Healthcare, IT sectors happy with tax holiday

The government's decision to offer a five-year income tax holiday to all new hospital projects in the smaller towns has come as a shot in the arm for the growth plans of hospital chains in tier-2 cities.

With all major healthcare players such as Apollo, Fortis, Manipal, Wockhardt and Max among others announcing their plans to target smaller towns as their next expansion target, the government announcement in the Union Budget 2008-09 proves to be a timely encouragement, experts feel.

"It is a timely incentive and is very crucial to the growth of the hospital sector across the country. Even before the concessions were announced, hospital majors like Apollo, Wockhardt and Manipal had indicated their plans to focus on smaller towns. While their decisions were driven by the market push, the government announcement has accelerated it," Rana Mehta, Vice-President healthcare, Technopak said.

According to Technopak estimates, India needs 3.1 million new hospital beds in the next 10 years. It feels that the bulk of these capacity expansions are to happen in smaller cities. A FICCI-E&Y study last year had projected private investment in healthcare sector to be Rs 313,650 crore ($69 billion) by 2012.

"Healthcare facilities are reaching a saturation point in bigger cities. With the paying capacities of patients in smaller towns growing, the next phase of development has to take place in tier-2 cities," Y P Bhatia, Astrol Hospital and Healthcare Consultants (P) Ltd asserts.

In his view, 70 per cent of the future capacity additions will be seen in places like district headquarters. "If you move out of Delhi, every 50 km, you will find a town that is capable of supporting a 150-200 bed speciality hospital. It's the same throughout the country", Bhatia adds.

In fact, the government announcement was greeted with enthusiasm by all healthcare players. For instance, Delhi-based Fortis said that the tax break "helps them a lot as they have aggressive growth plans in tier-2 and tier-3 towns". Wockhardt is another healthcare major that has lined up hospital projects in smaller cities over the next couple of years.

Astrol Consultants is completing a study across 11 states to identify tier-2 cities that have the potential for greenfield healthcare facilities. "We have been assigned the task by a team of NRI doctors. The tax break announcement has made the study all the more interesting," Bhatia said.

The tax-holiday benefits are available for all new hospital projects except the ones coming up in cities like Delhi, Mumbai, Kolkata, Chennai, Hyderabad, Bangalore, Ahmedabad and districts of Faridabad, Gurgaon, Gautam Budh Nagar, Ghaziabad, Gandhinagar and the city of Secunderabad.

IT firms too rub their hands in glee

For the information technology companies, the five-year tax holiday announced in the Budget is a healthy piece of news. Branded hospitals use electronic medical records (EMRs) to improve quality and reduce the cost of healthcare delivery.

Thus huge opportunities open up in the areas of customer relationship management (CRM), patient records, supply chain management (SCM), financial and accounting management, infrastructure and security, human capital and payroll management, and regulatory and standards compliance.

The IT Industry may thus get interested in opening up more development centres in tier-2 and tier-3 cities to provide close touch point, say analysts.

"The hospital industry in India is rapidly adopting better technology and is understanding the benefits of outsourcing. In 2006-07, the total IT spend by one hospital was barely 1 per cent. This number has now increased to 6-7 per cent," says Pradeep Kumar Saha, Head IT, Max Healthcare.

IT adoption is generally limited to large, private hospitals in urban areas. Exclusive of staff, IT spending is generally below $8,000 (around Rs 320,000) per hospital in India.

This renders a large and relatively untapped market for the IT industry to focus on. As the IT spend on healthcare is poised to touch $315 million (Rs 1,260 crore) by 2011, IT companies are gearing up to take their share of this pie.

"With these kinds of initiatives by the government plus the learnings and best practices from our experiences will definitely increase the volume of business in this vertical," says Prasad Dindigal, Global Head, Healthcare Business, Satyam.

Satyam currently gets close to 8 per cent of their revenues from the healthcare segment covering payer, provider and life sciences.

HCL Technologies, is also betting big on this segment. "One can expect the propagation of IT usage in general, and the basic financial and workflow improvement applications to be among the first investments by hospitals," says Apurva Chamaria, Strategy Manager, Life Sciences and Healthcare (LSH), HCL.

6 per cent of HCL's revenues come from its LSH segment with cumulative annual growth rate of 90 per cent. Last year, HCL partnered with a United States-based clinical diagnostic service provider, Quest Diagnostics, to target India's burgeoning healthcare sector.

"The big opportunity lies in replacement of rudimentary/in-house hospital information system (HIS) applications with second generation, more tightly integrated HIS applications at larger, more sophisticated hospitals. This can be anticipated in the next 3 to 5 years in India," he explains. Adds LSH's Chamaria, "Medical tourism is another key driver for healthcare IT investment in India."