the early 1990s. It was projected to be worth INR 1.76 billion (in 1999-2000), of which 15% was imported.

Pharmaceuticals are governed in India under the Drugs and Cosmetics (D&C) Act of 1940, and the D&C Rules, 1945. Disposable syringes, needles, and perfusion sets were officially declared to constitute pharmaceuticals under the Act by the government in 1989.

The standards for other devices were established by the Bureau of Indian Standards, which is part of the Ministry of Consumer Affairs, Food & Public Distribution.

  • Post-Liberalisation Era: 1991 – 2005

The economic liberalisation measures adopted by India after 1991 altered the relative functions of the public and private sectors. Medical device imports no longer require a licence, and import duties are now between 15% and 30%. In 1995, the market for medical devices was worth $680 million and was expanding at a rate of 15% to 20% annually. Imports from the US climbed by 19% between 1994 and 1996, accounting for nearly 40% of the market for medical devices. Additionally, the growing involvement of the private sector in the delivery of healthcare greatly raised the demand for medical equipment.

To govern the manufacturing and import of medical equipment, Schedule MIII was inserted into the D & C (2nd Amendment) Rules of 1994.

  • 2005 – 2014

The National Health Mission was established in 2005 with the goal of reducing healthcare access inequities by giving more money to the states to broaden the scope of its programmes.

Ten medical devices were included under the scope of the D&C Act in June 2005, including cardiac stents, drug-eluting stents, catheters, intraocular lenses, I.V. cannulas, bone cement, heart valves, scalp vein sets, orthopaedic sets, orthopaedic implants, and internal prosthetic replacements. Additionally, the D&C Act and Rules treated blood or blood component bags, blood grouping sera, ligatures, including sutures and staplers, intra uterine devices, condoms, tubal rings, surgical dressings, and umbilical tapes as pharmaceuticals.

More than 25 MNCs were granted permission to import medical products through their subsidiaries in 2007. Electronic medical device policy was outlined in the National Policy on Electronics, published in 2012. Collaborations with international donors, including the Wellcome Trust and Department of Biotechnology (DBT), to create the “Affordable Healthcare Initiative” furthered these programmes.

  • 2015 onwards

The “Make in India” campaign was introduced in 2014. It named the sector of medical devices as a major one. The same year, the Ministry of Chemicals and Fertilizers’ Department of Pharmaceuticals established a multi-stakeholder task group to address issues and offer policy suggestions for the reasonably priced production of secure and effective medical devices.

Schedule MIII for medical devices under the D&C Act of 1940 was changed and separated from Schedule M for medicines in January 2015. This confirmed that the Quality Management System for the manufacturing and import of medical equipment, ISO 13485, is in conformity. Additionally, both greenfield and brownfield medical device enterprises were eligible for 100% FDI through the automated route. The government has also taken steps to develop a manufacturing infrastructure for medical devices. Three industrial parks were intended to be built by the government for Gujarat, Maharashtra, and Andhra Pradesh in 2015. In 2016, the Andhra Pradesh MedTech Zone (AMTZ) was created. The Department of Biotechnology provided money in 2017 for the establishment of the Kalam Institute of Health Technology (KIHT) at AMTZ.

A $125 million deal was inked in 2018 between the Indian government and the World Bank to assist India in creating a cutting-edge biopharmaceutical and medical device sector.

The National Policy on Electronics, 2019, also included many plans to aid in the production of electronic medical equipment.

A required quality certification system for medical devices supplied in India didn’t exist until 2016. A voluntary quality certification programme for medical devices called Indian Certification for Medical Devices was launched by the Association of Indian Medical Device Industry (AIMED) in conjunction with the National Accreditation Board for Certification Bodies (NABCB) under the Quality Council of India to fill the regulatory gap.

The much-needed regulatory framework for medical devices was made available with the introduction of the Medical Device Rules of 2017. These regulations become operative on January 1st, 2018. For the first time, regulations particularly addressing the production and import of medical equipment were released as a result of this endeavour. The new Rules were developed in accordance with the Global Harmonisation Task Force (GHTF) framework, which divides devices into four categories (A, B, C, and D) based on the level of danger they pose, from low risk to high risk. The Rules were revised in February 2020, adding 14 more devices for a total of 37 devices must be registered.

