The Hindu Business Line : Budget tonic for healthcare

It was music to the ears for those concerned with healthcare, hearing the Finance Minister say during Union Budget 2008 that “healthcare was one of the pillars of social sector reforms in India.” Not only did he substantiate it with an announcement to increase public spending by nearly 15 per cent taking the same to Rs 16,543 crore, but the reforms also saw a five-year tax holiday for hospitals in non tier 1 cities, Rs 12,050 crore for the National Rural Healt h Mission and Rs 993 crore for AIDS prevention.

The key question in this year’s Budget is whether the Government would continue with healthcare reforms or will it neglect the sector.

Accessibility and affordability are the main themes around which the Budget expectations for this year’s healthcare budget should revolve around. The Government should primarily focus on quality healthcare delivery through effective public and private participation. On the one hand it should do whatever best it can to contribute in cash and in kind (making infrastructure available for private players at affordable prices, for instance) and, on the other hand, it should reform healthcare policies to create a congenial business environment for the private players to invest in the space.

Infrastructure status

The healthcare industry should be accorded infrastructure or priority status — long-standing demand of the industry — and the necessary fiscal benefits should be given to promote active private sector participation that can facilitate in bringing international standards of quality in the sector.

Further, the infrastructure status can facilitate hospitals in getting funds to expand operations. Another major aspect to be considered is the need for capacity building of healthcare skill sets by relaxing norms for establishing medical colleges and capacity expansion for nursing and other paramedics.

To address the serious, immediate and future shortage of skills in the healthcare sector, the Government should seriously incentivise companies engaged in setting up training and education facilities in the areas of nursing, midwifery, biomedical engineering, and lab technician and other paramedical courses.

Also, there is an urgent need to at least double the number of seats for medical education from the current level. This can be effectively achieved by reducing the land requirement from 25 acres to, say, 10 acres. Further, the requirement that only a person owning and managing a hospital of at least 300 beds qualifies for setting up a medical college needs to be eased by allowing that person to be affiliated with other qualifying private and public hospitals. Such measures will go a long way in building badly needed capacities in the sector.

Tax breaks

Apart from these, there should be special tax incentives and concessional interest rate for hospitals and diagnostic centres being established in smaller towns and rural areas.

Last year’s Budget saw the Government granting tax holidays to new healthcare establishments in tier 2 and 3 cities. Similar incentives are required to be rolled out this year as well — for example, special tax concessions for encouraging public-private partnership initiatives.

Also, excise duty and VAT being charged on medical equipments and speciality medical devices and consumables should be completely removed or reduced, thereby making them accessible to larger sections of society.

Scheme for weaker sections

While the National Rural Health Mission continues to reap good results, the time has come to initiate and announce a similar policy for the economically weaker sections of urban society.

Today 80 per cent of healthcare spend in India is out of pocket which brings untold financial burden and hardship to the common man. To facilitate accessibility and affordability, the Government should look for ways to provide health insurance on the lines provided by Andhra Pradesh Government under the Arogya Sri scheme.

The healthcare sector has also demanded an increase in the tax depreciation rate from 15 per cent to 40 per cent for life saving medical equipment.

The list of life saving medical equipment (in Appendix I under item (xia) of the Income-Tax Rules-1962) should be extended and be made eligible for 40 per cent depreciation. This can generate investible surpluses needed for upgradation, modernisation and investment into latest technology.

R&D incentives

The healthcare sector also looks forward to research and development incentives, of the kind provided to certain industries under Section 35 (2AB) of the I-T Act, in the Budget. To promote clinical research and R&D, the Government should take steps to reduce import duty to nil on inputs for qualifying R&D activities.

Other areas where Government can help are: extension of Section 80-1A benefit to up-gradation of existing infrastructure and to all healthcare facilities of 100 beds or more irrespective of the location; tax deduction for expenditure incurred for voluntary accreditation by hospitals; creation of a ‘health development fund’; tax deduction of a token amount of, say, Rs 2,500 per family per annum for preventive health spend; increasing the limit for tax deduction for medical spend to Rs 50,000 per annum per family under Section 17(2) of the I-T Act; and making health insurance mandatory for companies employing more than 50 people.

These last few years have seen consistent growth in the Indian healthcare sector, which has a promising future. And it is expected that the aforementioned reform proposals would help in accelerating and sustaining the growth path in the industry. The healthcare sector has been earmarked as one of the key sectors that would help India become a global giant over the next decade.

(The author is Member of Leadership Team , KPMG in India.)

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