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Budget 2003: Healthy, wealthy and wise

In addition to providing fiscal incentives, it would be good if the Finance Minister treats healthcare and pharmaceuticals as a priority area in the forthcoming budget, writes Wockhardt chairman Habil Khorakiwala.
By Habil Khorakiwala | PTI
PUBLISHED ON FEB 25, 2003 08:04 PM IST

India has the potential to occupy a significant place in the global pharmaceutical and healthcare industry. Our asset is the rich talent pool in pharmaceuticals and healthcare, spread over the industry and academia.

Even in the absence of active government support, exports have driven the pharmaceutical industry growth in India, having grown at a CAGR of 25 per cent in the last 10 years. This is almost twice the domestic industry growth.

For Wockhardt, international business is the fastest growing business and now accounts for over 40 per cent of our business. This would have been almost negligible a decade back.

The need of the hour is a conviction that this potential is real and a determined effort by the industry, academia and the government to harness our strengths and forge ahead fast. Unlike in the case of IT, we do not have a headstart over other nations like China that are quietly making rapid strides.

Budgetary provisions are not enough to provide the push necessary to forge ahead. But as budgets are often the platforms to announce policy initiatives, in addition to providing fiscal incentives, it would be good if Jaswant Singh treats healthcare and pharmaceuticals as a priority area in the forthcoming budget.

Healthcare and pharmaceuticals not only provide an opportunity to create wealth and make India a centre of excellence and innovation, but are also a means to achieve better health and productivity for our people. India could also become an attractive destination for critical hospital operations. The possibilities are real. Dr Vivek Jawali, cardiac surgeon at Wockhardt Hospital and Heart Institute in Bangalore, a pioneer in beating heart surgery, was recently invited by medical colleges in China to train Chinese surgeons in beating heart surgery. Chinese doctors acknowledge that India is ahead of China in this new technique, which is superior and cheaper.

According to the recent CII-McKinsey study, India spends Rs 103,000 crore -- five per cent of its GDP -- on healthcare. The healthcare delivery market accounts for Rs 86,000 crore of the total expenditure, while pharmaceuticals account for the balance, Rs 17,000 crore. India’s healthcare expenditure matches that of other developing countries as a percentage of GDP, but is low on a per capita basis.

Despite making considerable progress in healthcare, India still lags behind other developing countries on key health indicators like life expectancy, infant mortality and morbidity. Less than 15 per cent of India’s population is formally covered through pre-payment mechanisms from private health insurance, social insurance provided by agencies like ESIS and employers’ reimbursement schemes. In other words, money spent on healthcare comes from household income that could otherwise have gone to food, education, clothing, shelter, consumer goods and entertainment -- in short everything that improves the quality of life.
 
The McKinsey study says this sector can increase employment by generating jobs for 2.5 million people by 2012, in addition to four million already employed in this sector. The contribution of healthcare can climb to seven per cent of the GDP from the current 5.2 per cent. Such a growth will trigger positive macroeconomic benefits like increased life expectancy, reduced disease burden and child mortality, leading to greater income, consumption and investment and a richer quality of human capital.

It is estimated that the country would require an additional 7.5 lakh beds (from the current 15 lakh to 22.5 lakh) by 2012. This additional infrastructure facilities would require an estimated additional investment of about Rs 120,000 crore, an amount the government can ill-afford to redirect to healthcare. Almost 80 per cent of this investment would have to come from the private sector. Therefore, it is imperative that the government grants the infrastructure status to the healthcare industry, on par with power and telecommunications. Removal of import duty on equipment and consumables not available in the country would also go a long way in mitigating the capital outlay requirement of this industry.

Simultaneously, the government should promote the growth of private, social and community insurance to improve healthcare affordability for the people at large. Though the insurance sector has been thrown open to the private sector, health insurance is yet to take off. One can learn from effective measures taken in other developing countries like Brazil. One thing is certain: in the absence of regulatory change, penetration of health insurance will not happen.

Social insurance is another area that requires overhauling. Korea managed to increase insurance cover from 14 per cent of the population in the mid-Seventies to 100 percent in the early Eighties. This stemmed from the identification of health as one of the four basic necessities of life and key element of labour productivity. I would urge the finance minister to consider the various recommendations put forward by CII to achieve universal coverage of India’s one billion-plus population over a 20-year time frame.

Let us now turn to pharmaceuticals, which together with physicians’ skills constitute the ‘software’ of healthcare. The biggest problem faced by the industry and consumers at large is spurious drugs produced and marketed by fly-by-night operators. It is estimated that annual sale of fake medicines is worth Rs 3,000 crore. The Indian Pharmaceutical Alliance is doing its best to highlight the problem and help bring the culprits to book, but the problem is too large for one organisation to tackle. The government should enact special legislation and initiate a sustained drive against these operators who play with the health of the nation. Manufacture of spurious drugs products should be made a criminal offence and the police should have a special cell to track down and bust the racket.

Companies like Ranbaxy, DRL and Wockhardt have demonstrated India’s innovative skills in pharmaceutical research. As India prepares to embrace the product patent regime in 2005, it is imperative to remove the hurdles in the way of pharmaceutical companies doing original R&D. The government seriously needs to plug the gap between intention and action in this regard.

Our patent infrastructure needs to be revamped urgently to clear almost 30,000 pending patent applications. The government needs to recruit competent examiners on a war footing. India also needs special designated courts to deal with patent litigation to facilitate fast judgment and redressal in cases of patent infringement. Special judges specially trained to deal with the technical aspects of patents should be appointed.

India's competitiveness in the international market can be significantly enhanced. Filing documents and product registrations in overseas markets are a very expensive activity. The import duty for R&D equipment and consumables in the developed markets continue to be over 50 per cent. Import duties are likely to account for almost 8-10 per cent of Wockhardt’s budgeted R&D investment of Rs 65 crore in the current year. No one would deny that the productivity of this money paid as import duty would have been multi-fold if utilised in research. Such penal duties make our overseas competitors more competitive in the generics market.

Several life-saving drugs not manufactured in India enjoy duty-free imports so that consumers are not burdened. However, Indian subsidiaries of multinationals have not found an incentive to manufacture these products locally. To encourage local manufacture of life-saving drugs like insulin, it would be desirable to impose customs duty on imports as soon as local products of the right quality are made available.

(The writer is Chairman of Wockhardt Ltd and Wockhardt Hospitals Ltd)

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