New prescription

If the country's pharmaceuticals industry is nervous about Chemicals Minister Ram Vilas Paswan's threats to increase the scope of price controls, it mostly has itself to blame. It under-estimated the minister's need to show what he considered results, tried to pull the wool over his eyes, and then celebrated prematurely. Since Mr Paswan was incensed at the 1,000 per cent and even higher margins that a section of the pharmaceutical industry seemed to be enjoying on certain products, the captains of industry agreed to limit margins to 15 per cent for wholesalers and 35 per cent for retailers on what are called "generic generics" (generics are drugs that sell under their chemical name and not a brand name, and are divided into those that enjoy a company brand name like Ranbaxy, and those that do not). This made Mr Paswan happy and, in a photo op some months ago, he announced his new drug deal""that price controls would not be levied on a new set of 354 drugs, that controls on even existing drugs under the Drug Price Control Order (DPCO) would go if a medicine cost less than Rs 3 per tablet, and so on. What the industry did not highlight was that generic generics account for just 5 per cent of its production, and that when it promised to sell its products at half the maximum retail price to government hospitals, this was no different from the price at which it supplied wholesalers. Indeed, when a handful of companies submitted lists to the ministry on the old and new prices of medicines, several of the drugs mentioned were not even manufactured by them any longer. Not surprisingly, Mr Paswan felt he had been had.

In the industry's defence, it must be said that it has tried to explain to Mr Paswan, using detailed data, that it is not indulging in profiteering, but the minister has refused to buy the argument. For one, pharma firms' audited results show reasonable profit levels, and not the results of price gouging that the minister accuses it of. The industry has also cited data to show that Indians spend just 0.16 per cent of GDP on medicines, compared to 0.20 per cent in Bangladesh and 0.34 per cent in Pakistan. And given that there are a large number of producers (101 for ciprofloxacin, 67 for gatifloxacin, and so on), the chances of cartelisation are remote. More powerfully, it has argued that drugs whose prices are controlled under the DPCO have seen an annual decline in production of 1 per cent in the last decade, while the decontrolled ones rose 9 per cent. These arguments have gone home in ministries such as commerce (which has sent its objections to Mr Paswan's new policy). But by all accounts, the minister at the heart of the matter is unmoved.

What should the industry do? Apart from continuing to lobby with other ministries (health, commerce, finance), it may be a good idea for it to conduct a stronger public campaign to show that it is not cheating its customers. And irrespective of the fact that its deal with Mr Paswan has run into trouble, the industry needs to move, quickly and visibly, to reduce margins on as many products as possible, to the levels promised. Mr Paswan has succeeded in painting the industry as a profiteer and it is up to the industry to now work on improving its image.