Healthcare Tech Startups in India, Part 2:

Healthcare Tech Startups in India, Part 2: Putting Digital Health Services in Context 1) India s per capita healthcare expenditure is one of the lowest in the world: private per capita expenditure was $188 in 2014 and public per capita expenditure was $81, for a total of $269 about 3% of the per capita expenditure in the US. 2) India s population is highly underserved in terms of healthcare, with less than one doctor and one hospital bed available per 1,000 people. 3) Indians out-of-pocket healthcare expenditure is one of the highest in the world, with some 62% of total healthcare costs paid for by Indian consumers themselves. 4) The Indian government has implemented a policy to provide universal health coverage for Indians by 2020, and has laid out specific goals for various aspects of the healthcare sector in order to achieve this. Deborah Weinswig Managing Director FGRT deborahweinswig@fung1937.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 1

Table of Contents Table of Contents... 2 Executive Summary... 3 Introduction... 4 The Size and Scale of the Indian Healthcare Sector... 4 Characteristics of India s Consumer Healthcare Sector... 6 1. India s Population Appears to Be Aging Slowly, but Seniors Are Growing in Number... 6 2. India s Population Is Highly Underserved in the Healthcare Sector... 7 3. India s Out-of-Pocket Healthcare Expenditure Is One of the Highest Globally... 8 4. India Has a Large Rural Population... 9 What the Indian Government Is Doing for Healthcare... 10 What We Think... 10 2

Executive Summary India s economy is growing rapidly, but a number of challenges are hindering progress in various sectors, including healthcare: 1. India s senior population is growing in absolute numbers (it currently stands at 77 million), although it remains a relatively small proportion of the total population (about 6%). 2. India s population is highly underserved in terms of healthcare, with less than one doctor and one hospital bed available per 1,000 people. 3. Indians pay some of the highest out-of-pocket costs for healthcare in the world. Some 62% of the population s total healthcare expenditure is not covered by insurance and is not reimbursed. 4. About 67% of Indians live in rural areas. This has traditionally limited many consumers access to certain kinds of healthcare services that are viable only in areas of high population density. Several Indian startups are creating solutions to address India s unique healthcare problems, and the government is working to make healthcare affordable and accessible to more people. The government plans to provide universal health coverage for Indians by 2020, increase public healthcare spending at the national level, widen state budgets allocated to healthcare and grow the healthcare workforce in India. Indian healthcare tech startups are creating niche solutions, many of which center on preventive care and convenience. But to gain global recognition and help significantly reduce India s healthcare cost burden, startups need to create curative solutions. To encourage the development of these, the Indian government might consider providing benefits specifically designed to support capital-intensive healthcare startups. Source: istockphoto 3

Introduction India has a promising healthcare sector with a number of innovative startups creating cutting-edge solutions that address challenges in healthcare provision. We examined some of the notable startups in five emerging healthcare tech categories in our first report in the Healthcare Tech Startups in India series. In this, our second report in the series, we consider the size, scale and characteristics of India s healthcare sector and what the government is doing to promote its development, and offer our take on the sector. India is currently the second-fastest-growing economy in the world, and the International Monetary Fund (IMF) estimates that it will grow by 7.2% this year. But in terms of healthcare, the country fares rather poorly. It has one of the lowest healthcare expenditures per capita and one of the highest out-of-pocket healthcare expenditures per capita in the world. There is a significant shortage of medical personnel, too, with less than one doctor for every 1,000 people: the World Health Organization recommends a 1:1,000 doctor-to-population ratio. India also has one of the youngest populations in the world, but the senior cohort is swelling rapidly. Seniors, whom we define as those aged 65 and older, formed nearly 6% of the Indian population in 2016, and that proportion will increase to 8.5% by 2030, based on United Nations (UN) data. That may seem like a relatively low proportion compared with countries such as Japan, where older people constitute more than 26% of the population and number 34 million, but in terms of absolute numbers, India s senior population is significantly higher, at 77 million. The Size and Scale of the Indian Healthcare Sector As is the case with other consumer-driven sectors in India, the healthcare sector is vast and largely unorganized in the country. While modern medicine, also termed allopathy, dominates healthcare across the country, alternative medicine systems, such as homeopathy, and Indian medicine systems, such as Ayurveda, Siddha and Unani, are also widely used in the country. Healthcare expenditure in India has been growing significantly. Between 2008 and 2016, private healthcare expenditure grew by a CAGR of 10.5%, to $80 billion, and public healthcare expenditure grew by a CAGR of 18.1%, to $53 billion, according to estimates from TechSci Research and BMI Research and the India Brand Equity Foundation (IBEF). Based on the figures shown in the graph below and the World Bank s GDP data for India, private healthcare expenditure in India represented about 3.5% of GDP in 2016 and public healthcare expenditure about 2.3%. The latter figure looks somewhat high, given that the Indian government has stated that its expenditure on health accounted for 1.1% of GDP in 2015. Whichever of these figures we use, India lags developed economies in spending on healthcare. World Bank data indicate that US private healthcare expenditure represented about 8.9% of US GDP in 2014 and public healthcare expenditure about 8.3%, while UK private healthcare 4

