from India Tax & Regulatory Services
www.pwc.in
Guidelines issued for incentive schemes in the medical devices sector
July 31, 2020
In brief
The Department of Pharmaceuticals (DoP), Ministry of Chemicals and Fertilizers released guidelines1 for the Production Linked Incentives (PLI) Scheme for promoting the domestic manufacturing of medical devices (PLI Scheme) and Scheme for Promotion of Medical Devices Parks (PMDP) on 27 July 2020.
i. The PLI Scheme shall extend an incentive of 5% on incremental sales (over base year of 2019- 2020) for the prescribed list of medical devices manufactured in India to eligible companies, for a period of five years starting financial year (FY) 2021-22;
ii. The Scheme for PMDP has been introduced for easy access to standard testing and infrastructure facilities through creation of common infrastructure facilities. It shall provide a one-time grant-in- aid of maximum INR 4bn for the creation of common infrastructure facilities in selected four Medical Device Parks proposed by the State Governments.
In detail
I. PLI Scheme
Focus area Provision
Applicant An Indian company proposing to make threshold investments in greenfield projects for manufacture of products under the target segment. Greenfield has been defined to include a new production facility or a new plant in an existing manufacturing facility.
Application
time limit 120-days from the date of issuance of the guidelines, i.e., 27 July 2020.
Incentive Financial benefit of 5% of the net sales turnover from the manufacture of eligible products, incremental sales over the base year for same products. Net sales turnover is defined to mean gross turnover minus credit notes, discounts, sales return and taxes.
1 File No. 31026/19/2020-MD dated 27 July 2020 and File No. 21026/54/2020-Policy dated 27 July 2020
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Target segments
(eligible products) Target segments of the products are as follows:
Name of the
segment Indicative eligible products Cancer care/
Radiotherapy medical devices
Brachytherapy Systems, Rotational Cobalt Machine, Radiotherapy Simulation Systems, Linear Accelerator Workstations- Radiotherapy Planning, Proton therapy system and other products* in this target segment.
Radiology and Imaging medical devices (both ionising and non-ionising radiation products) and Nuclear Imaging Devices
CT Scan, MRI, Ultrasonography, X-ray equipment, mammography, C-arm, Cath-Lab, Positron Emission Tomography Systems, Single photon emission
tomography (SPECT), Cyclotrons and other products* in this target segment.
Anaesthetics and Cardio-Respiratory medical devices, including Catheters of Cardio-Respiratory Category and Renal Care Medical Devices
Needles-Anaesthesia, Syringes-Anaesthesia, Anaesthesia workstation, Anaesthesia Unit Gas Scavengers,
Anaesthesia Kits, Masks —Anaesthesia, Anaesthesia Unit Vaporisers, Anaesthesia Unit Ventilators, Automated external defibrillators, Dialyser, Dialysis Machine, Peritoneal dialysis kits, Biopsy Kits- Renal, Dialyser reprocessing system, Lithotripters-Extracorporeal —Renal and other products* in this target segment.
All implants, including implantable electronic devices
Cochlear implants, Hip implants, Knee implants, Spinal and neuro-surgical implants, Urogynecologic Surgical Mesh implants, Hernia Surgical Mesh implants, Cerebral Spinal Fluid Shunt Systems, Implanted Pacemakers, insulin pump, implanted neuro-stimulated devices such as Deep Brain Stimulator, Intraocular lenses, heart valves, stents and other products* in this target segment.
* Other products - For products not specifically mentioned in the table above, the Technical Committee shall decide whether such products shall be considered.
Note - A key component that constitutes a major part of the finished medical device having distinct HS code will be included in the corresponding target segment.
Eligibility thresholds The eligibility threshold criteria of incremental investment and incremental sales of manufactured goods (covered under target segments) over the base year (2019-20) is as follows:
Incentive rate (on incremental
sales of manufactured
goods)
Threshold minimum incremental
investment
Threshold minimum incremental sales
of manufactured goods
Maximum incentive per applicant within
a target segment
Year 1: 5%
Year 2:5%
Year 3: 5%
Year 4: 5%
Year 5: 5%
Formula for calculation of
INR 1.80bn over three years Cumulative Minimum (INR in bn):
Year 1: 0.60
(INR in bn) Year 1: 1.20 Year 2: 2.40 Year 3: 3.60 Year 4: 4.60 Year 5: 5.60
(INR in bn) Year 1: 0.08 Year 2: 0.17 Year 3: 0.27 Year 4: 0.32 Year 5: 0.37
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Focus area Provision
incentive
prescribed Year 2: 1.20 Year 3: 1.80 Year 1 = FY 2021-22
The applicant will not be eligible for incentive in a particular year, if the threshold criteria for that year have not been met. However, the incentive in succeeding years may be claimed during the tenure of the Scheme, provided the eligibility criteria are met for such years.