Regulatory authorities for medical devices in India

Medical Device Regulation, which were established by the Indian government to control the production and marketing of Indian medical device industry, is governed by the following bodies:

  1. Central Drug Standards Control Organization: The primary authority in charge of regulating drugs and medical equipment
  2. In India, the CDSCO’s most important representative is the Drug Controller General.
  3. The manufacturing, import, sales, and distribution of medical equipment are governed by the Drugs & Cosmetic Act and Rules.

Legal framework applicable to the Indian Medical Device Industry

Indian medical device industry is controlled and regulated by the legal framework:

  • Drugs and Cosmetics Act of 1945 and Rules (DCA)

The act controls the production, importation, distribution, and sale of medications (including medical equipment) and cosmetics. With that it also set rules for products and labels and controls drug advertisements

  • Medical Devices Rules of 2017 (MDR)

It serves as India’s main regulatory framework for medical devices and is issued under the DCA. On February 11, 2020, the Ministry of Health & Family Welfare (the “Health Ministry”) released a notice that essentially subjected all medical devices in India to MDR regulation.

Specific equipment intended for internal or exterior use in the diagnosis, treatment, mitigation/prevention of disease or disorder in humans or animals that are periodically reported by the government under the DCA are governed by the MDR as medical devices. The government notifies some compounds under the DCA that are intended to alter the structure or any function of the human body. The substances that have currently been notified are surgical dressings, surgical sutures, surgical bandages, surgical staples, ligatures, blood & blood component collection bags with or without anticoagulant, and substances used for in vitro diagnosis. Mechanical contraceptives (such as condoms, intrauterine devices and tubal rings), insecticides, and disinfectants have also been notified.

  • The Legal Metrology (Packaged Commodity) Rules of 2011

The Legal Metrology Act of 2009[1] was notified, which governs the packaging and labelling of pre-packaged goods in India.

  • The Drugs & Magic Remedies (Objectionable Advertisements) Act of 1954

Regulates drug ads for the diagnosis, cure, mitigation, treatment, and prevention of specific prescribed illnesses and disorders. AIDS, Asthma, Cancer, and other diseases and conditions are some of the examples.

  • Indian Patent Act of 1970

The act talks about the mandatory licencing and the control of ever-greening. Under the act patent is given for a period of 20 years for a new product or a process that involves an inventive step and capable of industrial application.  It grants the owner an exclusive right and forbids others from using the patented innovation in their products or processes or from manufacturing, marketing, or importing them without the inventor’s consent.

  • Trade Marks Act of 1999

A trademark can be a word, sign, symbol, or even graphic applied to a company’s goods or services to distinguish them from competitors. Under the act registered marks are given the protection from being copied. Under the act, trademark registration is valid for a period of 10 years. In case of infringement, the owner can claim his rights thought passing of lawsuit.

  • Indian Medical Council (Professional Conduct, Etiquette & Ethics) Regulations of 2002 (MCI Code)

Controls the professional conduct of licenced medical professionals in India. The code prohibits qualified medical professionals from accepting gifts from the pharmaceutical or allied healthcare sector or their sales representatives and from publicly endorsing any drugs or products.

Makes suggestions to organisations (like hospitals) on the unethical nature of patient soliciting. Over and beyond any other civil or criminal action that may occur under applicable law, a violation of the MCI Code may constitute professional misconduct and result in penalties and includes permanent disqualification from practising.

  • Drugs Price Control Order of 1995 (DPCO)

Controls the cost of notified medical equipment, formulations, and regulated bulk pharmaceuticals.

It also controls the margins given to merchants and dealers. Imposes a need to sell notified medical devices, formulations, and bulk pharmaceuticals to consumers and dealers.

  • Uniform Code for Pharmaceutical Marketing Practices (UCPMP)

Regulates the pharmaceutical industry’s marketing methods. It Establishes criteria for comparing products in a competitive market. Specifies that any exchange of presents during a promotion is prohibited. This is a voluntary rule, but non-compliance with it might cause it to become law.  Manufacturers or distributors require prior approval from the Indian Drugs Controller General for promotion. Promotion must be truthful, unbiased, verifiable, and not deceptive.

