Nearly 33% of India's medical devices capacity lying unused: Industry

Industry faces stiff competition from China as imports from country rise 75% in FY21

After ramping up production to meet the steep demand spike during the Covid-19 pandemic, Indian medical device makers are now struggling with idle capacity. According to industry estimates, around a third of the installed capacity, especially for consumables, disposables, small-ticket electronic items, etc., is lying unutilised.

Sample this: India used to produce just 6.24 million pieces of PPE kits per annum before the pandemic, but by June this was ramped up to 233.87 million pieces per annum. According to data from the Association of Indian Medical Device Industry (AiMeD), an umbrella organisation of such firms, India used to make only 3,360 ventilators per year earlier, but now makes over 700,000 per year. In the case of masks, the increase has been from 313.6 million pieces per annum to 3.55 billion pieces a year. 

Capacity utilisation touched 100 per cent in March-April amid the second wave of Covid-19, though there was still some shortage, said Rajiv Nath, forum coordinator, AiMeD. However, that figure has now dropped to around 40 per cent at best across the industry, he said.

Others concur. Sudhir Reddy, chief executive officer of Chennai-based Sanisfy, which makes masks, said his firm is now able to utilise only a third of installed capacity, including exports. Reddy invested $1 million to expand capacities during the pandemic, and said now the fixed monthly costs were a drain.

“If this continues, then in three to six months I will be forced to sell my machinery or take some tough calls,” he says. 

Compounding the problem of a drop in demand is the rise of imports from China.

There was a 75 per cent increase in Chinese imports in financial year 2020-21 (FY21), as it bagged the top spot of medical devices exporter to India, overtaking the US and Germany. As such, 80 per cent of India’s medical device requirement (worth around Rs 45,000 crore) is imported.

The government is making an effort to boost local manufacturing through the production-linked incentive (PLI) scheme, but since local manufacturers are stuck with idle capacity, the demand to invest under the scheme would be muted.

Terming the increase in Chinese imports alarming, Nath called for corrective policies to keep investors motivated and incentivised, especially for critical products, by including them in the PLI scheme, or through tariff protection and non-tariff measures. “The huge 75 per cent increase of imports from China even after having a stated public procurement order that is supposedly in favour of domestic manufacturers should be of concern to policymakers seeking to make India Atmanirbhar,” Nath said.

V Alva, founder of Skanray Technologies, a leading invasive ventilator manufacturer, pointed out that it was mostly multinational companies that had applied for the medical devices PLI scheme. Local companies have not been as forthcoming.

However, can India ban imports from China or raise duties? The industry feels this may not be easy.

“The government cannot really ban imports as the local industry will also suffer as we are dependent on China for components. At Skanray, where we have 80 per cent local content, if imports are stopped, then our production will come to a halt. Our dependence on China is low; even then we would need to import some components,” Alva explains.

The reason Chinese imports rose is that several traders realised that it was cheaper to import finished products rather than critical raw material.

“We need melt-blown fabric for making masks. We don’t have self-sufficiency for this critical component. When there is a shortage and high demand in the market, the imports increase. When these importers realise that if they import the finished product (mask) from China it is much cheaper than importing the raw material and making it here, then such imports typically increase,” Reddy said.