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Ramesh Shankar
Wednesday, September 7, 2022, 08:00 Hrs  [IST]

After bringing several drugs under the National List of Essential Medicines (NLEM) to make them affordable, the Central government is now in the process of rationalising trade margins on non-scheduled drugs. Trade margin refers to the price difference between what the manufacturer sells to a wholesaler, who, in turn, sells to stockists and retailers, and the maximum retail price a consumer pays. By changing the current trade margin structure that has been in force for many decades, the government wanted to make all the drugs affordable to the consumers, especially drugs for ailments like chronic kidney disease, some high end antibiotics, anti-virals (anti-infectives), as well as some cancer drugs. The government is keen to introduce trade margin capping on pharmaceutical industry to curb the overcharging of the prices of medicines. The drug industry and government agencies have already come together to discuss trade margin rationalization issue at length to ensure access to quality healthcare at an affordable price. The Department of Pharmaceuticals (DoP) had forwarded a slew of measures to rationalise the trade margins on drugs to Niti Aayog, the Central government’s think tank on policy matters. One of the measures was to reduce trade margins to 43 per cent on non-scheduled medicines. Another measure was to cap trade margin on all formulations and dosages at 100 per cent. The department had further suggested that drugs priced Rs. 2-5 a unit should be exempted from trade margin rationalization (TMR).

However, there is stiff resistance from the Micro, Small and Medium Enterprises (MSMEs). These small and medium pharma manufacturers have cautioned the government that its proposal to introduce trade margin capping on non-scheduled drugs could result in shutting down of many of the small and medium pharma units in the country.  They argue that if trade margins of MSMEs are capped on the basis of ex-factory price, then none of the channel partners of MSMEs will be left with any margin to promote the product and medicines from MSMEs will cease to become attractive. Not only will over 8000 pharma MSMEs close down but channel partners will go out of business too, resulting in several lakh people losing their livelihood and jobs without any gain to the consumers. The MSMEs have suggested to the government that a practical way would be to reduce the price of the lead brands and the MSMEs will fall in line by not crossing the price of the lead brand. In that scenario, the government can reduce prices of lead brands by way of trade margins capping. This will have a cascading effect which will save the consumer between Rs. 20,000 to Rs. 40,000 crore annually depending upon the trade margins fixed for brand leader. Besides, the MSMEs have also suggested for adoption of ‘One nation-one molecule-one MRP’ formula instead of trade margin rationalization on non-scheduled drugs to reduce the prices of these drugs. Whatever decision the government finally takes, the interests of MSMEs, including those involved in indirect marketing, should be protected through appropriate mechanisms. In certain MSMEs, there is a model where marketing expenses are taken care of by promoting companies. The survival of such small companies should also be protected through a suitable mechanism. It is true that even though the pharmaceutical industry in the country grew in higher double digits in the past year, inflationary pressures across all cost heads have severely eroded the margins of the manufacturers. So, before making a final call on the trade margin issue, the government should exercise caution to avoid any disruption in the marketplace that can adversely impact the availability and affordability of medicines.


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