MSMEs in Covid-related medical goods fight overcapacity despite second wave after early rush last year

Amid the second wave of the pandemic, as OPDs have been shutting again while elective surgeries are getting postponed, non-Covid medical devices are failing to find the market again.

Covid impact on MSMEs: Among a handful of sectors for which Covid-19 brought tailwinds last year was medical goods. The MSME-dominated sector, which is among the top 20 global markets for medical devices, saw a great rush in demand for Covid-related goods such as masks, personal protective equipment (PPE) kits, RT-PCR test kits, etc., last year when the pandemic struck. In fact, the government had last April, through a notification, urged MSMEs in manufacturing or supply of medical and related equipment to register as a supplier on the government’s e-commerce portal GeM to bolster the supply of such products including ventilators, N95 masks, disposable thermometers, alcohol-based hand sanitizer, protective gowns, etc. However, this led to overcapacity in the market and a glut in production as supply outstripped demand and eventually impacting MSMEs despite the second wave of the pandemic.

“MSMEs witnessed huge demand for Covid-related medical products last year but the growth engines were rudely halted by the complete backlash of overcapacity and glut in production because of steep fall in domestic demand as Covid cases dropped compounded by a spike in zero duty cheap imports. Also, MSMEs faced a double whammy as export of such products was restricted. It took a lot of effort to get export restrictions lifted and custom duties increased back to pre-Covid levels. By then the damage was done. This setback grievously injured the nascent sunrise MSME sector which definitely lost a lot of money in recent investments,” Rajiv Nath, Managing Director, Hindustan Syringes & Medical Device, and Forum Coordinator, Association of Indian Medical Device Industry (AIMED) told Financial Express Online.

Moreover, while the government had approved the Production-Linked Incentive (PLI) scheme for 13 sectors including domestic manufacturing of medical devices in February this year, it didn’t include Covid-related products. The categories covered were cancer care/radiotherapy medical devices, radiology & imaging medical devices and nuclear imaging devices, anesthetics & cardio-respiratory medical devices, and all implants.

“The government surprisingly didn’t cover Covid-related medical devices in PLI scheme. The government could have at least rewarded the efforts of MSMEs involved in Covid-related medical devices like masks, PPE coveralls, RT PCR test kits, Ventilators, etc., and encouraged them for coming forward when the nation critically needed them. However, once shortages were over, they were ignored. Most of the factories that came up last year to make digital thermometers or oximeters are again shutting shop as they can’t compete with cheap Chinese imports,” added Nath.

Also read: YoY bank credit growth to MSEs highest in February even as share in overall credit continues to decline

The Chennai-based promoter of Lesure Industries, which makes Sanisfy Masks and infection control products, Sudhir Reddy said that the government should have created a separate platform to facilitate the export of Covid products to help MSMEs. “It was a challenge to establish a distribution network for a product line that is seen as seasonal or having temporary demand. So exports were more lucrative for us. I wanted the government to launch a platform for (export of) Covid-related products but that didn’t happen,” he told Financial Express Online. However, the Directorate General of Foreign Trade had issued a notification in July last year for lifting restrictions on the export of PPE kits, face shields, and masks including surgical, N-95, etc., with a monthly export quota.

“MSMEs had produced Covid goods in bulk amid the medical emergency last year. However, as cases started to decline post-mid-August or early September, the demand declined that lead to piled up stocks and losses for MSMEs,” a healthcare sector expert told Financial Express Online. For non-Covid product manufacturers, the market had started improving around November last year as an outpatient department (OPD) at hospitals, and elective surgeries were gradually resumed.

However, amid the second wave of the pandemic, as OPDs have been shutting again while elective surgeries are getting postponed, non-Covid medical devices are failing to find the market again. On the other hand, now again with the onset of the second wave “Covid-related goods manufacturers are confused because while they think there might be huge demand coming in with cases shooting up but they don’t see much uptake as yet in their own sales,” said Nath.

MSMEs are wary to invest in raw materials inventory and hiring people having burnt fingers in the previous year. Meanwhile, there are MSMEs that have witnessed growth amid the pandemic. “Last one year we have grown our business 20-25 per cent,” Vikram Salunkhe, MD, Accurate Gauging & Instruments (manufacturing measuring instruments and gauges in India) told Financial Express Online. The MSME manufactures high-flow nasal oxygen equipment.