Investment Opportunities in India

July 23, 2012

Growing Healthcare Market in India

India is one of the most profitable healthcare markets globally. The sector is one of the largest and rapidly-growing sectors in India, in terms of revenue and employment. The Indian healthcare sector comprises the sub-sectors of hospitals, medical infrastructure, medical devices, clinical trials, outsourcing, telemedicine, health insurance and medical equipment.

The main challenge is to deliver affordable health care services to India’s billion-plus population. This signifies enormous opportunities for the medical community and other service providers in India. The leading factors supporting the growth of the industry are- prevalence of various diseases, rising urbanization, untapped market, increasing life expectancy, and active private sector participation. The healthcare in India is controlled mostly by major foreign companies. The foreign companies have subsidiaries in the country, mainly because of the availability of cheap and skilled labor.

The Indian healthcare sector is a rapidly-growing sector with high potential for future growth, both in urban and rural India. In the year 2011, the sector was sized at US$ 50 billion as it employs a total of 4.5 million people directly and indirectly within India. The sector is poised to grow to US$ 100 billion by the year 2015 and further to US$ 275.6 billion by 2020, according to the estimates by ratings agency Fitch.

FDI in Hospitals and Manufacture of Medical and Surgical Appliances

The economic reforms launched by the government from 1991 onwards have resulted in significant economic growth and the integration of India into the global economy. With the opening up of the Indian capital markets to Foreign Institutional Investors, the foreign direct investment regime too has been increasingly liberalised.

The health care industry in India has been witnessing a potential upsurge for the past few years especially in the hospitals and manufacturing of medical and surgical appliances.

The total inflow of FDI in India in the hospitals and diagnostics sector was US$ 1 billion from April 2000–April 2011, according to Department for Industrial Policy and Promotion (DIPP), which is responsible for formulating the FDI policy in the country.

FDI inflows to medical and surgical appliances are estimated to be around US$ 20.5 million. Medical and Surgical Appliances is Rs 981.7 million industry with a share of 10.59 percent in the global market.

Some of the government initiatives boosting Indian healthcare sector are:

There have been a number of initiatives taken up by the Government of India for the enhancement of healthcare sector in the country. Some of them are:

100 per cent foreign direct investment is permitted for health and medical services under the automatic route.

The National Rural Health Mission had allocated US$ 10.15 billion for the up gradation and capacity enhancement of healthcare facilities. The aim of NRHM is to provide facilities of quality healthcare in India.

In March 2010, the government allocated an additional US$ 1.2 billion for six upcoming AIIMS-like institutes and upgradation of 13 existing government medical colleges in order to meet revised cost of construction.


FDI in Indian Pharmaceutical Market

The pharmaceutical industry in India is one of the largest and most advanced among the developing countries. The industry stands third in the world in terms of volume. It ranks 14 in terms of value and is expected to grow 8 to 9 per cent annually. According to a research done by Associated Chambers of Commerce and Industry (Assocham), the Indian pharma industry is expected to reach US$ 20 billion by 2015, making it one of the world’s top 10 pharmaceuticals markets.

In India, there are many small sectors, medium sectors, private limited companies and public companies that have been consistently manufacturing various medicinal products to meet the increasing demands of the people. The foreign investors can invest in Indian companies through the purchase of shares, debentures, equities, or bonds from an Indian company.

Pharma industry in India is growing at a rapid pace, marked by a number of mergers and acquisitions and growth in foreign expenditure. The sector is going to be a major area of focus in the coming years as Indian medicines are increasingly becoming popular in many developed and developing countries because of the cost effectiveness and easy availability.

India saw FDI inflow of US$ 341.49 million in the drugs and pharmaceuticals sector between April 2009 and February 2012. Also, the government has liberalised investments made by registered Foreign Institutional Investors (FIIs) under the Portfolio Investment Scheme (PIS) from April 10, 2012. Earlier, these spendings required approval from the government.

There are numerous ways for foreign company to enter in to an Indian market. Different types of foreign investment in India are:

Green field investment is FDI when a company establishes a subsidiary in a new country and starts its own production. It involves construction of a new plant, rather than the purchase of an existing plant or firm. According to the latest rules of Reserve bank of India (RBI), FDI, up to 100 per cent, under the automatic route, is permitted for green field investments in the Indian pharmaceutical sector.

Brown field investment is FDI that involves the purchase of an existing plant or firm, rather than construction of a new plant. For e.g. many host countries encourage the formation of joint ventures, as a way to build international cooperation. Joint venture is an equity and management partnership between the foreign firm and a local entity in the host market. FDI, up to 100 per cent, under the government approval route, is permitted for brown field investments in the Indian pharmaceuticals sector. Under the new rules, the overseas investor will have to seek permission from the Foreign Investment Promotion Board (FIPB) for any merger or acquisition.

In India, the cost of setting up research and development laboratory, scientific equipments, administration costs, transportation cost, raw materials cost and licensing procedure is much less when compared to any developed countries. The main determinants of FDI in India are availability of huge natural resources, cheap labor, steady economic growth, huge benefits and concessions granted by government, increasing population and per capita income, etc. So, there are huge opportunities for foreign investment in India.

