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Healthcare? What healthcare?

Arvind Singhal

Earlier this month, I had an opportunity to speak at a seminar on the healthcare industry.

The importance of this sector for the Indian economy, the demand-supply gap, and the acuity of resource constraint the sector faces came out with striking impact and made me wonder as to why Indian business houses and budding entrepreneurs have yet not seized this outstanding business opportunity (which also meets a very crucial social objective).

Looking at numbers, in absolute terms, healthcare in India is a Rs 100,000 crore (Rs 1,000 billion) sector and accounts for 5.8 per cent of the GDP of the nation. It is a large employer with over 4 million Indians directly employed.

To put it in perspective, the information technology sector (for all its well founded optimism about its future potential for India) currently generates less than 0.5 million jobs and accounts for about 1.7 per cent of India's GDP.

Contrary to popular perception, the role of the government in this sector has been continually shrinking during the last 20 years and the private sector now accounts for over 68 per cent of total spending in this industry.

Yet, quality healthcare for the 1 billion plus Indian citizens remains a dream.

Indian government's budgetary allocation to this sector is less than 1 per cent of the GDP, and even at the relatively lenient norms of the World Health Organisation for developing countries, there is an amazing gap - in terms of quantity as well as quality - between the demand and supply.

Current KSA Technopak estimates illustrate, there is an immediate requirement of an investment of almost Rs 75,000 crore (Rs 750 billion) in this sector just to meet this current shortfall (at a very basic primary, secondary and tertiary care level).

In addition, on account of increase in population and aging of Indian population (India shall have over 15 per cent of its estimated 1.20 billion population by the year 2020 aged 55 and more), the minimum additional investment needed in this sector over the next 15-18 years is between Rs 75,000-100,000 crore (Rs 750-1,000 billion).

In traditional industries, investment can be organised through conventional financial channels and instruments since demand - supply gaps can lead to higher end prices of the product or service allowing attractive returns on investment for the entrepreneurs and investors.

Unfortunately, healthcare is one sector where the need for the 'product' is universal : in marketing parlance - the entire socio-economic classified strata of society requires healthcare services.

However, ability to pay for it is highly limited to the very low per capita income level and to a nearly total non-coverage of the population through employer or individually bought insurance coverage.

Thus, even if there are hundreds of millions of willing users of a wide gamut of healthcare services, the sector's revenue model is different from other industries.

What needs to be done to attract major investments - from India and outside India - into this sector [to recap: the total estimated (minimum) need between now and the year 2020 is between Rs 150,000 crore to Rs 175,000 crore (%s 1,500-1,750 billion)?]

To start with, the Government of India must immediately grant the healthcare sector an infrastructure status.

Fiscal policies must be created keeping in mind the ground realities of the development of this sector and must include longer term lending (15-20 years), partial interest burden relief for new investments (like the Textile Upgradation Fund Scheme for the textile sector); tax holidays for investment in high population density - low per capita income states such as Bihar, Uttar Pradesh, and Madhya Pradesh to ensure that health coverage extends to the largest chunks of the Indian population; allocation of land at highly concessional terms for setting up of new secondary and tertiary healthcare delivery facilities; and customs duties reductions/exemptions for diagnostic equipment and critical clinical assets (new as well as second hand) so as to bring down the overall project costs for new investments.

Legislation-wise, the government could do well to make it mandatory for all employers to buy group or individual medical insurance for all their employees ensuring a certain minimum financial coverage.

Since 'prevention' is always better than 'cure,' the government should consider providing income tax rebates for 'preventive heath check-ups' to encourage more citizens to make investment in proactive wellness rather than reactive interventions.

The private sector and budding entrepreneurs should come up with business models that can render an acceptable level of reasonable quality and wholesome healthcare to the masses at affordable costs ensuring that the project cost is kept low thereby ensuring that there is a decent probability of the business model generating an attractive financial return on the investment in a reasonable time frame.

As one of the speakers at the Hyderabad conference concluded, India needs the Udupi model (the ubiquitous no-frills but good quality fast food outlets at affordable prices) for its healthcare sector.

The tremendous intellectual talent and resurgent entrepreneurial skills of Indians should be able to conceptualise some exciting and successful made-for-India healthcare models in the years to come.

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