  • Information Technology Act of 2000 (IT Act) and Information Technology (Reasonable security practices & procedures & sensitive personal data or information) Rules of 2011 (Data Protection Rules)

Imposes responsibility for negligence in the implementation and upkeep of adequate security and procedures for the securitization of such data on the body corporate or person handling such sensitive personal data or information, if such carelessness results in unjust gain or loss to any person.

Penalises the disclosure of personal data to a third party without the owner’s consent, in violation of a valid contract, and with the aim or knowledge that the revelation may result in unjust gain or wrongful loss.

Technology Information (Reasonable security practises and procedures and sensitive personal data/information) Sensitive personal data/information is defined by Rules, 2011 to include medical records and histories, as well as personal data pertaining to physical, physiological, and mental health conditions. Impose certain requirements on corporate bodies dealing with sensitive personal data or information and personal information. Violation of Data Privacy Rules may result in penalties under the IT Act.

  • National List of Essential Medicines (NLEM)

The Ministry of Health & Family Welfare (MoHFW) released a list. Each medication or medical gadget on the list is regarded as necessary, and it is offered or made available at a reasonable price with guaranteed quality. The most recent list, which was released in 2022.

Initiatives being taken by the Government

The following initiatives are taken by the Central government to promote the Indian medical device industry:

  • Through programmes like Make in India, the creation of medical device parks, and testing labs, the Indian government has supported the production of gadgets. To control Notified Medical Devices, the Indian government has established the Medical Device Regulation.
  • With a focus on 100% FDI for medical devices to expand the market, the Government of India has started a number of efforts to enhance the medical devices sector.
  • The National Medical Devices Promotion Council (NMDPC) was reconstituted by the Department of Pharmaceuticals in August 2022, with the Secretary of the Department of Pharmaceuticals serving as its chairman.
  • To guarantee and provide comprehensive legal safeguards to ensure that the medical products marketed in India are dependable, effective, and up to needed standards, the government introduced a draught of the new Drugs, Medical Devices, and Cosmetics Bill 2022 in July 2022.
  • The Union Budget 2022–23 had a budget of Rupees. 86,200 crore (US$ 11.3 billion) for the pharmaceutical and healthcare industry.
  • To boost the acceptance of Indian medical products in the international market, the government announced plans to create a New Medicines, Cosmetics, and Medical Devices Bill in October 2021.
  • The government stated in October 2021 that 13 businesses had been given the go-ahead under the PLI plan for medical equipment, which is anticipated to increase domestic production in the nation.
  • In September 2021, the government approved a plan to build a medical devices park in Himachal Pradesh’s industrial township of Nalagarh in the Solan district for a cost of Rs. 5,000 crore (US$ 674.36 million). A medical devices park in Oragadam, Tamil Nadu, which the government authorised in September 2021, is anticipated to provide direct and indirect employment for 10,000 people.
  • To conduct verification of the quality, safety, and efficacy of medical devices, the Quality Council of India (QCI) & the Association of Indian Manufacturers of Medical Devices (AiMeD) introduced the Indian Certification of Medical Devices (ICMED) Plus programme in June 2021.
  • The department of pharmaceuticals introduced a PLI plan for domestic production of medical devices, with a total expenditure of funds of INR 3,420 crore for the period FY 2021 – 2028, in order to increase domestic manufacturing of medical devices and attract significant investments in India.
  • About 300 global buyers from the healthcare industry attended the Medical Devices Virtual Expo 2021, which featured Indian goods and allowed for direct communication between Indian suppliers & buyers/importers from participating nations.
  • On March 25, 2021, the Department of Pharmaceuticals released an updated notice on the Public Procurement Order (PPO) that included 19 medical devices in the updated PPO guidelines. This is expected to improve domestic medical device manufacturing (and support “Make in India”) and lower import costs by INR 4,000 crore (US$ 538.62 million).
  • In April 2021, the government made it simpler to import essential medical devices by relaxing the procedures for clearance under the Legal Metrology Act (Packaging Rules 2011). Examples of these medical devices include nebulizers, oxygen concentrators, and oxygen canisters.  
  • About 300 global buyers from the healthcare industry attended the Medical Devices Virtual Expo 2021, which featured Indian goods and allowed for direct communication between Indian suppliers & buyers/importers from participating nations.

