The country could be staring at an acute shortage of medicines in the second half of June if the government or manufacturers don't look into potential losses faced by pharmacists from GST's rollout on July 1.

Pharmacy retailers and stockists have warned companies that a mismatch between tax payouts and tax refunds arising from GST rollout would force them to destock.

To make it worse, sales of drugs typically rise two-three times from June onward, compared to the previous period, as the onset of monsoon brings in seasonal diseases.

“There are two components in our tax payouts, one is VAT which is 6 percent, the government promised us 100 percent refund of this component and we have all the receipts and documents,” JS Shinde, president of All India Organisation of Chemists and Druggists (AIOCD), told Moneycontrol

“The second is CGST or excise component, which is 6 percent. This is where we have a problem, as the government said we would only get an input tax credit of 40 percent. So in effect, we will be losing 3.6 percent,” Shinde added.

“For instance, if we are holding a stock of Rs.1 lakh, we would be incurring a loss of Rs 3600,” Shinde explained.

Shinde said his organization AIOCD has reached out to the government asking for a 100 percent refund on CGST, so as to ensure non-interruption of medicines supplies.

“If the government doesn’t react we have to return the stocks, and start taking the new stocks from July onwards, as we don’t want to incur any loss,” Shinde said.

“A few manufacturers promised stockists that they will share burden of the loss, but retailer haven’t got any such assurance,” he added. “There will be heavy shortages of medicines.”

A worried government, through NPPA, met industry and trade bodies to ensure uninterrupted supply.

“NPPA holds fruitful discussions with industry and trade associations to ensure uninterrupted supply of drugs on implementation of GST,” the national drug price regular said.

Even manufacturers are worried about impact of GST on their sales at a time when they are just recovering from the disruption caused by demonetization.

"There has been fair amount of destocking happening in the channel," said Umang Vohra, global chief executive officer and managing director of Cipla, in the company’s recent earnings call. “I think this will continue possibly till the time GST is rolled out. We have to give it month or month and half until normalcy returns."

Contrary to other large drugmakers, Cipla generates most of its revenues from domestic formulation business. The domestic formulation business accounts 37 percent of Cipla’s Rs 14,630 crore sales.

Sun Pharma, India’s largest drug maker too says upcoming GST implementation to have an impact on sales in the first half.“In the Indian market, there is uncertainty in the trade channels due to the upcoming GST implementation, although it may be temporary,” said Dilip Shanghavi, chairman and managing director of Sun Pharma.

“Companies focused on the domestic market like Alkem Torrent Pharma and Cipla will experience some difficulties in 1HFY18, owing to the impending GST implementation and resultant channel disruption,” said HDFC Securities in its latest report on the pharmaceutical industry.