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Proposal to introduce trade margin capping on non-scheduled drugs could result in shutting down of MSMEs: SPIC

Gireesh Babu, New Delhi
Friday, August 5, 2022, 08:00 Hrs  [IST]

The small and medium pharma manufacturers in the country 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. It has suggested that a practical way would be to reduce the price of the lead brands and the Micro, Small and Medium Enterprises (MSME) can fall in line by not crossing the price of the lead brand.

In a letter to Prime Minister Narendra Modi, Jagdeep Singh, secretary general of SME Pharma Industries Confederation (SPIC), has said that “If Trade Margins are capped, MSMEs will have no choice but to close down. Consumer will gain nothing because he will be forced to buy MNC products on which capping has no effect. If consumer is the sole interest of the government, MSMEs are prepared to fall in line.”

“Entire pharma industry can adhere to a diktat that they will not print higher MRP than the Lead Brand. Government is at liberty to reduce prices of Lead brands by way of trade margins capping. DPCO 2013 was somewhat similar. This will have a cascading effect which will save the consumer between Rs. 20,000 crore to Rs. 40,000 crore annually depending upon the Trade Margins fixed for brand leader. And One Nation- One molecule- One MRP can see the light of the day in a fair and just manner,” said Singh.

When a proposal to cap the trade margin of non-scheduled drugs came up earlier, in a meeting on February 19, 2020, the MSME associations pleaded that it would wipe out both the MSMEs and their channel partners because it was worse than 100 per cent MAPE allowed in Drug (Prices Control) Order, 1995 which wiped out basic antibiotics like tetracycline and clotrimazole and anti-asthmatics like aminophylline, which are still used in the Western countries.

The government also acknowledged that the MSMEs have channel partners for which trade margins are essential, but the topic has cropped all over again, said SPIC.

MSMEs cannot print maximum retail price lower than that of the big pharma, since the market may consider it as fake if the price is low compared to the big pharma products and the MSMEs lack their own marketing muscle like the multinationals and they need channel partners like distributors, promoters and retailers. The promoter samples and provides the doctor with CME and the process is exactly identical to the multinational pharmaceuticals. The trade margin is split between these channel partners to effect sale.

“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 be attractive. Not only will over 8,000 phrarma MSMEs close down but channel partners will go out of business too. Several lakh people will lose their livelihood and jobs without any gain to consumers,” added the Confederation.

Going by history, MSMEs are responsible for providing Affordable drugs at the remotest corners of the country. Prior to 1960 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.

Once MSMEs are shut down, the capacity to produce affordable drugs will be lost forever and Common man will be at the mercy of MNCs/big pharma. No benefit will accrue to the consumer.

Right now, the government has launched 3 schemes to strengthen MSMEs by offering PTUS and Subsidy to clusters so as to strengthen MSMEs. Trade margin capping will bring the effort to naught. These schemes can fall flat, which is not the first time when Schemes have been offered but there are no akers. Many cluster plans are on hold till a decision is taken on trade margin capping. MSMEs are unwilling to invest when such a draconian policy like trade margin capping is to be announced, it added.

“The ex-factory price of promoted items of MNCs is generally around 60% of MRP which covers their manufacturing and promotion costs. Remaining margins is for distribution and tax. The MNCs want MSMEs to follow similar pattern knowing fully well that they cannot do it and will have to close down. Closure of MSMEs will naturally boost the sagging sale of MNCs,” said the letter.


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