Reasons of High Prices of Medicines: J S Majumdar

PM Modi met and made some commitments - mainly on patent protection; clinical trials; and medicines prices; - to the US drug MNCs during his visit to USA in September 2014. Three Indo-US working groups were formed at that time. One was on pharmaceuticals.

DPCO-2013: Cause of High Prices of Essential Medicines

Under neoliberal drive, DPCO-2013 was issued by an Executive Order, just months before the 2014 Parliament elections, making the entire drug control mechanism upside down.

• First Drug Prices Control Order (DPCO) 1979, issued under Essential Commodities Act; brought (i) all medicines under price control and (ii) fixed - cost + 40% / 50% / 100% - as retail price cap of all medicines based on 3 Lists of all bulk drugs of which List-1 was of 145 Essential Bulk Drugs.
• With the onset of neoliberalism, drug price control went on getting diluted by subsequent DPCO-1987 and DPCO-1995 ultimately limiting price control only of essential bulk drugs in the List-1, reducing it to 76 bulk drugs and their formulations (final stage as medicines) and raising their retail price cap at cost+100% plus excise duty.
• By DPCO-2013 the Government handed over the price control to the market. DPCO-2013 proposed to ‘control’ prices of 348 medicines in the National List of Essential Medicines (NLEM) (which was prepared by the Expert Committee as per Supreme Court’s Order in 2005); by putting cap on the price of each Essential Medicine fixed at its average retail price of different companies, having 1% and above market share; with the right of the drug companies to increase the price upto 10% in April each year!
• Coming to power, though Modi government increased the number of medicines in NLEM from 348 to 376 in 2015 as per core committee’s recommendation, the hitherto out-of-price-control of the additional medicines continued their price tags even after inclusion in NLEM.
• High Taxes on Essential Medicines Prices
• Vide Central Excise Notification No. 22/2013-CE dated July 29, 2013 the then UPA government had exempted all 348 essential medicines in NLEM from Central taxes. But, Modi government brought it back through back door via GST route. It manipulated in the fixation of ‘GST Rate Schedule’, applicable from July 1, 2017, by picking up ‘Essential Drugs’ from the non-existent List-1 of DPCO-1995 bypassing the existing 348 Essential Medicines in NLEM and ignoring PM Modi’s addition to it. For Modi government NLEM does not exist anymore. Most of essential medicines in NLEM is having high rate of GST of 18% and more. Even fixing GST rates of 76 Essential Drugs of List-1, most of these are in 12% or more GST rate.
• The Central government’s part of GST (CGST) is in lieu of erstwhile Central Excise Duty (CED) on medicines. But, while CED was being fixed on quantity-cost at production level, CGST is calculated on retailers’ price level, which is more than 100% to 500% over the cost. Thus, in one jump CGST part of GST increased causing shooting up of medicine prices.
• Further, CGST became ad valorem i.e. with every retail price increase by the drug company; CGST also automatically increases adding to spiralling price of essential medicines.

Earlier, essential medicines were exempted from sales tax in most of the States. With introduction of GST, this exemption is also removed and relief on essential medicines withdrawn.