Govt seeks legal view on drug margins

Unsure of the legalities involved, the government is unlikely to implement the retail trade margins order on drugs in its present form.

The government has proposed a 10 per cent margin for wholesalers and 20 per cent for retailers in the case of branded drugs and 15 per cent and 35 per cent in the case of generic drugs.

The ministry of chemicals and fertilisers has sent the order to the law ministry for vetting, which is yet to give its views on the matter.

But officials in the ministry of chemicals and fertilisers pointed out that the law ministry had advised against a similar proposal sent to it three years ago.

"The law ministry had advised that since there was already a basket of drugs under price control, setting another mechanism separately might lead to legal problems," an official in the ministry said. The government currently has 74 drugs under the price-control mechanism.

Even the administration of price controls has led to severe litigation. Of the 246 notices issued by the National Pharmaceutical Pricing Authority for overcharging, about 50 are stuck in the courts, representing about 74 per cent of the amount claimed by the authority.

But Union Minister for Chemicals and Fertilisers Ram Vilas Paswan is keen on a cap on the trade margins given to retailers by pharmaceutical companies. He is understood to have had a word with senior officials in the law ministry on the matter.

The government stressed fixing trade margins when it came to light that the industry was giving huge margins -- often in excess of 1,000 per cent -- to retailers in order to push sales. This, in turn, was pushing up the prices of medicines.

Shortly after the order specifying trade margins, pharmaceutical majors, including Ranbaxy, Sun, Wockhardt and Nicholas Piramal India, had called an emergency meeting where Cipla is said to have suggested legal action against the government.

The rest were, however, cold towards the proposal as they felt there were larger issues, including patents, that had to be taken up with the government.

But, even as the government mounted pressure to fix trade margins, industry associations got into the act of suggesting different alternatives, including voluntary fixing of trade margins.

Both the Indian Drug Manufacturers' Association and the Confederation of Indian Pharmaceutical Industry offered to sell drugs at margins 20-25 per cent less than the brand leader in the market.

The All-India Organisation of Chemists and Druggists, a parent body of 500,000 chemists across the country, too, offered to limit the margin to 100 per cent.

Considering the ambiguity of the situation, the ministry is looking at these suggestions, although there are doubts as to how the margins would be monitored if suggestions are accepted without implementing the order.

"In case the order is not implemented, the government cannot officially reduce the MRP of drugs. This may lead to a situation which cannot be monitored," sources said.