While the government has seized upon this lowering of growth of the domestic industry it has misdiagnosed the problem, compounded this with goals that are contradictory, and come out with a diagnosis designed to make things worse. (Reuters)

Over the years, with more and more of the Indian pharmaceuticals industry subjected to different forms of price control, firms have focused more on the overseas business—from 43% of industry revenues in FY11, the domestic industry has been reduced to 34% in FY16. While the government has seized upon this lowering of growth of the domestic industry—in its draft pharmaceuticals policy—it has misdiagnosed the problem, compounded this with goals that are contradictory, and come out with a diagnosis designed to make things worse. After prefacing the statement by saying “India is also called the ‘pharmacy of the world’ and renowned for very high quality drugs at very cost competitive prices”, the rest of the policy is dedicated to finding ways to tighten existing price controls. That these price controls are the reason for many of the problems the policy talks of—less emphasis on R&D, excessive use of foreign raw materials and non-adherence to quality standards—escapes the policymakers’ attention.

That is odd since, while lamenting the import dependence for raw materials/intermediates, the policy talks of how, in the 1950s and 1960s, PSUs were doing a good job of producing these—then, the policy says, “the Drug Price (Display & Control) Order 1966 put 18 APIs (raw materials) under price control … from 1996 … imported APIs and Intermediates started becoming hugely lucrative as a price cap on drugs forced the manufacturers … to obtain the cheapest raw material with the basic minimum efficacy/quality”. If the policy recognises the impact of price controls on APIs, it must realise the same translates to the rest of the industry and that, without high enough profits, there will be a “disproportionate focus on generic formulations to the point of exclusion of lack of adequate R&D”. This relationship is, once again, recognised when, as a way to encourage local API manufacture, the policy prescribes that formulations based on these can be taken out of price control for five years and that graded relief can be given based on the level of local APIs.

There is little doubt there are a lot of spurious drugs and policies like commissions to doctors are unhealthy, but these have to be tackled by better policing of quality/standards, not by prescribing trade margins as the draft policy proposes or by bemoaning the fact that while India has about 2,500 pharmacopeial salts, it has “60,000 brand names with varying prices”. Instead of trying to enforce “one-drug-one-brand-name-one-price” as a policy—copied from GST’s ‘one-country-one-tax’?—it would be better to focus on ensuring all medicine conform to certain standards. Given the draft is so flawed, getting firm facts—saying “65% of the medical costs are on drugs” is pure fiction—will help formulate a better policy. Wanting more R&D and new molecules is good, but look at the margins of such companies overseas and the cost of such drugs. Is the government willing to allow such pricing? Certainly, the concessional import duties being promised to encourage R&D can’t substitute for the huge costs involved. Similarly, before tightening controls further, look at whether India’s prices are high or low—more so when there are dozens of manufacturers for most drugs. If the government finds—and chances are that it will—that well-known brands tend to be of a superior quality, it will realise there are definite benefits from brand-building. Creating ‘a level playing field’ by prescribing trade margins, as the policy wants to do, is a prescription for even lower quality drugs since both top-rung and fly-by-night operators will have the same margins.