India’s Device Market Defies the Recession

12 August 2009 (Last Updated August 12th, 2009 18:30)

India's healthcare sector is growing at tremendous pace as the nation becomes more affluent. A special report from GlobalData looks at the dynamics of the sector and the opportunities for medical device manufacturers.

India’s Device Market Defies the Recession

The medical device industry in India was valued at $2.7bn in 2008. Driven by increasing awareness and affordability, coupled with an increasing patient pool, the market is forecast to grow by 12% annually for the next seven years to reach $6bn in 2015.

A new report by Global Data, 'India Medical Equipment Industry: Defying Global Recession', shows why the fundamentals in the country are leading to a profitable industry, even during tough market conditions.

While the ongoing global recession continues to hurt businesses around the globe the medical device industry in India is expected to come out unscathed. The fact that it has so far remained insulated from the global downturn can be attributed to several ongoing trends.

Firstly, the demand for healthcare in India is not tied to consumer discretionary spending. Secondly, an increasingly affluent and educated patient population in India continues to demand improved health services. Finally, corporate hospital groups in India are responding to the demand by building up new healthcare infrastructure that should ensure all stakeholders in this industry continue to benefit.

Growing population

"By 2015, the country will have 1.3 billion residents and the population is expected to exceed 1.7 billion by 2050."

India is the second most populous country globally and home to 1.15 billion people, 5% of whom are aged 65 or over. By 2015, the country will have 1.3 billion residents and the population is expected to exceed 1.7 billion by 2050, surpassing China and making it the world's most populated country. As the ageing population continues to grow, the underlying demand for healthcare is also expected to increase.

The flip side to this is the fact that the high-end medical device consumer base is only a segment of the total population that lives in urban and semi-urban cities and forms the so-called burgeoning middle class.

Even today, the majority of India's population cannot afford anything better than the most basic healthcare. It is only the "middle class" and those in the richer social classes – approximately 90 million people with an annual income of more than $4,800 – who form the medical device consumer base. This segment of the population is, however, forecast to grow by 17% annually for the next seven years to exceed 268 million by 2015 – an opportunity too large to ignore.

Affluent consumers

India recorded a real GDP growth of 7.3% in 2008 against a growth of 9.3% in 2007. Although it is projected to come down to 5.1% in 2009 it will rebound in 2010 to touch 6.5%. India is set to outperform most other geographies and will continue to make its urban and semi-urban population richer and more affluent.

While the affluent patient base continues to drive demand, corporate hospital groups such as Apollo Hospitals, Wockhardt Hospitals, Fortis Hospitals and Max Healthcare have been quick to respond by setting up new hospitals and investing in expensive high-end medical equipment.

"Even today, the majority of India's population cannot afford anything better than the most basic healthcare."

These hospital groups are redefining the Indian healthcare delivery market landscape not just with improved infrastructure but also by attracting patients from abroad – the so-called 'health tourists' – a trend that is leading to the emergence of 'medical tourism'.

India spent more than 5.5% of its GDP on healthcare in 2008. With increasing awareness resulting in a rise in demand, spending on healthcare is expected to grow significantly.

Global medical equipment manufacturers have been quick to realise the benefits that the Indian market has to offer, a trend reinforced by the recent acquisitions and product launches that some of the global giants have undertaken in India.

The fact that the leading companies, on their own and in collaboration with others, are also investing significantly in direct-to-consumer advertising further substantiates the efforts that these companies are making not just to sell products but also to raise awareness.

Lifestyle disorders drive demand

The growth will primarily be fuelled by increasing demand for orthopaedic devices, cardiovascular devices, ophthalmic devices, diagnostic imaging products and in-vitro diagnostics.

As the Indian population continues to become more affluent the spending pattern has changed. Unhealthy dietary patterns have become a norm with the affluent consumer base living and working in urban and semi-urban cities in India – a trend that has led to an alarming increase in the incidence of lifestyle disorders such as cardiovascular diseases.

The cardiovascular devices market was valued at $212m in 2008 and is now being driven by a rise in demand for cardiac rhythm management and interventional cardiology devices. It is forecast to grow by 13% annually for the next seven years to reach $493m in 2015.

"India has over 162 medical schools that churn out more than 17,000 doctors annually, adding to the existing pool of about 4,90,000 doctors."

A sedentary lifestyle, characterised by a lack of physical exercise, has led to a high incidence of back pain and joint afflictions being recorded in India, driving demand for spinal implants, joint implants and associated products. Driven also by the rapid acceptance of technologically superior products such as non-fusion spinal technologies and hip resurfacing implants, the Indian orthopedic devices market, valued at $266m in 2008, is forecast to grow by 11% annually for the next seven years to reach $558m in 2015.

In addition, there is an increasing number of people getting health insurance cover. In 2008, less than 25 million people were covered under private health insurance and this number is projected to grow at double-digit rates, at least for the next seven years.

Resilient to the recession

The ongoing economic downturn in the US and Europe could act as a booster dose for the growing medical tourism industry in India. Price pressures and limited reimbursement for elective surgeries elsewhere could make India a destination for such procedures. This should lead to an increase in funding and a high return on investment in the healthcare infrastructure.

Having said that, it's important to understand that the industry is not recession proof and there are trends which, if they continue, might give a jolt to growth forecasts. The immediate impact of the economic downturn, if it continues to intensify, would be on innovation and new technology developments.

The global medical equipment industry is a research-intensive industry and India is no exception. Over the years, Indian business entities such as L&T Medical, Opto Circuits India and Trivitron have grown to become big challengers to the global giants. If the flow of capital continues to dry up it will have an impact on the R&D and manufacturing capabilities of these companies – a trend that will hamper the country's image as a prospective manufacturing powerhouse.

There are, however, several upsides that would ensure the India growth story continues unabated. In the wake of the ongoing recession, corporations across the world have the dual challenge of augmenting their liquidity position and boosting the top-line while ensuring that costs come down. As a result they are relying more heavily than ever on diversification, outsourcing and licensing. Where possible, India seems to be emerging as the location of choice.

"In 2008, less than 25 million people were covered under private health insurance and this number is projected to grow at double-digit rates."

The country's proven expertise in low cost manufacturing coupled with its pool of skilled engineers and technologists has made many companies look at India as a potential manufacturing hub. Additionally, the world's major manufacturers are convinced that manufacturing outsourcing will also provide the benefit of cost-effective customised products that match the needs of consumers, not just in India but also in other developing and under-developed economies.

On the services front, India has over 162 medical schools that churn out more than 17,000 doctors annually, adding to the existing pool of about 4,90,000 doctors. This is a trend that reflects the opportunities for clinical investigations that the country can provide for large medical device companies.

The fact that India is home to a diverse group of patients further substantiates the country's potential as a hub to carry out clinical studies. The time is ripe for the global device giants to start looking at India not just as a country of a billion people but as a market that provides huge opportunities for top- and bottom-line growth.

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