Along with the above initiatives the Ministry of Health and Family Welfare (MoHFW) & Central Drugs Standard Control Organization (CDSCO) adopted the following steps to enhance the export of medical devices in the nation:

  1. A review and application of Schedule MIII (a draught guidance on good manufacturing practises and facility requirements)
  2. Export labelling system
  3. Clarification of clinical assessment and adverse reporting
  4. The state licencing authority will increase the validity of free sales certificates from two to five years in order to permit exports.
  5. Compile a list of export-licensed producers for quick access to regulatory bodies throughout the world.

Factors that drive the growth of Indian medical device industry

Mentioned below is the list of factors that drive the growth of the Indian medical device industry:

  1. Increased population
  2. The population is getting older
  3. A rise in the prevalence of chronic illnesses
  4. Increasing patient advantages from health insurance.
  5. International travellers seeking medical treatment.
  6. Rapidly increasing need for healthcare infrastructure.
  7. Indian hospitals have followed international quality norms.

Tax policies for medical devices in India – Indian Medical Device Industry

The COVID-19 pandemic’s effects on India serve as a reminder of the value of making investments in the healthcare industry. Healthcare spending in India is expected to rise significantly over the coming years, according to industry analysts, in part due to the lessons gained from the pandemic. With a particular focus on poor communities, the Indian government has proposed raising public spending on healthcare from its current level of just 1.2 percent of GDP to 2.5 percent by 2025.

In an interview with ABP, Dr Shravan Subramanyam, managing director, Wipro GE Healthcare said, “Exemption of customs duty on the import of high-end MedTech equipment will help in reducing the cost of healthcare for the end customers i.e., the patients. We expect a tweak in the customs duties and taxes levied on medical devices.”

The implementation of the GST on Indian medical device industry

The establishment of the Goods and Services Tax (GST) has had a significant influence on the Indian Medical device industry. It resulted in the abolition of a number of interstate indirect taxes and increased uniformity across the nation with a single uniform tax structure.

  • Medical devices attracting per cent GST
    • Coronary stents & coronary stent systems for use with cardiac catheters.
    • Artificial kidney
    • Disposable sterilized dialyzer/micro barrier of artificial kidney
    • Parts of the following goods, namely:
    • Crutches
    • Wheelchairs
    • Walking frames
    • Tricycles
    • Braillers
    • Artificial limbs
    • Assistive devices, rehabilitation aids & other goods for disabled
  • Medical devices attracting 12 per cent GST
    • Blood glucose monitoring device called Glucometer along with the test strips
    • Apparatus & equipment employed in medical, dental care or veterinary services,
    • Other electro-medical devices
    • Eyesight testing device
    • Mechanical treatment machines;
    • Cerebral curve testing device;
    • ozone treatment apparatus,
    • oxygen pump,
    • vaporized treatment,
    • Other types of breathing equipment and gas masks
    • Orthopedic devices such as knee braces, sauna belts
    • Artificial limbs;
    • Amplifiers
    • Other forms of different apparatuses which are worn or conveyed, on the body, in case of a disability  
    • Devices using the X-rays/alpha, beta/gamma radiations, for medical/veterinary uses. This also includes radiography X-ray tubes & other X-ray generators (high-pressure

Conclusion

Over the past five years, the Indian government has taken a number of measures to support the development of a thriving ecosystem for the manufacture of medical devices in India. The competent legal system in India is a major factor in the medical device industry’s continued upward expansion. In order to service both the Indian and international markets, several MNCs have been expanding their industrial presence and setting up research facilities in India. Other supply-side changes in healthcare delivery in India, such as the expansion of the healthcare infrastructure following the pandemic, rising recognition for healthcare providers, and a focus on the accessibility and distribution of medical devices, have also been influenced by increased funding and investments. There is no doubt that, despite the challenges, the Indian market for medical devices continues to present investors and other stakeholders with unmatched opportunity. The medical device business in our nation has tremendous development potential as a result of growing investments in the sector, and this growth is being aided by the government’s proactive measures, such as the implementation of Make in India programmes and online registration for medical devices. The Make in India strategy is crucial for leveraging efforts to promote home grown manufacturing and achieve India’s dual goals of accessibility and affordability.

Read Our Article: A Step By Step Guide For Registration Process For Medical Devices In India

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