FDI IN INDIAN HEALTH SECTOR
Healthcare sector has a great potential in the present globalized world. It is one of the world's largest industries with total revenues of approximately US$ 2.8 Trillion. Healthcare sector has been emerging as one of the largest service sector in India. Indian healthcare sector has estimated revenue of around $ 30 billion constituting 5% of GDP and offering employment to around 4 million people (CII Report 2011). According to Investment Commission of India, the sector has witnessed a phenomenal expansion in the last few years growing at over 12% per annum. As per a recent CII-McKinsey report, the growth of healthcare sector can contribute to 6-7% of GDP and increase employment by at least 2.5 million by 2012.
Since January 2000, FDI is permitted up to 100 percent under the automatic route in hospitals in India. Thus no government approval is required as long as the Indian company files with the regional office of the RBI within 30 days of receipt of inward remittances and file the required documents along with form FC-GPR with that Office within 30 days of issue of shares to the non-resident investors.6 Controlling stake is also permitted in hospitals for foreign investors. FIPB (Foreign Investment Promotion Board) approval is currently only required for foreign investors with prior technical collaboration,but is allowed up to 100 percent.
In recent years, there is growing interest among foreign players to enter India’s healthcare sector through capital investments, technology tie-ups, and collaborative ventures across various segments, including diagnostics, medical equipment, hospitals, and education and training. Some of the reasons for it are as under:
* According to a report by PriceWaterhouseCoopers, an estimated 189 million people in the country will be more than 60 years of age by 2025, needing higher healthcare spends. * The Indian healthcare sector is expected to reach US$ 100 billion by 2015 from the current US$ 65 billion, growing at around 20 per cent a year, according to rating agency Fitch. * Some of the major factors driving the growth in the sector include increasing population, growing lifestyle related health issues, cheaper costs for treatment, thrust in medical tourism, improving health insurance penetration, increasing disposable income, government initiatives and focus on Public Private Partnership (PPP) models. * Further, the Indian pharmaceutical market is also set to witness medium-term growth. The sector is expected to grow at 15.3 per cent from 2011-12 to 2013-14, according to a Barclays Capital Equity Research report on India Healthcare & Pharmaceuticals. * Meanwhile, the Government of India has decided to increase health expenditure to 2.5 per cent of gross domestic product (GDP) by the end of the Twelfth Five Year Plan (2012-17), from the existing 1.4 per cent. Prime Minister, Dr Manmohan Singh also emphasised the need for increased outlay to health sector during the Twelfth Five Year Plan.
There are external and domestic factors, which challenge foreign investment, especially foreign direct investment in India’s hospital segment and has led to limited presence of foreign investment in India’s hospital segment.
One of the external factors is that notwithstanding trends towards privatization in healthcare in major developed countries, this is a sector that is undergoing reform and internal problems in those economies. In many countries, the number of private players who can establish hospitals overseas is limited. Hence, the potential number of overseas institutions that can invest in emerging markets may be rather limited. A second factor is that the hospital business requires localized and in-depth knowledge of the host country’s market and thus entry as an independent overseas institution is very difficult. Joint ventures may be a better way of entering a foreign market when setting up...
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