Eligible investments Expenditure incurred with effect from 1 April 2020 on new plant and machinery and associated utilities, R&D, transfer of technology will be eligible. Expenditure towards purchase and construction of land and building and raw materials and consumables will not be counted. The duration of the Scheme is from FY 2020-21 to 2026-27.
Selection criterion A maximum of 28 companies will be selected for incentives with a minimum of three (if available) and maximum of 10 companies will be granted approval for each target segment. The evaluation parameters are as follows:
• Global Medical Devices manufacturing turnover of applicant and/ or group
company for FY 2018-19 >= INR 0.60bn; additional points for every additional INR 0.60bn (Global Medical Devices) manufacturing turnover;
• Existing patent/ technology transfer with the applicant and/ or group company in the target segment; additional points for every additional patent/ technology transfer;
• Existing ISO 13485 as on the date of application available with the applicant and/ or group company;
• Existing product CDSCO/ AERB approved/ regulatory product approval in the USA (USFDA), UK, Australia, Japan, Canada, European Union, as on the date of
application available with the applicant and/ or the group company (any one approval out of this list). Additional points for additional regulatory approval out of prescribed list;
• Average R&D expenses of the applicant and/ or group companies for the period of FY 2017-18 and 2018-19 as a percentage of sales revenue (which is capitalised in the books of account and/ or in capital work in progress) ranging between 5% to 10%.
Additional points if average R&D expenses exceed 10%.
Some other criterion Companies will need to have a minimum net worth of INR 0.18bn and pay a non- refundable application fee of INR 0.1m per application. A company can make only one application per target segment.
No restriction on any applicant applying in more than one target segment; however, the applicant would be required to separately meet the eligibility criteria of threshold investment and incremental sales of manufactured goods for each application.
Application and
disbursement process Initial scrutiny
An online application is required to be submitted with the Project Management Agency (PMA). The PMA will scrutinise the application and get the defects (if any) rectified from the applicant. The PMA will process the applications and make appropriate recommendations to the Empowered Committee (EC) for approvals.
Approval process
The EC will consider applications, as recommended by the PMA, for approval. A Technical Committee (TC) constituted by the DoP will examine and give
recommendations on any technical issue(s) related to the Scheme referred by the PMA/
EC. After receiving approval from the EC, the PMA will issue the approval letter.
All applications will be finalised within 60-days from the date of closure of application window.
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Disbursement
Claims for disbursement of incentives will be submitted either on half yearly/ annual basis to the PMA in the prescribed format along with the relevant documentation within nine months from the end of the FY to which the claim pertains. The PMA shall process the claim for disbursement of incentive within 60-days from the date of receipt of such claim and make appropriate recommendations to EC. The EC will consider and approve claims for disbursement of incentive, as recommended by the PMA. The PMA shall disburse funds after completion of all pre-disbursal formalities by the applicant and approval from the EC. The disbursement of incentives will be in the form of direct bank transfer in the name of the applicant only.
Some other key
aspects Amongst other things, the applicant company needs to furnish the following:
• Certificate by empanelled chartered engineer to be appointed by the PMA, for threshold investment by the applicant;
• Forecasted revenue in target segments, employment generation in India and proposed plan of domestic value addition for the next six years;
• Statutory auditor certificate certifying various aspects, including net worth of the applicant and/ or group companies, capitalisation of investment, etc.
Proposed Plan for Domestic Value Addition (DVA) for the next six years is required to be furnished by the applicant company. The guidelines prescribe the formula for calculation of DVA as A divided by B:
A. Net Sales Turnover minus the value of non-originating material and services used in manufacturing.
B. Net Sales Turnover.
The successful applicant will need to provide bank guarantee equal to 1% of the threshold investment for year-one for 365 days and will be rolled over until 90% of the threshold investment for year-one has been made.
