Private equity in healthcare a blessing or bane?

India’s private healthcare sector is experiencing rapid growth due to the perception of relatively good quality treatment vis-a-vis largely poor public healthcare services.
The explosive growth in demand for healthcare necessitates sourcing the funds through PE investments. (Photo | EPS)
The explosive growth in demand for healthcare necessitates sourcing the funds through PE investments. (Photo | EPS)

Healthcare is one of the largest sectors in India, with a market size of $194 billion in 2020 and is projected to reach $372 billion by 2022 (India Brand Equity Foundation Report, 2020). The Indian healthcare sector is growing rapidly due to increasing coverage, breadth of services, expenditure by public and private players, and the growing demand for good quality healthcare. The industry primarily comprises hospitals, health insurance, pharmaceuticals, medical devices, and diagnostics, of which the hospital sector accounts for about 70% of the total market. Top-of-the-line offerings in Indian healthcare are cost-competitive vis-a-vis its peers in developed countries and the quality of diagnosis and treatment are at par with those hospitals.

Public vs private healthcare: The public healthcare system largely comprises primary and secondary centres, with predominantly private high-quality tertiary care institutions in metros and big cities. India’s private healthcare sector is experiencing rapid growth due to the perception of relatively good quality treatment vis-a-vis largely poor public healthcare services, due to the government’s health expenditure being staggeringly low at 1.29% of its GDP. The Indian population has grown by approximately 13.25% from 2011 to 2020 while the total public health expenditure of the Central and state governments combined increased by only 0.39% during the same decade.

According to the National Health Profile 2019, while the per capita public expenditure on health in nominal terms has gone up from `621 in 2010-11 to the current figure of `1,657, it is still abysmally low, even when compared with that of many Asian countries. The low spending in public healthcare has effectively made the private sector fill the resulting void. According to Industry and Talent Insights Report, 2019, India’s domestic private health expenditure per capita in Purchasing Price Parity (PPP) terms is approximately three times that of public health expenditure.

Private Equity (PE) in Indian hospitals: India has less than one hospital bed for every thousand people. Its elderly population, spanning both urban and rural areas, is expected to increase from the current 96 million to around 168 million by 2026, representing a significant growth in patient base, contributing to the burgeoning demand for healthcare services (UNFPA). The current situation, coupled with huge potential demand for good quality healthcare services on a massive scale, needs significant investments. The government, sensing the need for substantial investment in healthcare, laid down policies to facilitate foreign private equity (PE) investments.

The explosive growth in demand for healthcare and lack of funds to match it by expanding facilities, buying equipment, etc., necessitates sourcing the funds through PE investments. PE investors, most of them based overseas, are attracted to invest in Indian hospitals. A few years after such an investment, the PE firm typically seeks to exit by finding a suitable buyer to sell its investment at attractive valuations. Factors such as the opportunity to generate higher returns while improving portfolio diversification, having a significant controlling stake, high patient footfalls in the target hospitals, potential to expand hospital networks into smaller cities, etc., contribute to PE investment interest in Indian healthcare.

Notable PE investments in Indian healthcare: The first PE investment in Indian healthcare was in 1999 by UK-based global asset management company Schroder Ventures, which invested in Indraprastha Medical Corporation Ltd. This was followed by several foreign-based PE investors queuing up to pick up equity stakes in large Indian healthcare providers. Some significant investors include IHH Berhad, Malaysia; TPG Group, US; Carlyle Group, US; Advent International, US; and Government of Singapore Investment Corporation, Singapore, to name a few.

Value proposition for Indian healthcare providers and the country through foreign PE investments: PE investments in hospitals and other healthcare services, especially medical device manufacturers, medical diagnostics companies and e-Health set-ups, result in significant value proposition for the investee organisations. One substantial positive impact of these investments is the creation of the necessary infrastructure. Investments are also needed beyond the metropolitan areas, to expand access to healthcare. In addition to helping increase physical capacity in the healthcare sector, PE investment can also help raise the standards and quality of healthcare, upgrade technology and create employment opportunities, with potential benefits to the healthcare sector and the economy.

In summary, PE investments are a significant boost to the healthcare sector. It is transforming the industry in addition to providing efficiency, cost-effectiveness and well-grounded patient services. However, there are concerns that PE investors may gain at the expense of patients, doctors and other hospital staff.

Raghuram Bommaraju, Ratna Geetika and D V R Seshadri, Faculty at the Indian School of Business, Hyderabad (

Related Stories

No stories found.

The New Indian Express