As one of the fastest growing sectors in India, the healthcare sector today faces many challenges, but financing is certainly not one of those major concerns. The healthcare sector sources funds from tax, and insurance, for starters, both of which generate large volumes of money. Insurance, furthermore, is divided between government schemes and private players. Commercial loans also come into healthcare financing.
Another major player in this scenario is foreign direct investment (FDI). Post January 2000, FDI has gathered momentum in India, as it is permitted up to 100 percent in hospitals. This has drawn the interest of many foreign players, and has encouraged them to enter the healthcare sector in India. FDI has brought important investments, tie-ups, diagnostics, medical equipment, and collaborative ventures with it.
FDI also brings with it certain challenges and opportunities.
Challenges
The Indian government has not laid out a proper roadmap for the healthcare sector. Despite growing demand for medical facilities as well as supply that’s meeting this demand, this sector is not treated as a core sector. This is partly justified due to the fact that transparency is absent from the healthcare sector’s regulatory framework. In addition to this, practices are often corrupt to the maximum extent. Foreign investors would prefer a market which lends clarity to its policies. So, the longevity of 100 percent FDI in this sector gets dragged into question.
Another major challenge is that of returns on investment, which are either low, or take a really long time coming in. The average break-even period in the healthcare sector is 6 years. This, with bringing down average costs of hospital maintenance and running. If original figures were to be used, it could take close to 7-8 years to break even or make a small profit. Therefore, foreign investors would naturally prefer joint ventures.
Opportunities
India’s hospitals do not rank well with respect to infrastructure and manpower. Even when compared to other developing countries, India falls below standards. It cannot be more evident that the sector needs to scale up. However, the emergence of new and strong players has breathed new life into Indian healthcare. Many international financial institutions and private equity funds have started to explore investment opportunities in Indian healthcare. This outlook is encouragement in the present climate.
Foreign players and investors have been wary, in the past, about the healthcare sector, as regards policies and non-transparency which is reluctant to abandon the sector. However, it has been observed, over the last 5-6 years that there has been a growing positive sentiment among investors, with FDI resurfacing after a brief lull. The inflow is increasing, with good dividends and healthy ROIs in sight for investors. However, how FDI will directly solve the apparent inadequacies of the healthcare sector in India, only time will tell.