How India trips on the ease of doing business in pharma industry
The $16-billion pharmaceutical sector is grappling with its latest hassle: Having to recall medications from all over the country because it needs to affix new price stickers on packs. A more flexible approach by the authorities could have made life could be quite a bit easieranalysis Updated: Mar 22, 2016 17:50 IST
To understand how India makes its own life difficult in the Ease of Doing Business stakes, one needs only to look at the $16-billion pharmaceutical sector, already in the news for a controversial ban on several household medications.
While the ban has hogged the headlines, there’s another, quiet recall of drugs set to happen, and it’s no less of a logistical, and avoidable, nightmare.
Every year, the government comes out with a revision of prices of essential medications, which is good and proper given that most Indians pay for healthcare from their own pockets and the authorities need to keep a beady eye on profiteering.
The problem is, price changes have become, in effect, retrospective. In other words, once the revised prices of the drugs are announced, it’s not just drugs manufactured after that date, but all medicine already out there in the market that has to be sold at the revised lower price.
Consider what this means. This year, companies will have to sell the drugs at the revised price from April 1, so they will have to reach out through the system to every chemist in the country that stocks their drugs with an SOS message: Send us back the blister packs of, say, a cardiac drug, because we need to put a new price sticker on it.
These packs will wend their way through the system – from the 800,000 chemists in the country back to wholesalers, stockists and the company. The company cannot take the old packets back into the factory for fear that they will get mixed with fresh batches of the drug. Such drugs are meant to be stored at certain temperatures, and there’s no guarantee that every chemist in the country would have adhered to these norms. So the companies will entrust the task to a third party vendor, seldom as satisfactory, quality-wise, as handling your product in-house. New price stickers will go on to the packs, and the medicines will go out to the trade again. The companies get 45 days to do this, which industry watchers say is too short a period.
About $500 million worth of drugs will be frozen out of the market at any point due to this strange mechanism. Worse, many companies have stopped producing new batches of the drugs in the run up to April 1, preferring that the existing supplies taper down, raising the risk of shortages, because they want to recall less. There is also a proposal to make chemists liable if they sell the drug at the old price after April 1, raising its own issues.
The authorities could easily have made the price revisions prospective, or effective only for material cleared from factories on a certain date; yes, there would have been cases of the same medicine out there with different prices, but that’s going to be inevitable under the current arrangement as well as companies scurry to withdraw old packets.
In comparison with issues like retrospective tax and minimum alternate tax on foreign institutional investors, all this may sound like inside baseball, too much being made of an industry’s bread-and-butter dealings. But it is usually in these humdrum details that the Ease of Doing Business pinch is most felt. Prime Minister Narendra Modi wants to move India’s ranking in the list to the top 50 (currently 130). His bureaucrats could start by sweating the small stuff.