A STUDY ON ROLE OF FOREIGN DIRECT

INVESTMENT IN HEALTHCARE SECTOR IN INDIA

Synopsis submitted to Madurai Kamaraj University

for the award of the Degree of
DOCTOR OF PHILOSOPHY IN BUSINESS ADMINISTRATION

Researcher

R. ILAIYARANI
(Reg.No.P3829)

Under the Guidance of

Dr. V. CHINNIAH

DEPARTMENT OF MANAGEMENT STUDIES

MADURAI KAMARAJ UNIVERSITY
MADURAI 625021
TAMIL NADU
INDIA

April 2019
 A Study on Role of Foreign Direct
Investment in Healthcare Sector in India

1. Introduction
2. Current Status of HealthCare Industry in India
3. Indian Health care –Reason to invest
4. Statement of the Problem
5. Scope of the Study
6. Justification of the Study
7. Objectives of the Study
8. Research Methodology
9. Period of Study
10. Sources of Information
11. Statistical Tools and Techniques
12. Scheme of the Report

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1. Introduction

Foreign direct investment (FDI) is an investment India is expected to rank

amongst the top 3 healthcare markets in terms of incremental growth by 2020. In
FY17, Indian healthcare sector stood as the 4th largest employer as the sector
employed a total of 319,780 people. In May 2017, the Asian Research and
Training Institute for Skill Transfer (ARTIST) announced plans to create around 1
million skilled healthcare providers by 2022. Indian healthcare sector, one of the
fastest growing industries, is expected to advance at a CAGR of 22 per cent
during 2016-2022 to reach US$ 372 billion by 2022. There is immense scope for
enhancing healthcare services penetration in India, thus presenting ample
opportunity for development of the healthcare industry. Rising income levels,
ageing population, growing health awareness and changing attitude towards
preventive healthcare is expected to boost healthcare services demand in future.
The low cost of medical services has resulted in a rise in the country‟s medical
tourism, attracting patients from across the world. Moreover, India has emerged as
a hub for R&D activities for international players due to its relatively low cost of
clinical research. Conducive policies for encouraging FDI, tax benefits,
favourable government policies coupled with promising growth prospects have
helped the industry attract private equity, venture capitals and foreign players.

2. Current Status of HealthCare Industry in India

The demand for hospital services has been consistently soaring in the
country, with every class of the society demanding better quality and standards of
healthcare which has resulted in continuous growth of the healthcare industry. The
overall Indian healthcare market is worth around US$ 100 billion and as per a
report of IBEF. Growth in the Healthcare sector is dominated by private players in
India, unlike increased government dominance in developed nations. Public
spending on healthcare in India is low compared to many countries in the world
and as on recent report it spends 1.4 percent of GDP which places India amongst
the lowest spending countries (data.worldbank.org). The mismatch between
demand for and supply of healthcare services and infrastructure has triggered the
emergence of private participation in the provision of healthcare. One recent study
has estimated that, approximately 54 per cent of the medical institutions, 75 per
cent of the hospitals, 51 per cent of the hospital beds, 75 per cent of the
dispensaries and 80 per cent of all qualified doctors are in the private sector
(Sehgal and Hooda, 2015). All these private entities together provide around 60
per cent inpatient and 80 per cent outpatient care to the Indian population,
indicating the presence of a highly privatized healthcare market in India (Sehgal
and Hooda, 2015).

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3. Indian Health care –Reason to invest

