Budget 2025: Healthcare sector looks to tax reforms and innovation push

As India approaches the Union Budget 2025, the healthcare and med-tech industries are pushing for reforms that could reshape the sector, positioning the country as a global leader in innovation and accessibility. Stakeholders are urging reductions in import duties on medical equipment and measures to promote research and development (R&D) in advanced technologies, alongside policies to boost local manufacturing and rural healthcare.

Calls for tax reforms

The healthcare industry has long advocated reducing import duties and taxes on lifesaving medical devices and advanced equipment. According to the Indian Medical Devices Industry (IMDI), India imports about 80% of its medical devices, and reducing import duties could help lower healthcare costs for providers and patients. Industry leaders stress that tax incentives for R&D and value-added activities in Global Capability Centres (GCCs) could foster innovation and generate employment.

A uniform Goods and Services Tax (GST) rate of 12% on medical devices is also a key demand. Currently, GST rates on medical devices range from 5% to 18%, creating complications for manufacturers and distributors. A 2023 report by the National Institute for Transforming India (NITI Aayog) noted that a uniform tax structure could simplify compliance, improve operational efficiency, and lower costs in the sector.

Additionally, the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme, which currently offers export incentives of 0.6-0.9%, could be increased to 2–2.5%, according to industry recommendations, making Indian medical devices more competitive in the global market.

Boosting local manufacturing

The Indian healthcare industry has been calling for the extension of the Production Linked Incentive (PLI) scheme, which has proven successful in sectors like electronics and pharmaceuticals. In FY24, India’s domestic medical devices market was valued at around ₹75,000 crore, and the medical devices segment is expected to grow at a CAGR of 12-15% over the next five years, according to a report by Frost & Sullivan. Extending the PLI scheme would allow manufacturers to scale up production, reduce reliance on imports, and contribute to the country’s “Make in India” initiative.

Increasing healthcare spending is another demand. Currently, India allocates approximately 1.5% of its GDP to healthcare, far below the global average of 3.5%. A 2023 study by the World Bank found that raising healthcare spending to 2.5-3% of GDP could significantly improve infrastructure, healthcare access, and outcomes. “With more funding, the sector can better meet the growing demands of India’s population, which is expected to reach 1.5 billion by 2030,” said Himanshu Baid, Managing Director of Poly Medicure Ltd.

Bridging gaps in rural healthcare

India’s rural healthcare infrastructure remains a significant challenge. According to the Ministry of Health and Family Welfare (MoHFW), nearly 70% of India’s population lives in rural areas but only 38% of healthcare facilities are located in these regions.

Dr Azad Moopen, Chairman of Aster DM Healthcare, highlighted the need for substantial investment in district hospitals and primary care networks. The National Health Policy 2017 has set a target of increasing healthcare spending to 2.5% of GDP. However, experts believe a more aggressive target of 5% could be required to address the growing needs of India’s ageing and expanding population.

In addition to government spending, private sector involvement is essential in bridging gaps in underserved areas. A report by the Indian Private Healthcare Providers Association (IPHPA) found that private healthcare providers account for 71% of hospital beds in India, highlighting the importance of creating tax incentives to attract more investments into healthcare start-ups. These start-ups could play a critical role in decentralising healthcare and increasing access in rural areas.

Embracing technology and sustainability

Technological advancements, especially in Artificial Intelligence (AI), can be a key enabler of healthcare transformation. The AI in healthcare market in India was valued at ₹5,000 crore in 2022 and is projected to grow at a CAGR of 40% to reach ₹50,000 crore by 2030, according to a report by PwC.

AI tools can significantly enhance early disease detection, imaging analysis, and virtual healthcare assistance. Experts argue that investing in AI solutions could improve efficiency, reduce costs and bring advanced care to underserved populations.

Sustainability is another priority, with the sector aiming to establish green hospitals and renewable energy-powered healthcare facilities. According to the Green Hospital Scorecard 2022, only 15% of hospitals in India have implemented energy-efficient and sustainable practices.

Moopen suggested that increasing investment in green infrastructure could not only help India meet its environmental goals but also establish new standards for responsible healthcare practices.

Defining Budget for healthcare

Union Budget 2025 represents a defining opportunity for India to address critical challenges and future-proof its healthcare sector. The Indian healthcare market, valued at ₹13.4 lakh crore in 2022, is projected to grow at a CAGR of 16% by 2027.

The government can accelerate this growth by introducing measures such as tax reforms, increased healthcare spending, and innovation-friendly policies, said experts.