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A healthy prescription
March, 15th 2008

The Finance Minister has tried to satisfy the aspirations of all stakeholders in the healthcare sector in Budget 2008.

A boost for healthcare.

The Common Minimum Program of the UPA states that public investment in healthcare will be stepped up to reach 2-3 per cent of GDP. Allocation for the health sector in general has been increased by 15 per cent in line with this goal.

A lions share of the healthcare budget has been allotted to the National Rural Health Mission (NRHM) which is one of the flagship initiatives of this Government. The NRHM has been in operation for close to three years now and the initial results are encouraging. Higher allocation for this scheme coupled with effective implementation may result in improved health indices in the future.

Tax holiday

Hospitals and healthcare providers would cheer the Finance Minister for the proposed five-year tax holiday on hospital projects in select non-urban areas. Industry was expecting a 10-year tax holiday under Section 80 IA of the Income-Tax Act.

The five-year tax holiday however has been proposed for hospitals which commence operations in the period April 1, 2008 to March 31, 2013, under a newly introduced Section 80 IB. This incentive is available to hospitals all over India except in certain urban agglomerations.

Many hospital chains already have plans in the pipeline for moving into Tier II and Tier III cities and this incentive will certainly take quality healthcare outside the metros. This would reduce the burden on tertiary healthcare in key metropolitan areas and serve as a bridge between overloaded city hospitals and primary healthcare centres, which clearly lack in infrastructure.

BPL segment

Patients, especially those from below poverty line families, stand to benefit from the newly introduced Rashtriya Swastya Bima Yojana under which a cover of Rs 30,000 is provided to every worker from the unorganised sector who falls under the BPL category and his/her family for healthcare related costs.

As documented in a number of studies by the WHO, the monetary impact of ill health on a familys expenses and subsequent fall in income, thus leading to poverty, is acute in India.

This new initiative of the Finance Minister needs to be welcomed by all. The implementation mechanism for this scheme is through the issue of smart cards and this will ensure that care reaches those in need and with far greater transparency

Vulnerable sections of the population, like the geriatrics, will benefit from the National Program for the Elderly. This new scheme with an outlay of Rs 400 crore plans to develop two National Institutes of Ageing, eight regional centres, and a department for geriatric medical care in one medical college/tertiary level hospital in each State during the Eleventh Plan.

The beneficiaries

Pharmaceutical companies will stand to benefit from the all-round reduction in excise duty.

Average import duties have also been reduced and many life saving drugs and bulk drugs used to manufacture such medicines are also fully exempt from excise and countervailing duty. Increased allocation for schemes such as pulse polio, National Aids Control Organisation (NACO) and Integrated Child Development Scheme (ICDS) will also benefit pharmaceutical companies.

Incentives in the form of weighted deduction of 150 per cent for expenses incurred on research and development was introduced in last years Budget.

This incentive has been extended to outsourced R&D also though the extent of weighted deduction will be 125 per cent.

Insurance companies should feel happy with the extension of tax benefits under Section 80 D for medical insurance premium paid by an individual for his/her parents. Incentives provided in the Budget for healthcare facilities in this Budget may also increase the demand for medical insurance from rural areas. Health insurance benefits are also being extended to more families in the textile sector.

Key concerns

Several key concerns remain in the healthcare sector. Hospitals have for long been requesting for infrastructure status for the healthcare industry in line with incentives given to other sectors such as telecom, power, roads, etc.

This issue however has not been addressed in this Budget. Non-availability to quality manpower at all levels is also an area for concern.

Industry was expecting tax incentives under Section 10 for imparting education and training to doctors, nurses and paramedical staff. This issue has also been addressed in the Budget and will create supply side shortages and higher costs if not addressed immediately. Entry barriers for health insurance companies still remain high with a minimum of Rs 100 crore as start-up corpus. Reducing this will see more companies entering the market and patients stand to benefit from better products and lower costs.

Rajarshi Sengupta
Krishnakumar Sankaranarayana
(The authors are Leader Healthcare Practice and principal consultant, respectively, PricewaterhouseCoopers.)
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