The Indian pharmaceuticals market is expected to touch USD 55 billion by

2020 from USD 36.7 billion in 2016, growing at a compound annual growth rate
(CAGR) of 15.92 per cent. By 2020, India is likely to be among the top three
pharmaceutical markets by incremental growth and sixth largest market globally
in absolute size. There are over 10,500 manufacturing units and 3,000 pharma
companies in India. Over 60,000 generic brands exist across 60 therapeutic
categories. India accounts for 20% of global exports in generics, making it the
largest provider of generic medicines globally. Indian vaccines are exported to
150 countries. Indian Health Care is expected to rise at a rate of CAGR of 29%
during 2015-20 to US $280 billion with rising income, greater health awareness,
increased precedence of lifestyle diseases and improved access to insurance. The
new National Health Protection Scheme will provide hospitalization cover to over
100 million poor and vulnerable families. Finally, the scheme will provide
coverage up to USD 7,700 per family per year for secondary and tertiary care
hospitalization. Medical tourism to India is on a rise, primarily due to its expertise
in cardiac and orthopedic procedures, in addition to other specialized areas like
neuro-surgeries, cancer treatment and organ transplantation. Drugs worth USD
130 billion are expected to go off patent between FY17 to FY22, presenting a
huge market opportunity for Indian manufacturers. With increasing penetration of
chemists, especially in rural India, OTC drugs will be readily available. Pharma
companies have increased spending to tap rural markets and develop better
infrastructure. The market share of hospitals is expected to increase from 13.1% in
2009 to 26% in 2020. Over USD 200 Billion is to be spent on medical
infrastructure in the next decade. Following the introduction of product patents,
several multinational companies are expected to launch patented drugs in India.
India‟s cost of production is significantly lower than that of the USA and almost
half of that of Europe. India‟s total exports of Pharmaceuticals (APIs, Generics
and Alternative system of medicine) during 2016-17 was USD 16.8 billion India
has a market share of almost 42% of Generic drugs produced globally, a market
size of Africa and Middle East put together. North America is India‟s largest
export market, receiving over 34% of India‟s pharmaceuticals exports. Africa is
the second largest, receiving over 19% of India‟s exports. The Indian
pharmaceutical industry is largely dominated by generics drugs as the industry
earns around 70% of its revenues from the same. India‟s Pharmaceutical industry
has filed the highest number of Drug Master Files (DMFS) with USFDA and by
the end of year 2016, number of filings stands at 3,950. India‟s Abbreviated New
Drug Applications (ANDAS) totaling over 4,000 by June 2017.

4. Statement of the Problem

The Healthcare has become one of India's largest sectors both in terms of
revenue & employment. The industry is growing at a tremendous pace owing to
its strengthening coverage, services and increasing expenditure by public as well

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private players. Indian healthcare delivery system is categorised into two major
components - public and private. The Government, i.e. public healthcare system
comprises limited secondary and tertiary care institutions in key cities and focuses
on providing basic healthcare facilities in the form of primary healthcare centres
(PHCs) in rural areas. The private sector provides majority of secondary, tertiary
and quaternary care institutions with a major concentration in metros, tier I and
tier II cities. According to the data released by the Department of Industrial Policy
and Promotion (DIPP), Government of India, the hospital and diagnostic centres
attracted Foreign Direct Investment (FDI) worth US$ 4.83 billion between April
2000 and September 2017. Therefore the present study aims to study the FDI
inflow in Health Sector of India.

5. Scope of the Study

India, one of the biggest emerging markets, is currently an important

destination for Foreign Direct Investment (FDI). Despite India„s potential to
become one of the most dominant economies in the world, yet its economic
progress since its independence in 1947 has generally been masked by its
perception of being a closed, developing country. However, this perception has
changed in the recent past and India is accepted as one of the most stable and
robust economies. The healthcare sector as an industry is expanding rapidly and
has not been as severely impacted by recent economic slowdown as some of the
other industries. It comprises of hospital services, diagnostic services, diagnostic
products, medical technology, clinical trial services and clinical research
organizations. This sector is predominantly privatized and accounts for more than
80% of total healthcare spending in India with almost 75 to 80 % of hospitals
being managed by private sector. The Government of India Policy to encourage
investment in the health care sector, government of India has allowed 100% FDI
under the automatic route. Government has also accorded the infrastructure status
to the hospitals and Lower tariffs on medical equipment. Government has also
announced tax holiday for five years for the hospitals in rural areas Market
Drivers of Health Care Sector Health awareness is raising. Health insurance sector
is also on the rise. Private sector companies are growing fast in terms of owning
and managing hospitals. The present study, the researcher has given various
suggestions for the betterment to attract more Foreign Direct Investment in Health
care sector in India.

