Worse than the disease

Chemicals and Fertilisers Minister Ram Vilas Paswan’s proposal to increase the number of drugs under price control from the current 74 to over 300 is certain to go down well with the common man. But that’s not the same thing as saying the idea is sound.

The cure promises to be worse than the disease. Some numbers put out by the chairman of the National Pharmaceutical Pricing Authority (NPPA), which administers the Drugs (Prices Control) Order—DPCO—explain why. While the prices of controlled drugs rose by just 1 per cent annually since 1994 as compared to around 11 per cent for decontrolled drugs, the availability of controlled drugs fell 1 per cent annually.

In contrast, the NPPA chief said in a note to the ministry’s secretary, the supply of decontrolled drugs rose 9 per cent annually between 1994 and 2004. The reason for this is not profiteering, as some would believe, but pure economics.

If product prices for controlled drugs are allowed to rise very slowly compared to the significantly higher rate of manufacturing inflation, why would producers want to produce more of these medicines?

Paswan’s position on the matter, of course, is largely governed by data collected by his ministry, which show that while companies are charging dealers a lower price, the MRP was many times this. This is clearly a serious matter that requires examination.

The pharma industry claims that this applies only to a very small fraction of generic drugs where local firms produce at a small cost and yet mark their prices at around the levels at which the original manufacturer sells his medicine. A “discount” is then offered on this price to attract customers.

A list provided by the Haryana State Chemists & Druggists Association shows, for instance, that while the MRP of a 10-tablet strip of Nimesulide was Rs 25, the suggested retail price was Rs 8.50!

In which case, the MRP ceases to have much meaning. One way of ensuring that the MRP doesn’t differ too widely from the cost of production is to shift pharmaceuticals from Section 4 of the Excise Act to Section 4A, where the excise duty is levied on the MRP and not on the cost of production. The downside is that this would raise drug prices even more.

In any case, the issue is not just about pricing but public health. While malaria and tuberculosis are the biggest killers in India, there are few large manufacturers of these drugs. Nor is much research being done to develop new drugs.

Since these drugs are covered under the DPCO, companies do not find the prospective returns attractive enough to invest in development. Thus, various combinations of quinine and rifampicin remain the staple cures for malaria and TB, respectively, even today.

Indeed, with large manufacturers vacating the anti-TB business, the largest amounts of spurious drugs found in the country are anti-TB ones. Similarly, while large parts of the country suffer from Vitamin A deficiency, there is only one big manufacturer left.

The other two stopped production when DPCO pricing proved inadequate. There may be a case for price control in some essential drugs, but over the long term it makes no sense to impose unrealistic price restraints on manufacturers if the net result is going to be a hasty exit from production. Paswan needs to do some rethink on this.