Drug inventory with stockists falls ahead of GST

While industry-wide average inventory is 27 days, in case of some companies it is lower than 20 days

The first week of June saw a 13-day reduction in the drug inventory at the stockist level, raising fears of possible shortages with the implementation of the goods and services tax (GST) on July 1. As of June 7, stockists were carrying 27 days of inventory, while at the end of May they had 40 days’ stocks.
 

“Compared to May 31, there is a reduction of almost 13 days’ inventory. An average of 27 days’ inventory is more than adequate to service the market and there is not even a remote likelihood of a shortage of medicines at the retail level,” said Ameesh Masurekar, director of AIOCD-AWACS, the market research wing of the All India Organisation of Chemists and Druggists.

The government has set July 1 as the deadline for roll-out of the GST. With the exception of life-saving drugs and a few other products, medicines have been included in 12 per cent tax rate, which is higher than the current tax level. There is anxiety within trade channels on margins and this is leading to lower offtake by stockists.

While the industry-wide average inventory is 27 days, in the case of some companies it is lower than 20 days. Traders are holding 15-18 days of inventory for multinational firms Boehringer Ingelheim, MSD, Roche and Sanofi. In the case of Glaxo and Sun Pharma, stockists have inventories of 20-21 days.

“Trade channels have definitely reduced offtake and this is going to worsen in June. We have requested the National Pharmaceuticals Pricing Authority and the GST Council to resolve the issue,” said Deeepnath Roy Chowdhury, president of the Indian Drug Manufacturers Association. The government has agreed to provide input credit of 40 per cent of the excise duty on stocks during the transition period.  The industry is seeking 100 per cent credit and since this demand has not been accepted stockists are keeping inventory levels low.

 Furthermore, the government has set stiff conditions in order to avail the credit. The benefit of such credit must be passed on to consumers by way of reduced prices. Distributors will have to store goods on which credit is availed and a statement of stocks will have to be submitted to the government routinely, said Kirti Oswal, partner, B S R & Asssociates.

Sources: Clothing Manufacturers Association of India (CMAI), Cotton Textiles Export Promotion Council (Texprocil)