INTRODUCTION

The healthcare industry in India, comprising hospitals, clinic services, medical devices, e-health services, and health insurance, has experienced significant growth and expansion in recent years. India’s status as an emerging market and a highly favourable destination for foreign direct investment (“FDI”) has attracted large foreign investors whose active participation has played a crucial role in shaping the current landscape of the country’s healthcare sector.

Investors increasingly focus on India’s healthcare sector for stable returns, promising growth, and investment opportunities. Despite a downward trajectory in the volume of deals, the overall healthcare market in India, valued at about USD 180 billion in 2023, is projected to grow at approximately 10-12% compound annual growth rate (CAGR) to reach USD 320 billion by 2028, according to a report by healthcare fund Health Quad and Bain & Co.¹

(a) Recent trends

1. According to Ernst & Young,² hospitals and health tech start-ups were the main targets of the investments made in the healthcare sector in 2023. Hospitals, constituting 80% of the total healthcare market, attracted 62% of all PE/VC investments, while health tech, projected to touch the USD 50 billion mark by 2033,³ secured 23%.

2. One of the major deals of the year 2023 was Temasek’s purchase of a 41% stake in Manipal Health for USD 2 billion, which increased its total ownership to 59%.

3. Similarly, Blackstone Group, a US-based equity firm, acquired a 72.5% stake in Quality Care India Ltd, which operates as a network of CARE Hospitals, marking Blackstone’s first investment in the Indian healthcare sector.

(b) Government investments in public health⁴

1. In the Union Budget for 2023-24, the Ministry of Health and Family Welfare received an allocation of INR 89,155 crore, resulting in a 3.43% increase over the previous year’s allocation of INR 86,200.65 crore. 

2. In addition, INR 341 crore was allocated to the National Digital Health Mission and INR 7,200 crore to the Ayushman Bharat – Pradhan Mantri Jan Arogya Yojana (AB-PMJAY). 

REGULATORY FRAMEWORK

(a) Consolidated FDI Policy 2020

1. Presently, foreign investment is permitted up to 100% through the automatic route for the construction and development of hospitals, as well as the manufacturing of medical devices.⁵

2. In the pharmaceutical sector, foreign investments are permitted up to 100% for greenfield projects and up to 74% for brownfield projects under the automatic route. However, any foreign investment exceeding the 74% limit in brownfield projects mandates approval from the government.⁶

(b) Foreign Venture Capital Investors (“FVCI”)

1. A substantial portion of investment in the healthcare industry, especially in manufacturers of surgical devices, diagnostic equipment, and therapeutic devices, is contributed by venture capital firms.⁷

2. These venture capital entities are foreign entities registered with the Securities Exchange Board of India (“SEBI”) and are subject to the SEBI (Foreign Venture Capital Investor) Regulations, 2000. 

3. An FVCI is authorised to invest in securities of an unlisted Indian company involved in the research and development of new chemical entities within the pharmaceutical sector.⁸

4. An FVCI is also authorised to invest in securities of an unlisted Indian company involved in the ‘infrastructure sector’. For clarity, the ‘infrastructure sector’ includes hospitals (capital stock and includes medical colleges and para-medical training institutes).⁹

CONCLUSION

The Indian healthcare sector presents lucrative opportunities for investors. Foreign investment in the healthcare industry is crucial in advancing infrastructure, expanding healthcare access, enhancing standards, upgrading technology, and generating employment. With government assistance through its schemes, these benefits could also extend to semi-urban and rural areas, with significant demand for improved healthcare services.

[1] https://www.bain.com/insights/healthcare-innovation-in-india/.
[2] https://www.ey.com/en_in/private-equity/pe-vc-monthly-roundup.
[3] https://rbsa.in/download/31455/?uid=309cdae99f.
[4]https://www.google.com/url?sa=i&url=https%3A%2F%2Fassets.kpmg.com%2Fcontent%2Fdam%2Fkpmg%2Fin%2Fpdf%2F2023%2F02%2FHealthcare-pov-union-budget-2023-24.pdf&psig=AOvVaw2cB3xyOyDjVwCSEEZTYEpO&ust=1709734143797000&source=images&cd=vfe&opi=89978449&ved=0CAgQrpoMahcKEwiwku2Tpt2EAxUAAAAAHQAAAAAQBA.
[5] https://dpiit.gov.in/sites/default/files/FDI-PolicyCircular-2020-29October2020_0.pdf.
[6] https://dpiit.gov.in/sites/default/files/FDI-PolicyCircular-2020-29October2020_0.pdf.
[7] https://assets.kpmg.com/content/dam/kpmg/in/pdf/2023/10/from-volume-to-value.pdf.
[8] https://www.rbi.org.in/scripts/bs_viewmasdirections.aspx?id=11200.
[9] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=8434&Mode=0.