Healthcare

Last Updated: January 2009

India's rapid growth has brought about many changes in demographics and lifestyle. Rising incomes, hectic pace
of life and stress have resulted in a change in disease patterns, even as there is greater awareness about health
and a demand for quality healthcare.
Healthcare, which is a US$ 35 billion industry in India, is expected to reach over US$ 75 billion by 2012 and US$
150 billion by 2017 according to Technopak Advisors in their report - 'India Healthcare Trends 2008'. The
healthcare industry is interestingly poised as it strives to emerge as a global hub due to the distinct advantages it
enjoys in clinical excellence and low costs. The industry, which was once the exclusive domain of the
government, has seen a steady participation of major corporate houses which have helped set up premium
hospitals and medical facilities across the country.
The sector offers immense potential to healthcare players as the country witnesses a rise in the incidence of
lifestyle-related and other diseases. A growing elderly population and rise in income levels are also pushing for
better facilities in the country.
Driving the sector's growth will be the health-conscious middle class which can afford and wants quality
healthcare. Over 150 million Indians have annual incomes of more than US$ 1,000, and many who work in the
business services sector earn as much as US$ 20,000 a year. If the economy continues to grow at the current
rate and the literacy rate keeps rising, much of western and southern India will be middle class by 2020.
To meet this growing demand, the country needs US$ 50 billion annually for the next 20 years, says a
Confederation of Indian Industry (CII) study. India needs to add 2 million beds by 2027 to the existing 1.1 million,
and requires immediate investments of US$ 82 billion as per the Technopak Advisors report.
Health Insurance
Currently only 10 per cent of the Indian population has health insurance, which means that there is tremendous
scope for growth in this area. The Indian health insurance business is growing at 50 per cent. The sector is
projected to grow to US$ 5.75 billion by 2010, according to a study by the New Delhi-based PHD Chamber of
Commerce and Industry.
According to a report by McKinsey on the Indian pharmaceutical and healthcare sector, one-fifth of India's
population is likely to have medical insurance by 2015, leading to an estimated increase in consumer spending
on healthcare from US$ 2,054 per household in 2005 to US$ 3,514 per household by 2015.
The Insurance Regulatory and Development Authority (IRDA) has eliminated tariffs on general insurance as of
January 1, 2007. This move is expected to drive additional growth of private insurance products.
Recently, public sector United India Insurance Company (UIIC) has launched two'Top Up' health insurance
policies providing additional hospitalisation cover for individuals, available to individuals seeking medical
insurance between US$ 10,204-US$ 30,612 . While the'Top Up' policy covers in-patient hospitalisation expenses,
pre and post hospitalisation expenses and ambulance,'Super Top Up' policy gives protection when the total
hospitalisation expenses (of the individual) exceeds a particular level.
In a recent move, general insurance companies are reportedly planning to develop standardised health insurance
policies to help portability. Portability increases service standards as an unsatisfied customer can migrate to
another service provider if there is no loss of benefit.
According to the action plan finalised by the General Insurance Council, the industry lobby for non-life insurers,
the portable health cover will be available for a period of three years initially. Depending on the feedback in terms
of claims ratio, the insurance companies will take a call on whether to extend the cover, a council member said.
Also, the scheme will be open to only those in the age group of 18-40. Once the finer details are worked out, the
general insurers intend to approach IRDA for approval to launch the product.
Investments in Healthcare
The sector has been attracting huge investments from domestic players as well as financial investors and private
equity (PE) firms. Funds such as ICICI Ventures, IFC, Ashmore and Apax Partners have invested about US$ 450
million in the first six months of 2008-09 compared with US$ 125 million in the same period a year ago, according
to an analysis carried out by Feedback Ventures. The sector's perceived ‘recession-proof' nature , the demand-
supply gap and the possibility of attractive financial returns makes it attractive for PE investors.
Feedback Ventures expects PE funds to invest at least US$ 1 billion in the healthcare sector in the next five
years.
The economic slowdown does not seem to have had a major impact on corporate hospitals, which continue to
remain upbeat about their performance in 2008-09. Many hospital majors have planned major growth strategies
and expect good outcomes this fiscal. According to Apollo Hospitals Chairman, Prathap C Reddy, the group will
be setting up 20 super-specialty hospitals in smaller towns with an investment of more about US$ 206.27 million
over the next two years.
Healthcare and IT
Hospitals have realised that information technology (IT) can be an effective tool towards efficient systems.
According to a report by Springboard Research, India has the fastest growing healthcare IT market in Asia, with
an expected growth rate of 22 per cent, followed closely by China and Vietnam. In fact, the Indian healthcare
technology market is poised to be worth more than US$ 254 million by 2012.
