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The Central government should think about capping the brand leader’s price instead of capping the trade margins of the Micro, Small and Medium Enterprises (MSME) in the pharma industry, said Small Pharma Industries Confederation (SPIC). If the trade margins of MSMEs are capped, then around 10,000 units along with lakhs of channel partners will go out of business, it added.
Pointing out that the National Pharmaceutical Pricing Authority (NPPA) chairman has on record stated that the brand leader is the price leader, SPIC secretary general Jagdeep Singh suggested, “If consumer is the sole interest of the government, let the government reduce the MRP (maximum retail price) of brand leaders for a cascading effect”.
“MSMEs can guarantee that they will not print MRP higher than the brand leader. This will save the consumer between Rs. 20,000 to Rs. 40,000 crore annually depending upon the trade margins fixed for brand leaders. And One Nation-One Molecule-One MRP can see the light of the day in a fair and just manner,” he added in a letter to the Prime Minister Narendra Modi.
The latest letter has been sent in the wake of the ministry of chemicals and fertilisers’ renewed efforts to bring in Trade Margin Rationalisation (TMR) amidst the opposition from the RSS affiliate small industries body Laghu Udyog Bharati (LUB) against such moves.
The Department of Pharmaceuticals (DoP), at the end of May, made a presentation to the Prime Minister’s Office (PMO) on the TMR and the concerns raised by the LUB. The DoP and the NPPA have discussed the plans to impose TMR with the industry representatives in a meeting with the industry associations in the middle of May, 2023.
SPIC has been advocating against a large scale trade margin rationalisation from the beginning of such discussions a couple of years back.
“We had conveyed to the worthy Secretary of the Department Of Pharmaceuticals, Dr P D Vaghela, on 19.2.2020 that if 100% MAPE as per DPCO 1995 could wipe out several life saving antibiotics and anti asthmatics (cotrimazole and aminophylline) from the market, trade margin capping (TMC) at lesser percentage would certainly wipe out the produce of MSMEs from the market. So it becomes clear that TMC exercise is MSME specific,” said Singh in the letter.
Unlike MNCs, the MSMEs lack their own marketing muscle and depend on channel partners for making sales. For example, while the MNC sells a product with MRP of Rs.100 for say Rs. 60, an MSME sells the same for Rs. 20 to the channel partner who promotes it. In other words, while the MNC covers the marketing cost while invoicing, MSMEs cannot. They leave the margin for the channel partner to promote the medicine.
If trade margins of MSME products are capped the channel partners who have made deep penetration in the market will lose interest. Once they quit, the field will be left to MNCS alone and they will be profiteering as in the pre 1960 era when MSMEs were not in the field. Perhaps this is why they wish for this change, it said.
“Since the topic has cropped up again, we need to explain our side of the story,” said the organisation.
MSMEs cannot print MRP lower than that of the Big Pharma for the reasons including that products with lower MRP are deemed to be fake, and the products with lower MRP do not leave enough margin for channel partners like distributor, promoter and retailer. The promoter uses part of the purchase as samples and provides doctor with CME too. The process is exactly identical to the MNCs, and the trade margin is split between these channel partners to make sales of MSME products.
“If MSMEs perish it could cause shortages as in 1960 era when MSMEs were absent and medicine prices were highest in India and shortage of life saving drugs like chloromycetin were common. Post 1960, with the advent of MSMEs, not only did the shortages vanish but affordable drugs reached the remotest corners of the country. This situation can reverse in no time if MSMEs are shut down,” it added.
Pharma is a high tech sector which operates on the basis of an available grid of technology and goods. Once MSMEs shut down, the capacity to produce affordable drugs will be lost forever and common man will be at the mercy of MNCs/Big Pharma.
Government has recently launched 3 schemes to strengthen MSMEs which will come to naught. MSMEs certainly cannot invest when a draconian policy like trade margin capping is under consideration.
Besides, it argued that the trade margin capping shall be a violation of Fundamental Right to Equality, Employment and Affordable drugs. MSMEs have every right to deploy independent marketing outfits to promote their products, it added.
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