Indian Diagnostic Sector Sees Double-Digit Growth Amidst Healthcare Evolution: CareEdge Ratings Report

Healthcare is a vital sector in India, contributing significantly to both revenue and employment. According to a report by the CareEdge Ratings, India's public healthcare expenditure has seen a notable increase, reaching 2.1 per cent and 2.2 per cent of the gross domestic product (GDP) in FY23 and FY22, compared to 1.6 per cent in FY21, as reported in the Economic Survey 2022-23. 

The portion of expenditure allocated to healthcare within the total expenditure on social services has risen from 21 per cent in FY19 to 26 per cent in FY23, the report stated. 

In 2022, the Indian diagnostic services market was valued at USD 14.57 billion, and it further increased to USD 16.23 billion in 2023. Projections from Polaris Market Research in March 2023 estimate the sector to reach USD 43.57 billion by FY32, while SPER market research forecasts the Indian diagnostic lab market to hit USD 44.92 billion by 2032.

India's diagnostic sector is undergoing substantial growth, driven by factors such as increased healthcare spending, a growing ageing population, and a shift towards preventive healthcare. The industry is expected to sustain stable double-digit revenue growth, ranging from 12-14 per cent in the medium term, the report suggests.

The  Indian diagnostic industry is highly competitive and fragmented, with organised players holding just 17  per cent of the market share. The sector faces pricing pressure due to competition and government-enforced regulations. More players are expanding geographically and using digitization and AI/ML techniques to cater to the growing demand for home-based diagnostic services.

Factors Driving Growth

India's approach to healthcare has evolved in the wake of the COVID-19 pandemic, with a greater emphasis on preventive healthcare. Increasing income levels, a rise in GDP per capita, and lifestyle changes leading to a higher prevalence of chronic diseases have contributed to the growth in healthcare spending. As a result, diagnostic companies are expected to experience revenue growth of 12 to 14 per cent in the medium to long term, the report suggests.

Ageing Population and Chronic Diseases

The report says the ageing population has led to an increased need for diagnostic services due to lower immunity levels, making diagnostics a key growth driver in the healthcare sector. Lifestyle changes have led to a greater prevalence of chronic diseases, further boosting the demand for diagnostic services.

Market Fragmentation and Growth Strategies

The diagnostic industry's fragmentation results from low barriers to entry, low capital requirements, and minimal regulatory constraints. To consolidate the market, companies are engaging in organic and inorganic growth strategies. Large players are acquiring smaller regional labs to expand their footprint while setting up new centres in untapped regions, the report stated.

Technology and Home-Visit Services

In response to the growing demand for faster, more accurate results, diagnostic companies are integrating technology and digitisation. They are focusing on home-visit services and employing AI/ML techniques to enhance the customer experience. Startups are entering the market with a focus on home-based diagnostic services, contributing to the digital transformation of the sector.

Future Outlook

Despite challenges, the diagnostic sector is poised for sustained growth in the coming years. Organised players are leveraging technology and expansion strategies to meet the evolving healthcare landscape. The report mentioned that operating profitability margins are expected to remain at pre-COVID levels, around 23-25 per cent, due to factors like price capping by the government and increased input reagent costs.

Priti Agarwal, Senior Director at CareEdge Ratings, said, "India is emerging as a medical tourism hub, witnessing a surge in patients from across the world for cost-effective and quality treatment options. Besides, the growing efforts to make India a medical tourism destination by the government authorities are expected to boost the demand for Indian diagnostic services for the next few years."

The Indian diagnostic sector is on the cusp of significant transformation, driven by changing demographics, technological advancements, and a growing emphasis on health and wellness. With double-digit growth on the horizon, it's an industry to watch closely as it adapts to meet the evolving healthcare needs of a dynamic nation.