By Sunil Thakur, Partner, Quadria Capital, Asia’s healthcare focused private equity firm

India’s annual budget 2021-22 has been widely received with cheer and hope, at least for the most sections of the society and businesses. With an economy facing enormous headwinds thanks to COVID-19 and the broader slowdown even before the pandemic struck, the budget had to come out as one signaling a strong growth push and revival. And it did not disappoint on most counts. Given the limited fiscal room available to the government stemming from the COVID-19 management and other expenses, the extraordinary allocation to healthcare in the budget is even more noteworthy.

As such, the budget has several features related to healthcare that make India an attractive foreign investment destination in that sector alone.

Fresh from the COVID-induced learnings as well as stirred by the urgency to improve all-round healthcare infrastructure and services, the decision to raise healthcare allocation sharply by almost 140% at 223846 crore, as compared to the previous budgetary allocation is a huge step forward and elevates healthcare to the exalted levels of agriculture in terms of the government’s priority list. Then in addition to the National Health Mission, the government has notably introduced a new centrally-sponsored scheme called PM Atma Nirbhar Bharat with an outlay of over Rs 64,000 crore. This is to ramp up of capacities of primary, secondary, and tertiary care health systems while creating new institutions for research and prevention of new and emerging diseases. The proposal to set up29,000 odd wellness centres, integrated public health labs, several critical care facilities, public health units at points- of-entry and health emergency operation centres is indicative of an all-round expansion of healthcare facilities.

Given the intrinsic linkage between health and economy as illustrated rather rudely during the recent pandemic, this unprecedented expansion of facilities and research across the country would certainly give a booster shot to the quality of life and therefore the human capital itself (along with education), a necessary pre-requisite to an economy’s performance and growth. From an investor’s viewpoint, the high priority accorded to the sector would enable financing at lower rates and longer-term.

Given the allocation of funds for water, sanitation etc under the healthcare heading, the government has sought to reimagine healthcare as a comprehensive idea that envisages nutrition, universal coverage of water supply, sanitation and clean air as an integral part of well being. Along with accelerating the creation of regular health infrastructure in tier II and III towns, the building activities related to water, sanitation and clean air would also trigger considerable economic activities opening up avenues for investment by foreign funds. If there are subsidies provided on real estate, power and utilities, it would further catalyze investment.

With the budget raising the FDI limit from 49% to 74% in insurance, this is also likely to give an impetus to the health insurance segment. Driven by the government’s Ayushman Bharat programme, a larger health insurance culture is to take roots across the country which will drive health insurance penetration to unprecedented levels. This is again an opportunity for foreign investors.

With the budget announcing several incentives to the startups, the Indian healthcare market is conducive to an active investment role by foreign funds. The extension of exemption on capital gains for another year, the incentivizing of incorporation of one-person companies (OPCs) while also allowing NRIs to incorporate OPCs in India are some of those incentives. All this would positively impinge on the healthcare startups too. This is particularly important in light of the critical roles played by many of them in the immediate aftermath of the pandemic outbreak. Several of them looking to reinvent or expand would require funds.

Chastened by COVID -19, the all-round emphasis on preventive health and well being in the budget would create several new value chains for several new products and services. This opens up the Indian market for foreign investors. The target to improve nutritional outcomes across 112 Aspirational Districts in the budget illustrates the promise that the market holds even in tier II and III cities where the private players could add strength to the government’s initiatives.

Naturally, the physical expansion of facilities would also be complemented with augmenting the manpower in the healthcare sector particularly in tier II and III cities. There is a need to incentivize reputed private sector medical educational institutes for increasing the number of seats. Not only all hospitals should start DNB programmes, but the number of DNB seats must be increased for which private hospitals should be incentivized through tax exemption. This augmenting of manpower would also require resources where foreign investors can play a role.

With digital health taking centre stage during COVID-19, although there is much that still needs to be done in terms of regulations and upgrading of technologies, the healthcare push in the budget will create spillover effect in different related spheres where foreign investors could play a role.

And lastly, coming on the heels of the formidable battle against the pandemic which is still underway, the new momentum administered to the larger economy by way of building solid physical infrastructure base when combined with the prospective generation of employment – would stir consumption and business expansion at inconceivable levels thereby creating scope for foreign investors. So, the brighter economic prospects triggered by the budget would pull in global investors. After all, it is policy consistency, coherence, the stability of markets and a strong growth- oriented policy landscape is what pulls global investors to an economy. And the healthcare budget 2021-22, as well as the rest of the budget, has lived up to those essentials on most counts.