6. Justification of the Study

As it is clear from the review and analysis of past studies that a number of
studies have looked at the trends and impacts of FDI in Indian economy.
However, many of the studies till now have been undertaken to examine the
impact of economic reforms on FDI attractiveness and FDI inflows in India in
general aspects yet there is a dearth of literature especially dealing with the inflow
of FDI in all its manifestations and the forms in the Indian Healthcare sector. The

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present study the researcher has made an attempt to analyse the pattern, potential
drivers and implications of FDI in the Indian Health care sector. Moreover, this
study has presented a theoretical model to increase the equity cap on Foreign
Direct Investment in health care sector which is the need of the present market
conditions. Therefore, it is in this perspective that the need of this study is felt.

7. Objectives of the Study

The present study is designed to accomplish the following objectives in

relation to the topic of our research:

(i) To analyse the efforts of Government of India in connection with

Foreign Direct Investment in Health care sector.
(ii) To study and assess (country-wise and year-wise) various aspects
pertaining to the Health care performance of FDI in India.
(iii) To present the status of FDI in drugs & pharmaceuticals, hospitals &
diagnostic centers, and medical & surgical appliances, to identify some
of the challenges and opportunities in this industry.
(iv) To analyse future prospects of FDI in Indian Health care sector
(v) To depict the current condition of healthcare industry in India
(vi) To examine the FDI in healthcare sector in India
(vii) To understand the FDI equity inflows in Health sector of India

8. Research Methodology

The aim of the present research is to study the Foreign Direct Investment in
Indian healthcare sector. The objectives of the study are to provide the current
status of FDI in health care and to identify some of the challenges and
opportunities for Foreign Direct Investments in healthcare sector. This study is
based entirely on secondary data collected from various Government publications
like reports of Department of Industrial Policy and Promotion, Indian Brand
Equity Foundation (IBEF) and National Health Profile. After depicting the current
condition of healthcare industry in India, the researcher examine the level and
pattern of flow of FDI in healthcare sector in respect to Drugs and
Pharmaceuticals, Hospitals and Diagnostic Centres, and Medical and Surgical
Appliances as given in the DIPP report. The study is descriptive in nature and
based on the secondary data that is gathered from the books, various articles from
journals, reports of Department of Industrial Policy & Promotion and other valid
online sources.

In order to accomplish these objectives, an attempt has been made in the

present study to analyze the growth pattern of FDI in India taking Indian Health
care Sector as the major case study. In this context, the following methodology
has been used in the present research work:

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9. Period of Study

For the purpose of analyzing different determinants and parameters of FDI

in Health care sector in India, data on FDI in Health care sector was taken from
2000 to up to 2018.

10. Sources of Information

This study is based on secondary data. For the present research work the
statistical data was collected mainly from the secondary sources. Secondary
sources include published and unpublished data collected from different
organizations, institutes, agencies and government offices. Reputed journals were
also used for collecting relevant information.

11. Statistical Tools and Techniques

In the light of the objectives of our study, different explanatory and

analytical statistical techniques were used to analyze the data relating to our study.
For the interpretation of data various statistical tools were used according to the
requirement and suitability of study. The data for the present study are collected
from the website of Department of Industrial Policy and Promotion, Ministry of
Commerce, Government of India. The collected data were analysed by using
statistical tools such as percentages, mean, Standard Deviation and Co Efficient of
Variance.

9.1. Average/Mean

The most commonly used average is the arithmetic mean, briefly referred
to as the mean. The mean can be found by adding all the variables and dividing it
by total number of years taken. It gives brief picture of a large group, which it
represents and gives a basic of comparison with other groups. Simple mean can be
found by applying following formula.

Whereas, = Average of sample,

∑ = summation of sampled companies

n= number of companies

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 9.2. Standard Deviation

The standard deviation concept was introduced by Karl – Pearson in

1823. It is by far the most important and widely used measure of studying
Dispersion. Standard Deviation is also known as root mean square deviation for
the reason that it is the square root of the mean of the squared deviation from
arithmetic mean. Standard deviation is denoted by small Greek letter “σ” (Read as
sigma).

