Given that India has among the lowest-priced pharmaceuticals in the world—between 2004-05 and January 2012, while WPI rose 57.2%, prices for drugs and pharmaceuticals rose just 21.3%—it was never clear why the industry should ever have been subjected to price controls. The industry has anywhere between 5,000 and 10,000 manufacturers, and the market leader has a market share of under 5.5%, a market structure perhaps found in no other industry anywhere in the world. Even in the case of the National List of Essential Medicines (NLEM)—around 348 drugs and 648 formulations—where the government wants to put price-caps, there are an average of 60 manufacturers per drug, ranging from 20 for anti-hypertensive Enalapril Maleate to 124 in the case of the painkiller Paracetamol. Given the courts were ruling on price-caps, the government needed to explain that poor patients were not being rooked. After all, while the most expensive anti-cholestorol Atorvastatin costs R8.5 per tablet, there are versions available at 69 paise per tablet as well. The difference is even starker in other treatments.
Ultimately, the government decided to play good cop-bad cop. While agriculture minister Sharad Pawar, who was in charge of the GoM on the subject, wanted to go in for a market-based solution, the finance ministry was in favour of the existing cost-based price caps which, apart from making the industry sick, don’t really work in real life. In the case of the DPCO drugs where such controls were first imposed, only 47 drugs are manufactured in the country. Indeed, things got so bizarre that the government is planning to ask foreigners buying Indian firms to give guarantees that they will not reduce production of price-controlled drugs.
Given the two extremes presented, industry will breathe a sigh of relief since the GoM has finally opted for market-price-based price caps. But the industry is still not out of the woods since average prices in an industry where price differences are huge will end up penalising the more expensive producers. In the case of Atorvastatin, if the most expensive brand costs R8.5 and the cheapest 69 paise, assuming only two producers, this means an average price of R4.59, which means a huge price cut for the market leader. And since the price-caps formula is a simple average of the prices of drugs (perhaps those which have a market share of more than 5%) instead of a weighted average based on the market share