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Business News/ Opinion / The rationale of India’s drug policy

The rationale of India’s drug policy

The government's price control mechanisms have not been optimal

Illustration: Jayachandran/MintPremium
Illustration: Jayachandran/Mint

The Supreme Court’s description last year of India’s drug pricing policy—irrational and unreasonable—is unfortunately accurate from several angles. There have been two contradictory developments over the past few days: there is now a possibility that stents (a small mesh tube used to treat narrow or weak arteries) will become a component of the National List of Essential Medicines (NLEM). And a fortnight ago, customs duty exemptions on a number of drugs were lifted. Both are instances of the juggling act any government must carry out to achieve the twin objectives—interdependent and yet often pulling in opposite directions—of enabling broad access to reasonably priced medicines and allowing the marketplace to function well enough for pharmaceutical companies to invest in innovation. No administration in New Delhi has quite managed to pull it off yet.

The chequered history of drug price control in India, in fact, shows the extent to which it has failed to maintain that balance. Two decades ago, the Drug Price Control Order (DPCO) 1995 was introduced, covering 74 bulk drugs and their formulations. The result was not quite as hoped. Half the products were discontinued after their producers exited. Indian production of something as vital as penicillin shifted to China.

Its successor, DPCO 2013, hasn’t fared much better. Since its introduction, no new investments have been seen. Instead, there has been a shift—unsurprisingly—towards non-controlled products. Consequently, as a study by IMS Health shows, the average number of incumbent brands and new introductions of drugs in the DPCO 2013 list has reduced compared to the non-DPCO 2013 list. This “strengthens oligopolistic behaviour and reduces the choice set of doctors and patients", says the study.

State inefficiencies compound the problem. As the Justice T.S. Thakur bench pointed out last year, the cost of the drugs in the NLEM—which feeds the DPCO—remain above the maximum retail prices offered in some states (retail price margin goes as high as 4,000%), defeating the avowed purpose of access and cheap availability. In the context of the possible addition of stents to the list, this means that there is a broad range of potentially unintended consequences—from there being none of the intended control on prices to a decrease in supply and fewer introductions of technologically advanced stents in India.

The answer, however, is not to abandon any attempt at regulation. Leaving it to the market would create efficiency, certainly—but the benefits will be skewed towards pharmaceutical companies. In a context where public health and well-being is so substantially at stake—with inelastic demand and high barriers to entry skewing the balance further—to do so would be as counterproductive as the DPCO, simply in a different fashion. The US is a good example of this, with rocketing healthcare costs and the highest drug prices in the developed world leading to what is commonly understood as a healthcare crisis.

Instead, a multi-pronged approach that has the NLEM and DPCO, pared to an essential minimum and implemented with a transparency they have often lacked, as one of several tools is more likely to be effective. Overhauling India’s intellectual property rights (IPR) regime, for instance, is a priority here. In the context of the pharmaceutical industry, the courts have done well to clamp down on the practice of evergreening patents and protecting the country’s vital generic drug industry—but at the other end of the spectrum, impediments to legitimate patents have had high costs. As per an IndiaSpend (a data journalism initiative) report, on average, a patent application takes six years to get approval in India. This is unsustainable in an industry where long development cycles and multiple research dead-ends already raise costs and delay pay-offs. The soon-to-be-announced National Intellectual Property Rights Policy will, hopefully, have a positive impact here.

Expanding insurance coverage is another aspect. A Rand Corporation study, Regulating Drug Prices, shows that financing consumer price reductions via insurance has several long-term benefits over imposing price controls. But India is one of the least penetrated insurance markets in the world. As of March 2014, only 17% of the population had any health insurance coverage, as per the Insurance Regulatory and Development Authority. The raising of the foreign direct investment cap in the insurance sector to 49% last year should, ideally, introduce benefits. But so far at least, there has been little in evidence.

Successive administrations have relied for decades on price control to increase public access to medicines. The results have not been optimal. It’s time to look for a new balance.

What other measures can be adopted to improve India’s drug policy? Tell us at

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Published: 17 Feb 2016, 11:04 PM IST
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