The formula of standard deviation is as under:

9.3. Coefficient of Variance

In probability theory and statistics, the coefficient of variance (CV) is a

normalized measure of dispersion of a probability distribution. It is defined as the
ratio of the standard deviation to the mean. This is only defined for non-zero
mean, and is most useful for variables that are always positive. It is also known as
unitized risk. The coefficient of variation should only be computed for data
measured on a ratio scale. It does not have any meaning for data on an interval
scale. The formula of coefficient of variance is as under:

Whereas,

C.V. = Co efficient of Variance,

= Standard Deviation,

= Mean of Sample Company.

9.4. Trend Analysis

Trend analysis is immensely helpful in marking comparative study of the

changed in an item of groups of items over a period of time and to make
conclusions regarding the change in date. For this purpose, a base year is selected
and the amount of the item – relating to the base year is taken equal to a hundred
and Index number are computed for other years based on the amount of item
relating to the base years based on the amount of that item in those years.

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12. Scheme of the Report

The present study consists of five chapters. The contents of each chapter
are given below:

The first chapter titled, “Introduction and Design of the Study”, gives an
outline of the thesis such as Current Status of HealthCare Industry in India, Indian
Health care –Reason to invest, Statement of the Problem, Scope of the Study,
Justification of the Study, Objectives of the Study, Research Methodology, Period
of Study, Sources of Information, Statistical Tools and Techniques, Operational
Definitions and Concepts and Scheme of the Report.

The second chapter titled “Review of Literature” includes various

literatures of present study are collected and presented in a systematic manner.
This chapter discusses the related topics and theories based on academic books
and articles and sketches a detailed review of the literature relevant to the present
study.

The third chapter titled, “Conceptual Background of Foreign Direct

Investment” will focus on theoretical background of the study and profile of the
Foreign Direct Investment in India. This chapter includes, Backdrop of FDI in
Health care sector In India, Healthcare Services industry in India, Health
Care Delivery in India, Health Care Services in India and its influence on medical
tourism, The Advantage of Foreign Direct Investment India, The Opportunities
of FDI in Healthcare industry in India, The Challenges for FDI in Health Care
Sector, The Healthcare Market Functions through Five Segments, Growth of
Healthcare Expenditure over the Years, Private Sector Presence in India‟s
Healthcare Sector, Health Care -Advantage India, Number of Medical Colleges in
India, Number of Doctors in India, Notable Trends in the Indian Healthcare
Sector, Strategies adopted by Indian Health Care, GDP Per Capita at Current
Prices, Medical Tourism- a New Growth Factor for India‟s Healthcare Sector, Re-
Emergence of Traditional Medical Care, Policy Support and Government
Initiatives -The way forward for Healthcare sector in India, Human Resources in
Health Sector -Highlights , Snapshot of Global health care, Indian Healthcare
Industry in 2018 and Forecast for 2019 and SWOT of FDI inflows in health care
sector in India.

The fourth chapter titled, “An Analysis of role Foreign Direct Investment
in Healthcare sector in India,” evaluates the different variables relating to
Foreign Direct Investment in Healthcare sector in India. This chapter also
analysed the growing need for healthcare spending, Sector is Attracting Lucrative
M&A Deals, An overview of FDI in Healthcare Sector in India, FDI Equity
Inflows in Health Sector of India from April 2000 to December 2017, Status of
FDI in Hospitals, FDI Inflows in Healthcare Sector (Major Component-wise) in
India, The Sectors attracting highest FDI equity inflows, Top 20 sector-wise FDI

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equity inflows, Sub Sectors of FDI Equity Inflows in Drugs & Pharmaceuticals,
Share of Top Five Countries Attracting FDI Equity Inflows for Drugs &
Pharmaceuticals, Share of Top Five RBI‟s Region-wise with States Covered in
FDI Equity Inflows for Drugs & Pharmaceuticals, Details of Top FDI Received in
Drugs & Pharmaceuticals, The Statement on sector-wise approved FDI proposals
during the financial year 2017-2018.

The fifth and last chapter, “Summary of findings, Suggestions and

Conclusion” provides the predominant findings of the rigorous statistical analysis
carried out to analysis the role Foreign Direct Investment in Healthcare sector in
India and the conclusion arrived at from the study. It crucially presents Foreign
Direct Investment in Healthcare sector in India along with suitable suggestions.

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