India: the upcoming medical device global manufacturing hub

Over the past years we have seen an enormous growth in foreign direct investments in India, whereby foreign companies like Siemens, Philips and Omron seize the opportunities India brings to them when it comes to local manufacturing of Medical Devices and IVD. 

The most important reasons for this shift are: 

• The growth of the domestic market, with a fast developing middle class. An expanding healthcare system with growth opportunities in both public and private healthcare which makes offering local produced products at lower prices very attractive (the India medical devices industry is expected to grow at a CAGR of 16,4% to $50Bn in 2030). Good to mention that India is set to become the 3rd largest consumer market globally by 2030 which will further increase local demand. Real wages are expected to grow at 4,6% and disposable income will grow in excess of 15%. Private health insurance has almost tripled in between 2015 and 2021 (Source: HBR). And besides the huge domestic market, India also acts as a HUB for the region whereby locally produced goods are shipped to APAC and Middle East markets;

• India offers a large labor pool of relatively young, skilled workers. Wages are relatively low compared to other regional markets (Chinese manufacturing labor cost is almost quadruple that of India's). The conditions to produce locally are improving including a more beneficial tax scheme. Interesting in this matter is the growing importance of the tier 2 and 3 cities compared to the tier 1 metros. The operational costs are often lower in these smaller cities due to the lower wages. Next to that, the availability of skilled workers is not an issue (note that approximately 2/3 of the population resides in urban areas) and the infrastructure (transportation, IT) is rapidly improving; 

• The India government has initiated several programs to promote domestic manufacturing. 

• There is the Make in India program, whereby both local and foreign manufacturers are incentivized to increase production in India. The aim is to increase the power of India versus minimizing and even avoiding too much reliance on imported products; 

• Other initiatives are PLI (the Production Linked Incentive scheme that fosters large scale medical device manufacturing through targeted investments) and the National Medical Devices Policy (2023), which is targeted to expand the PLI scheme for medical devices; 

• There have been several favorable tax reforms implemented; 

• Industrial parks focusing on specific sectors have been established. The medical devices industrial parks help to reduce the cost of manufacturing which in turn increases the affordability and accessibility of medical devices. It creates a state-of-the-art manufacturing environment which targets both the domestic as well as the export market. These medical device parks have improved regulations, access to skilled labor and a beneficial R&D infrastructure while decreasing barriers linked to medical device manufacturing. Several parks focusing on medical device production have been established, especially in the west and south (in states like Andhra Pradesh, Kerala, Telangana and Maharashtra). Below picture shows where medical device manufacturing is concentrated in India (source: NEA).
  

  

  Medical device manufacturing concentrated in India

• The effects of the pandemic and sanctions imposed on China made companies realize that they need to diversify their supply chain in order to mitigate risks. This in turn has increased the demand for medical device and IVD production in India;

• Last but not least: if you want to be successful in India, you have to sell at much lower price points, which in turn requires reconfiguring activities, production and global supply chains (India’s best-selling care is priced at $7,000.-). This means production closer to your customers and at lower operational costs might be the solution. 

Manufacturing in India has its challenges of course: 

• Economies of scale are still higher in China which could result in lower costs per unit (despite the lower labor costs in India). The lower productivity is the result of sub-optimal production planning, supply chain management, quality and maintenance. The efficiency of the manufacturing system, the level of automation and the use of AI will play a critical role going forward. Having said that, the investments in the digital infrastructure and manufacturing clusters have been enormous and are paying off;

• Retention rates are low which means you have to hire and train new staff on an ongoing basis;

• There is the ease of doing business which can be very different between different states. Besides that, bureaucracy is still an issue when you plan to set-up production capacity in India; 

• Transportation still needs improvement which results in relatively high cost for transportation within the country.

Contact gatewaymedtech.com when you consider setting-up manufacturing capacity in India. We have the experience and local network to support. Contact us