Drug prices to tumble

Lower trade margins now in place.

The Indian pharmaceutical industry today moved to a new regime of cheaper drugs, heightened clarity in the maximum retail price (MRP) and labels that will be in Hindi as well as English.

This is the result of two notifications issued by the government and one gentleman's agreement "" the one on Hindi labelling "" it had entered into with the industry, all of which came into effect today.

The prices fell as a result of the government notification capping the trade margins on generic drugs at 15 per cent for wholesale and 35 per cent for retail. So far, the margin on many of these drugs exceeded 1,000 per cent.

This is likely to trigger a 2-72 per cent drop in prices, according to the Indian Pharmaceutical Association.

Beginning today, consumers will be required to pay only the MRP printed on the label, which will be inclusive of all taxes. Till now, the taxes were additional.

Making the MRP inclusive of taxes had been a ticklish issue in the absence of a uniform rate of sales tax, octroi and other entry taxes in states.

For instance, states that have not embraced the value-added tax (Uttar Pradesh and Tamil Nadu) charged 10-12 per cent sales tax, while the VAT rate, applicable everywhere else, was 4 per cent.

The issue was resolved with Tamil Nadu agreeing to adopt the 4 per cent VAT from January next year and the companies agreeing to absorb the difference in Uttar Pradesh. The companies also have the option of printing different MRPs on drugs bound for UP, but that can turn into a logistical nightmare.

"All the issues have been sorted out. The industry is putting its best foot forward and the government has responded positively," said Indian Pharmaceutical Alliance Secretary-General DG Shah, referring to the government's decision to give the industry a month to implement the caps on trade margins.

The other two industry lobbies, the Organisation of Pharmaceutical Producers of India and the Indian Drug Manufacturers Association, have also agreed to be part of the transition.