expenditure represented about 1.5% of UK GDP and public healthcare expenditure about 7.6% in the same year. Figure 1. India: Private and Public Expenditure on Healthcare, 2008 vs. 2016 (USD Bil.) 80 Public healthcare expenditure in India constitutes an estimated 2.3% of GDP, whereas it represents about 8% of GDP in the US and the UK. CAGR = 10.5% 36 CAGR = 18.1% 14 53 Private Sector 2008 2016E Public Sector Source: TechSci Research/BMI Research/IBEF India s per capita healthcare expenditure is one of the lowest in the world. Below, we compare it to the per capita healthcare expenditure in selected large global markets and other BRIC nations in order to provide a sense of scale. In the US, for example, private per capita healthcare expenditure was $5,032 in 2016 and public per capita expenditure was $4,860, totaling $9,892, according to data from the Organisation for Economic Co-operation and Development (OECD). In India in 2014 (the latest year for which data are available), private per capita healthcare expenditure was $188 and public per capita expenditure was $81, totaling $269 equivalent to just 3% of healthcare expenditure per capita in the US. Figure 2. Selected Countries: Private and Public Healthcare Expenditure per Capita, 2016 (USD) 5,032 4,860 4,695 3,626 3,320 3,801 974 872 856 718 825 526 445 549 324 409 188 81 US France UK Germany Japan Russia* Brazil* China* India* Private Public *Latest available data are from 2015 for Russia, from 2013 for Brazil, and from 2014 for China and India. Source: OECD 5

In India, private firms in the healthcare sector received some of the highest investment funding compared with firms in other sectors until 2016, when there was a slowdown. According to government statistics, foreign direct investment inflows into the Indian healthcare sector decreased by 21%, to $1.6 billion, in the year ended February 2016. Many analysts attribute this slowdown to startups being in between funding stages, and many expect the sector to see increased funding this year. Characteristics of India s Consumer Healthcare Sector While the healthcare sector is receiving significant attention, there are several challenges unique to India that healthcare tech providers must address when creating solutions. These include the country s growing senior demographic, inadequate healthcare resources, high out-of-pocket healthcare costs and large rural population. 1. India s Population Appears to Be Aging Slowly, but Seniors Are Growing in Number India appears to have a relatively young population compared with many of the large economies of the world. Only about 6% of Indian consumers were aged 65 and over in 2016, according to UN data, and even in 15 years, that proportion will not change substantially, given the scale of India s population (currently 1.3 billion). In absolute numbers, however, the number of people aged 65 and over is projected to grow from 77 million in 2016 to 128 million in 2030. Source: istockphoto Over the same period, the growth in China s senior demographic will likely be more dramatic. People aged 65 and over constituted 10.1% of the Chinese population in 2016, and that proportion will grow to 17.1% in 2030. In absolute terms, the number of seniors in China is projected to jump from 142 million in 2016 to 246 million in 2030. Meanwhile, Japan is forecast to have one of the fastest-aging populations in the world, as seniors constituted over a quarter (26.6%) of the total Japanese population in 2016 and are projected to form 30.3% of the total population in 2030. 6

Among the countries shown in the graph below, Brazil is the only country aside from India that seems to have a slowly aging population, with the senior demographic expected to grow from 8.2% of the total population in 2016 to 13.6% in 2030. Figure 3. Selected Countries: Adults Aged 65+ (Left Axis, Mil. Individuals; Right Axis, as a Percentage of Total Population) 65+ (2016) 65+ (2030) 65+ % (2016) 65+ % (2030) 250 245.9 35 30.30 30 200 26.56 26.79 23.90 25 150 142.1 17.06 128.0 20.37 19.33 21.27 19.35 21.96 18.35 20 100 15.03 13.79 13.57 15 10.12 76.9 72.2 10 50 8.46 5.81 48.4 36.8 33.9 27.2 19.9 8.25 30.6 22.0 17.4 17.1 16.2 15.5 12.5 12.1 5 0 China India US Japan Russia Germany Brazil France UK 0 Source: UN 2. India s Population Is Highly Underserved in the Healthcare Sector Healthcare resources in India are currently inadequate to serve the needs of the population. The World Health Organization states that at least one doctor is needed to serve 1,000 people sufficiently. India had not met this ratio by 2014 (latest data available). It lags many other countries in the relative number of hospital beds, too. 7

