INDIA BUSINESS WORLD - APRIL 2007
The Month that was ...

LAW TO RECOVER DISCOUNT FROM DRUGS COS SOON

PHARMACEUTICAL companies will soon have to think twice before doling out princely discounts to chemists. The government is planning to introduce a legislation to recover these discounts from the manufacturer even though it is enjoyed by the chemist. The rationale is that it is the manufacturer who prints the high maximum retail price (MRP) covering such hefty discounts. Besides, it would be impracticable for the government to keep track of or penalize about six lakh chemists in the country.

This provision is likely to be part of the notification the ministry of chemicals and fertilizers is planning to introduce shortly to fix the trade margins of control-free drugs at 15% for wholesalers and 35% for retailers. These medicines account for over two-thirds of all drugs sold in the market. For price controlled drugs, a 8-16% ceiling already exists.

The move is provoked by certain questions about the practical difficulties in implementing trade margin caps, which the law ministry has raised in its response to the proposed notification. Tracking whether a manufacturer gives trade margins to a chemist above the proposed cap, is easier at the level of the manufacturer, who is supposed to inform the drug regulator National Pharmaceutical Pricing Authority (NPPA) about the details of price and margins.

The six-lakh odd chemists outnumber the 20,000 drug makers in the country. While theoretically the margins paid above the ceiling should be recovered from the chemist who benefited from it, it would be practicable to recover it from the manufacturer who is responsible for printing the maximum retail price covering the hefty discounts. And the recovered amount would go to the consumer protection fund administered by the ministry of consumer affairs.

Unless the manufacturer is held accountable for the high trade margins, any attempt to fix trade margins would be reduced to a rule intended only for those willing to obey, said a senior official. The proposed notification would form the legislative basis for the recovery procedure, which may even be in the form of land revenue, said an official.