Budget 2024: AiMeD Demands Customs Duty Hike, Correction in Duty Structure

AiMeD, representing Indian medical device manufacturers, called for increased custom duty, correction of the inverted duty structure, and introduction of trade margin capping to boost domestic manufacturing.

The Association of Indian Medical Device Industry (AiMeD) has called for increased custom duty, correction of the inverted duty structure, and introduction of trade margin capping to boost domestic manufacturing. It has requested the finance minister to implement these measures in the upcoming Union Budget 2024-25. 

"The very low duty of zero to 7.5 % on medical devices all these years have not helped consumers if access to a local production base is being denied and market share of domestic industry is only 30%," stated Rajiv Nath, forum coordinator of AiMeD, in a pre-budget memorandum to Finance Minister Nirmala Sitharaman.

Nath highlighted that consumers face high out-of-pocket expenses due to the artificially inflated maximum retail price (MRP) of imported devices. He explained that Indian manufacturers are forced to match these MRPs, leading to a skewed marketplace plagued by unethical practices and inadequate regulation.

"The customers bearing the brunt of out-of-pocket expense are exposed to artificially inflated MRP labeled imports. Indian manufacturers are forced to match this MRP, creating a skewed marketplace with unethical practices that are non-regulated or ineffectively regulated," he added.

The association also pointed out the rising trend in medical device imports, which have consistently grown over the past three years and increased 13% this year. 

Imports soared from INR 41,709 Cr in 2019-20 to INR 68,885 Cr in 2023-24. Despite previous requests from AiMeD, their concerns were not addressed last year.

"It noted that the requests made by AiMeD last year were not considered, even though the Department of Pharmaceuticals and the Parliamentary Committee on Health in its 138th report and GTRI report on the sector, has been supporting a review of the tariff structure to enable the viability of manufacturing to address the 15 percent competitive disability factor," the association noted.

Proposed Solutions

AiMeD has proposed increasing the customs duty from 10% to 15% as part of a predictable tariff policy. 

The association also reminded the ministry of its earlier assurance to remove Nil Duty Exemption notifications, which have made local manufacturing non-viable and encouraged importing traders.

"This removal of exemption duties on some devices was also recommended by DoP in line with the National Medical Device Policy of 2023 released by the Honorable Prime Minister, which seeks to convert a 70% imports dependent Bharat to not only be an Aatma Nirbhar Bharat, but also the leading Global Manufacturing Hub of Medical Devices as stated in NMDP 2023," AiMeD mentioned.

The association emphasized the need to reschedule the duty revision for key components of X-Ray equipment, which was planned under the Phased Manufacturing Programme (PMP). 

Currently, the duty increase is creating an inverted duty structure since the imports of X-ray equipment come from Korea under a Nil Duty-Free Trade Agreement.

"There is also a need to reschedule the duty revision of key components of x-ray equipment that had been planned under the Phased Manufacturing Programme (PMP) as manufacturing of these components has not yet started, and the duty increase is now creating an inverted duty structure as imports of x-ray equipment case are from Korea, under the Nil Duty-Free Trade Agreement," AiMeD stated.

AiMeD also called for correcting the inverted duty structure by levying a 5% customs duty cess on the remaining medical devices. This approach was partially implemented in 2020 but remains incomplete.

"The organization asked the Ministry to correct the inverted duty structure by levying a cess of 5% customs duty on balanced medical devices. In 2020, this was applied to five of the four digital HS Codes, and the rest of the 22 HS Codes are pending," AiMeD explained.

Furthermore, the association requested trade margin capping by monitoring the MRP of imports and implementing tax benefits for capital expenditure and R&D investments in medical devices. 

"The trade margin capping needs to be implemented by monitoring the MRP of imports if found to be over 10-20 times the cost, insurance, and freight price. It also requested the government to allow income tax benefits for Capex and research and development investments in medical devices," AiMeD stated.