Any change in the applicant company, such as merger/ demerger, substantial change in shareholding, which leads to the creation of a successor-in-interest, will require prior approval of the EC before disbursement.
II. PMDP
Focus area Provision
Scope Four Medical Device Parks to be supported with maximum grant-in-aid for one medical device park limited to INR 1bn. The proposed park shall not be less than 150 acres in area (100 for North Eastern States and Hilly States). The grant-in-aid will be 70% of the project cost of the Common Infrastructure Facility (CIF). In case of North Eastern States and Hilly States, the grant-in-aid will be 90% of the CIF.
The duration of the Scheme is from FY 2020-2021 to 2024-2025.
Scheme for PMDP to be implemented through the State Implementing Agency (SIA), a legal entity with minimum 51% equity shareholding of the State Government in the paid-up capital of SIA, set up by the concerned State Government.
Application window Proposal required to be made within 60-days of issuance of the guidelines, i.e., 27 July 2020.
CIF CIF with capacity commensurate to the expected number and type of medical device manufacturing units in the park. Some of the indicative activities under the common facilities/ centres are as follows:
i. Component Testing Centre/ ESDM/ PCB/ Sensors facility.
ii. Electro-magnetic interference and Electro Magnetic Compatibility Centre.
iii. Biomaterial/ Biocompatibility/Accelerated Ageing testing centre.
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Focus area Provision
iv. Medical grade moulding/ milling/ injection moulding/ machining/ tooling centre.
v. 3D designing and printing for medical grade products.
vi. Sterilisation/ ETO/ Gamma Centre.
vii. Animal lab and toxicity testing centre.
viii. Radiation testing centre, etc.
ix. Radiology Tube/ Flat Panel Detectors/ MRI Magnets/ Piezo electrical crystals/
power electronics facility.
x. Solid waste management/ ETP/ STP/ Electronic Waste management unit.
xi. Common Warehouse and Logistics (clearing and forwarding, insurance, transportation, customs, weighbridges, etc.) centre.
xii. Emergency Response Centre/ Safety/ Hazardous Operations audit centre.
xiii. Centre of Excellence/ Technology incubator/ ITI/ Training Centres.
Note: The list of common facilities/ centres given above is indicative and States are encouraged to plan for facilities that the implementing agency considers useful.
Ceiling on the eligible
project cost The project cost shall not include the cost of land, preoperative expenses such as preparation of project report, administrative, and management support expenses. No grant shall be given for the construction of roads, compound walls and buildings.
However, as far as various scientific facilities/ centres are concerned, 30% of the estimated cost of the facility/ centre will be allowed from grant-in-aid towards construction of the building.
Selection criterion Evaluation criteria for States prescribed under the guidelines, include utility charges, policy incentives, connectivity of park, lease rates offered to medical device units, total area, Ease of Doing Business ranking, etc. Each State and Union Territory can make one proposal. States obtaining the top four ranks will be considered for selection.
Application and
disbursement process In-principle approval
The PMA will evaluate the proposals and give recommendations to the DoP, which will be placed before the Scheme Steering Committee (SSC) for consideration. Post in- principle approval from the SSC, the DoP will issue a letter of in-principle approval to the selected States. The selected States must submit the Detailed Project Report (DPR) in the prescribed format and along with the relevant documentation/ undertakings within 180-days of date of the issuance of the in-principle approval letter.
Final approval
The PMA will appraise the DPR and submit its recommendations to the SSC for its consideration.
After receiving the final approval from the SSC, the DoP will issue a letter of final approval to the selected State.
Disbursement
The grant-in-aid will be released in four instalments in the manner prescribed under the guidelines.
Other key aspects The constitution, roles and responsibilities of the PMA, SIA, TC, SSC, State
Government have been prescribed under the guidelines. At least 50% of the total area of the Medical Device Park shall be made available for allotment to individual medical device units.
The project shall be completed within two-years from the date of release of the first instalment of the grant-in-aid, unless the period is extended.
The takeaways
The PLI Scheme and Scheme for PMDP are expected to create an indigenous manufacturing ecosystem for medical devices sector in the country.
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