Medical Tourism
'First World treatment' at Third World prices' is how industry sources define medical tourism in India. Although
India is a recent entrant into medical tourism, it is fast catching up. According to a study by McKinsey and the CII,
medical tourism in India could become a US$ 2 billion industry by 2012 (from US$ 350 million in 2006). Credit
Suisse estimates medical tourism to be growing at between 25-30 per cent annually. According to industry body
ASSOCHAM, India's medical tourism sector is expected to grow at an annual rate of 30 per cent to become a
US$ 1.93 billion industry by 2015 as foreign arrivals increase. About 1.8 lakh foreigners visited India for treatment
in the first eight and half months of 2008-09 and their number would increase by 22 per cent to 25 per cent in the
coming years, it said.
However, the current market for medical tourism in India is mainly limited to patients from the Middle East and
South Asian economies. Indian hospitals are now trying to attract patients from Afro-Asian countries. Afro-Asian
people spend as much as US$ 20 billion a year on health care outside their countries - Nigerians alone spend an
estimated US$ 1 billion a year. Most of this money is spent in Europe and America, but it is hoped that this would
now be increasingly directed to India.
The key selling points of the medical tourism industry are its cost effectiveness and its combination with the
attractions of tourism. Many travel agents are now selling combined packages of treatment and vacation. The
cost differential across the board is huge: only a tenth and sometimes even a sixteenth of the cost in the West.
While clinical trials cost approximately US$ 300 million to US$ 350 million in US, they cost only about US$ 25
million in India.
Besides world class medical facilities, India is also trying to promote its traditional medicine. For instance, Kerala
Ayurveda centres have been established at multiple locations in various metro cities, thus highlighting the
advantages of Ayurveda in health management. The health tourism focus has seen Kerala participate in various
trade shows and expos wherein the advantages of this traditional form of medicine are showcased. Wellness
tourism, comprising spa, Yoga and Ayurveda, have a very bright future in India as foreigners are increasingly
flocking to India to seek physical and mental healing.
Beyond Cost Advantage
However, the Indian healthcare story is not about cost advantage only. It has a high success rate and a growing
credibility.
• Indian specialists have performed over 500,000 major surgeries and over a million other surgical
procedures including cardio-thoracic, neurological and cancer surgeries, with success rates at par with
international standards.
• The success rate of cardiac bypass in India is 98.7 per cent against 97.5 per cent in the U.S.
• India's success in 110 bone marrow transplants is 80 per cent.
• The success rate in 6,000 renal transplants is 95 per cent.
• India has the 2nd highest number of qualified doctors in the world.
The Government has also been proactive in encouraging prospects in this sector with a number of initiatives:
• A new category of visa'Medical Visa' ('M'-Visa) has been introduced which can be given for a specific
purpose to foreign tourists coming into India.
 • Guidelines have been formulated by Department of AYUSH prescribing minimum requirements for
Ayurveda and Panchkarma Centres.
Areas of Opportunity
The fast growth in the Indian healthcare sector has created various pockets of opportunities for investors. A
recent FICCI-Ernst and Young (E&Y) report titled'Opportunities in Healthcare "Destination India" highlights
several such areas within the healthcare sector.
Medical infrastructure forms the largest portion of the healthcare pie, and according to the report, the bed per
thousand population ratio for India in 2006 stood at 1.03 as against an average 4.3 of comparable countries (like
China, Korea and Thailand). The report points out that India is likely to reach a bed to thousand population ratio
of 1.85 and, in a best case scenario, a ratio of 2 by 2012. Beds in excess of 1 million need to be added to reach a
ratio of 1.85 per thousand at an investment of US$ 77.9 billion.
Another area of opportunity is medical equipment. Currently the medical equipment industry is around US$ 2.17
billion and is growing at 15 per cent per year. It is estimated to reach US$ 4.97 billion by 2012. Since almost 65
per cent of the medical equipment is imported, it is a key area for forging partnerships across borders. In addition
to this, engineering excellence, cost-effective labour, increasing emphasis on intellectual property rights and most
importantly a fast growing domestic market makes India an ideal manufacturing base. This opportunity has
attracted foreign medical equipment makers to float Indian subsidiaries -- 30 of them received import clearances
in 2007 alone.
The growth in medical infrastructure will be complimented by a demand for associated products and services, for
example, the medical textiles industry which is projected to double to reach US$ 753 million by 2012.
The report further states that clinical trials have the potential to become a US$ 1 billion industry by 2010 and the
health services outsourcing sector has the potential to grow to grow to US$ 7.4 billion by 2012, from US$ 3.7
billion in 2006, at a compound annual growth rate (CAGR) of 11 per cent.
Indian clinical research organisations (CROs) do not see any near-term impact of recession as large pharma
customers such as AstraZeneca and Glaxo continue to send more work to India, where these trials could be
conducted at one-fifth of the US cost.
Exchange rate used: 1 USD = 49.0000 INR