Investment Scenario in Indian Market

The process of reforms as part of liberalization has resulted in greater investment in Indian market. In today’s economy of less income growth and highly increasing cost of living, one has to know how to use his/her savings to generate higher returns. Availability of too many options and no clear idea about these choices is creating a hostile situation for the investor to choose the best among the available alternatives.

An investor has several investment alternatives (such as stocks, bonds, precious metals, etc.) to choose from, depending on his risk profile and expectation of returns. Different investment substitutes represent a different risk-reward trade off. Low risk investments are those that offer assured, but lower returns, while high risk investments provide the potential to earn greater returns. Hence, an investor can choose the most suitable investment on the basis of his/her risk tolerance.

Best investment options in India

Some of the investment alternatives available in the Indian investment market are:

  • Investment in Fixed Deposits- FD is one of the safe investment options with the current annual rate of interest of 10 per cent.
  • Investments in Insurance- Insurance-cum-investment options like unit linked insurance plan (ULIPs) are beneficial for the investors. Insurance offer quality services to cover life, money and assets along with low-risk profits.
  • Investment in Mutual Funds- People may select mutual funds as an investment alternative on the basis of long term performance, short term performance, consistent returns, etc.
  • Investment in Equity- Private equity as an investment substitute is growing fast in India. With a business of US$ 20 billion in 2010-11, the share of equity investments is expected to increase in coming years.
  • Investment in Public Provident Funds- PPF is a government guaranteed fixed income security with a minimum amount of Rs 500 and maximum of Rs 1, 00,000 in a financial year; PPFs are now a popular choice of investment in long run.

Points to be considered before taking investment decision

Risk – It is important for the investor to choose the investment option on the basis of his/her risk profile. For e.g. – A low risk investor should not invest into equities. He should look for the safe option for investment. Risky asset class causes a loss of principal.

Liquidity – Liquidity is also an important criterion for the selection of Investment Avenue. For e.g. – An investor should not invest into public provident fund (PPF), if he needs money in 3- 4 years time frame. PPF has minimum lock in period of five years.

Time horizon – Investment should be done by considering the specific time horizons. For e.g. – For short term investment, mutual fund or fix deposit could be a good option, where as for long term, real estate and regular investment into equities could be a good option.

Taxation – Taxation affects the real returns of investment, investor should always look at the tax aspect of any investment before investing into it.

The scope for business in India is vast. Indian economy has grown as one of the significant economies in the world having immense potential towards long-term growth. The growth has been backed by the various industrial sectors to a great extent. The sectors mainly include technology, manufacturing and service industry.

Business Opportunities in HealthCare Market in India

The healthcare sector in India is growing fast. The sector is currently estimated to be worth US$ 65 billion and is expected to reach US$ 100 billion by 2015, according to the rating agency Fitch. The growth in the sector comes due to- increasing population, growing lifestyle-related health issues, economic treatment, rising incomes, government initiatives, etc.

India is the first country to have a large number of multinational healthcare providers. This rapidly developing industry in India has led to a qualitative shift in patient demands. This has resulted in centers of medical excellence developing and acquiring the latest medical equipment to treat their domestic and international patients.

Due to the development in the rural areas, people even in the villages are now become more conscious about their health issues. They are opting for more health benefits for safe and diseases free existence. This will create huge investment opportunities in the sector.

Opportunities for investment in Healthcare

Healthcare infrastructure: A huge amount of private capital will be required in the coming years to meet infrastructure needs of healthcare in India. An additional 2 million beds are required for India to bridge the gap and prepare for demand estimations in 2025. The government is expected to contribute only 15-20 per cent of the total, providing a vast opportunity for private players to fill the gap.

Diagnostic & Pathology Services: High cost difference in India allows for outsourcing of pathology and laboratory tests by international hospital chains

Telemedicine: There is a vast opportunity for investment in telemedicine as it provides rural areas access to better quality healthcare.

Medical tourism: Medical tourism in India has also received a boost with the arrival of patients from different countries. According to industry estimates, the market size of medical tourism is estimated to be around US$ 2.5 billion and is growing at over 25 per cent per annum. Hence, create enormous investment opportunities in India.

Contract Research: Contract research is a rapidly growing segment in the Indian health care industry. Foreign players are entering into contract research to reduce their operational and clinical cost.

Health Insurance: Increasing healthcare cost and burden of new diseases along with low government funding has raised the demand for health insurance coverage. Less than 15 per cent of the Indian population is covered through health insurance. With the increasing demand for affordable quality healthcare in India, the penetration of health insurance is poised to grow rapidly in the coming years.

Major Growth Drivers

  • 100 per cent FDI is permitted for all health-related services under the automatic route.
  • Lower tariffs and higher depreciation on medical equipment.
  • Income tax exemption for five years to hospitals in rural areas, Tier II and Tier III cities.
  • Increasing penetration of health insurance.
  • High-growth in medical tourism.

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