Figure 4. Selected Countries: Hospital Beds and Doctors per 1,000 People, 2014 Country Hospital Beds Doctors India 0.5 0.7 Brazil* 2.3 1.9 UK 2.7 2.8 US 2.8 2.6 China 3.6 1.7 France 6.2 3.3 Germany 8.2 4.1 Russia 8.8 4.2 Japan 13.2 2.4 *Brazil data are for 2012. Source: World Bank/OECD In order to reach the World Health Organization s recommended levels, the number of trained doctors in India needs to grow, and for that to happen, the number of medical colleges in the country needs to grow considerably. Currently, there are 426 medical colleges in India, offering a total of 63,835 seats to pursue a bachelor s degree in medicine (called an MBBS), according to news website India.com. 3. India s Out-of-Pocket Healthcare Expenditure Is One of the Highest Globally Out-of-pocket healthcare expenditures are payments for healthcare made by consumers themselves, including payments that may not be reimbursed by insurance. While India has one of the lowest healthcare expenditures per capita globally, it has one of the highest per capita out-of-pocket expenditures proportionally. Out-of-pocket spending accounts for a substantial 62% of total healthcare expenditure in India due to the fact that health insurance coverage is not very comprehensive in the country. Government-run clinics and hospitals exist, but the country does not have a national health insurance policy or a universal healthcare system and most healthcare is provided by privately run institutions. 8

Figure 5. Selected Countries: Out-of-Pocket Expenditure as a Percentage of Total Healthcare Expenditure, 2014 62.4% 45.8% 32.0% 25.5% 13.9% 13.2% 11.0% 9.7% 6.3% India Russia China Brazil Japan Germany US UK France Source: World Bank 4. India Has a Large Rural Population India s economy is growing strongly, and the IMF estimates that GDP growth in the country will hit 7.2% this year. However, urbanization levels remain relatively low in India: in 2016, nearly 67% of the population lived in rural locations, compared with 43% in China. This dispersal of the population has traditionally mitigated against access to healthcare provision in India, as a critical mass of people in one location is typically necessary to justify, say, building a hospital. However, some healthcare services are leveraging new technologies to connect patients and healthcare providers digitally, and therefore better serve consumers in rural areas. Figure 6. Selected Countries: Percentage of Total Population that Lives in Rural Areas, 2016 66.9% 43.2% 25.9% 24.5% 20.3% 18.2% 17.2% 14.1% 6.1% India China Russia Germany France US UK Brazil Japan Source: World Bank 9

What the Indian Government Is Doing for Healthcare Changes in the healthcare sector can contribute to the ongoing development of India, and the Indian government has implemented a policy to provide universal health coverage for Indians by 2020. The government has laid out specific goals for various aspects of the healthcare sector in order to achieve this. For example, it has outlined its goal to increase public healthcare spending from 2015 s level of 1.1% of GDP to 2.5% of GDP by 2025. Private research agencies TechSci and BMI Research estimate that public health expenditure in India was $53 billion in 2016, representing 2.3% of GDP. The government also hopes to increase healthcare spending at the state level to more than 8% of the budget for each state by 2020 and to decrease household spending on healthcare by 25% by 2025. In addition, the Indian government aims to increase the health workforce in India and improve the country s technology infrastructure in order to enable it to move medical records online by 2025. What We Think India s healthcare sector has received significant global attention, but it is riddled with challenges that must be addressed before any impactful change can be effected. For example, in order to increase public healthcare expenditure, the government may have to decrease spending elsewhere or somehow raise substantial capital. And to increase the number of healthcare personnel, the government needs to grow the number of students in training. Authorities can also encourage innovation in the healthcare sector. Many of India s healthcare startups focus on either preventive care or providing convenience to consumers, but companies in the sector need to innovate with new products that treat major conditions in order to reduce the overall cost of healthcare in the country. The government needs to create a stronger support system for startups that have the potential to provide innovative, cost-effective solutions that can be scaled and have a positive effect on total healthcare spending. Healthcare companies, such as those that develop drugs, tend to require significant investment in the early stages and to break even only much later; this is in contrast to companies in other consumer-driven sectors. The Indian government already provides benefits such as tax breaks to startups across sectors, but it might consider healthcare startups on a case-by-case basis and provide additional benefits to those that show potential. Such benefits should encourage innovators to create new solutions and help take the sector forward. In the next report in this series, we feature excerpts from our interviews with the founders of two Indian healthcare startups, Grow Fit s Jyotsna Pattabiraman and Portea Medical s Meena Ganesh. 10

Deborah Weinswig, CPA Managing Director FGRT New York: 917.655.6790 Hong Kong: 852.6119.1779 China: 86.186.1420.3016 deborahweinswig@fung1937.com Swarooprani Muralidhar Research Assistant Hong Kong: 2nd Floor, Hong Kong Spinners Industrial Building Phase 1&2 800 Cheung Sha Wan Road, Kowloon Hong Kong Tel: 852 2300 4406 London: 242-246 Marylebone Road London, NW1 6JQ United Kingdom Tel: 44 (0)20 7616 8988 New York: 1359 Broadway, 18th Floor New York, NY 10018 Tel: 646 839 7017 FungGlobalRetailTech.com 11