An overview on Foreign Direct Investments (FDI) in Indian health-care sector Healthcare is one the fastest growing service sector in India, contributing 6% to the country’s Gross Domestic Product (GDP). Providing affordable health care to India’s billion-plus population is an enormous Challenge and also presents great opportunities for the growth of healthcare sector. India has high prevalence of various diseases, untapped market, increasing urbanization, rising life expectancy, growing medical tourism and active private sector participation are some of the leading factors supporting the industry’s growth.
Because of these factors, projected growth of healthcare sector in India is more than 9% annually. Therefore, many foreign players want to enter India’s healthcare sector through FDI in various segments. Foreign Direct investment (FDI) can be defined as an investment involving a long-term relationship, and reflecting a lasting interest and control, of a firm or individual from one country in another. Thus, FDI provides capital as well as technology to grow at substantial rate. Indian healthcare sector can be benefitted by FDI significantly. Indian policy is favourable for FDI in healthcare sector.
Since January 2000, FDI is permitted up to 100 per cent under the automatic route in hospitals in India. Though the supportive policies and huge opportunities,, Indian Healthcare Sector could attract only . 0. 75% of total FDI flow in India. Many factors are responsible for that. Main reason is that, in many countries including some of developed countries, healthcare is not privatised. In these countries either healthcare has many regulations or government itself provides healthcare services or insurance to its citizens. Thus lack of many big players in healthcare providers in foreign countries limits the scope of FDI in healthcare.
Other factors include the initial establishment related and after that operation related cost. Hospitals have very high cost of setting up. Even after setting up, maintaining day to day operations human resource cost a lot. It takes almost 5 years for a hospital to reach break-even point. Thus such a long gestational period discourage a foreign player to invest in hospitals. Other major reason is the lack of clarity of FDI policies in India. Even in presence of such hindering factors for Indian healthcare, there is many reasons to be optimistic about FDI.
There is tremendous demand for tertiary care hospitals and specialty hospitals in India. There is a remarkable demand supply gap in providing healthcare services. India has one of the lowest hospital beds available per thousand population. Government has limited resources. With increasing income, spending in healthcare will increase only.. Further, medical tourism industry in India is booming. Medical tourism is increasing at 30% annually and coupled with greater clinical trial activities , will play significant role in the development of hospital sectors.
Apart from hospitals, there is huge demand of health insurance, diagnostic facilities and medical equipment as well. These areas also have potential to grow substantially and possess good investment opportunities for foreign players. Foreign Direct Investment can present enormous opportunities for the Indian healthcare sector to grow at high rate. As a result, cost of medical treatment will be reduced. Thus FDI in healthcare will not only help Indians to get better treatment but also help our country for better economic growth.