Shri Vile Parle Kelavani Mandal’s

Narsee Monjee College of Commerce and Economics

(Autonomous) A.Y 2022-23

Name of the Course: INDIAN ECONOMICS

T.Y.B.COM

Semester – VI

DRUG PRICE CONTROL IN INDIA

Submitted by:

Full Name SAP ID Div/Roll no. Contact Marks

Number Number

Naman Agrawal 45208200946 F-017 7470405669

Khushi Chikani 45208200412 F-018 9769761807

Avani Dhawane 45208200923 F-019 8249036096

Priyanshi Doshi 45208200155 F-020 9323537934

Teacher in Charge:
Kesia Varghese

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 INDEX

Sr.no. Topic Page no.

1. Introduction 3

2. Generic Medicines Prices in India 4

3. Government Measures in subsidizing the drug prices in 6

India
4. Theoretical Model of Pharmaceutical Price Ceiling 9

5. Conclusion 12

6. Bibliography 14

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 INTRODUCTION

Up to 40% of the healthcare expenditure in developing nations is allocated to drugs and other
pharmaceuticals, although a sizable section of the population frequently lacks access to the
most fundamental medications. The reason for this is because there aren't enough finances to
buy these facilities due to the high levels of poverty in the local areas. The ability to obtain
cheap access to a healthcare institution is a major worry. Thus, strategies have been
developed to address this issue considering the enormous expenditures that households incur
as a result of their need for pharmaceuticals. Price regulation has been selected as the policy
tool to maintain low drug costs nationwide.

Health care expenditures include medicine, which accounts for 70% to 80% of overall costs.
A nation's healthcare costs are financed in a variety of ways. It can be paid for by the
government (state or union), public or commercial insurance plans, or directly by households
as out-of-pocket expenses (OOPE). Less financial strain on households in the form of high
out-of-pocket expenses results from increased government funding. As a result, the cost of
medications affects the health care system, particularly when it comes to the pricing control
of healthcare institutions. Government spends money on healthcare facilities to reduce the
cost of those amenities.

India performs far worse than the global average when it comes to out-of-pocket spending as
a percentage of current health expenditure (65% for India versus the global average of
roughly 20% in 2016), according to data from the World Health Organization (WHO) on
global health expenditures. The situation is similar when compared to other Asian nations.
Over time, the proportion of out-of-pocket spending has decreased in Thailand and China
while rising in Sri Lanka and Bangladesh. The national picture, which shows that the burden
of health spending rests mostly on households, is not significantly different from the state-
level scenario. Out-of-pocket costs make up an astounding 80% of all health spending in the
state of Bihar. Three-fourths of all health spending in Uttar Pradesh, the most populous state
in India, is made up of OOPE. Some states perform significantly better than others, such as
Gujarat, Karnataka, and Himachal Pradesh, however even in these states, households are
responsible for about half of the total health expenditures.

The National Essential List of Medicines' 347 medications (with over 800 formulations) are
now subject to price control according to a recent drug price legislation. Only 74

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pharmaceuticals were controlled between 1995 and 2012, whereas 347 drugs were regulated
after 2013.

Price limits have been used by the government for years in an effort to stop the rise in
medicine costs. When the government sets either a maximum price (referred to as the price
ceiling) or a minimum price (referred to as the price floor) on goods, price restrictions are
said to have taken place. It's against the law for sellers to set prices for products outside of
these ranges. Under Section 3 of the Essential Commodities Act of 1955, the government set
the first price caps on a number of identified products it regarded crucial for the general
populace. The Defense of India Act, which went into effect in 1963 and frozen all final
medicine prices, was responsible for the early drug price limits. Government clearance was
necessary for medicine price increases under the Drug Prices (Display & Control) Order of
1966.

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 GENERIC MEDICINE PRICES IN INDIA

Pradhan Mantri Bhartiya Janaushadhi Pariyojana

With an objective of making quality generic medicines available at affordable prices to all,
Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP) was launched by the Department
of Pharmaceuticals, Ministry of Chemicals & Fertilizers, Government of India in November,
2008. Under the scheme, dedicated outlets known as Janaushadhi Kendras are opened to
provide generic medicines at affordable prices. As on 31.10.2022, 8819 Janaushadhi Kendras
are functional across the country. Product basket of PMBJP comprises 1759 drugs and 280
surgical items. The Scheme is implemented by a society registered under the Societies
Registration Act, viz., Pharma & Medical Bureau of India (PMBI) [erstwhile Bureau of
Pharma PSUs of India(BPPI)].

Objectives:

● To make available quality medicines, consumables and surgical items at affordable

prices for all and reduce out-of-pocket expenditure of consumers/patients.

● To popularize generic medicines among the masses and dispel the prevalent notion
that low priced generic medicines are of inferior quality or are less effective.

● To ensure easy availability of the menstrual health services to all women across India.

● Generate employment by engaging individual entrepreneurs in the opening of PMBJP

Kendras.

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Comparison: Generic and Branded of some common Drugs

1. Paracetamol Tablets IP 500 mg

Generic (http://janaushadhi.gov.in/) MRP: ₹ 7.00 for 10 tablets

Calpol 500mg (GSK Pharma) MRP: ₹ 11.10 for 10 tablets

Crocin Advance (GSK Pharma) MRP: ₹ 11.31 for 10 tablets

Dolo 500 (Micro Labs Ltd) MRP: ₹ 11.30 for 10 tablets

2. Amoxycillin Capsules IP 500mg

Generic (http://janaushadhi.gov.in/) MRP: ₹ 35.00 for 10 tablets

Mox 500mg (Sun Pharma) MRP: ₹ 80.26 for 10 tablets

Novamox 500 (Cipla Ltd) MRP: ₹ 80.30 for 10 tablets

Almox 500 (Alkem Laboratories Ltd) MRP: ₹ 80.26 for 10 tablets

3. Oral Rehydration Salts IP 20.5g Sachet (WHO Formula)

Generic (http://janaushadhi.gov.in/) MRP: ₹ 10.00 for 1 packet

Electral Powder (FDC Ltd) MRP: ₹ 21.95 for 1 packet

Prolyte ORS (Cipla Ltd) MRP: ₹ 21.82 for 1 packet

ORS Orange (Apollo Hosp. Ltd) MRP: ₹ 18.00 for 1 packet

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4. Calcium and Vitamin D3 Capsules

Generic (http://janaushadhi.gov.in/) MRP: ₹ 33.00 for 4 capsules

Calcigen D3 Capsule (Cadila Pharma Ltd) MRP: ₹ 139.88 for 4 capsules

Cipcal D3 Soft Gelatin Capsule (Cipla Ltd) MRP: ₹ 140.88 for 4 capsules

D3-Extra Soft Gelatin Cap. (Macleods Ltd) MRP: ₹ 59.57 for 4 capsules

5. Azithromycin Tablets IP 500 mg

Generic (http://janaushadhi.gov.in/) MRP: ₹ 70.00 for 5 tablets

Azithral 500 (Alembic Pharma Ltd) MRP: ₹ 132.36 for 5 tablets

Azee 500 (Cipla Ltd) MRP: ₹ 132.38 for 5 tablets

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 GOVERNMENT MEASURES IN SUBSIDING THE DRUG PRICES IN
INDIA

The price of medicines has been a sensitive subject in our country, where more than 55
million people are pushed into poverty every year due to out-of-pocket healthcare expenses.
Purchasing medicines accounts for slightly more than half of total out-of-pocket healthcare
expenses. The affordability of medicines is a critical factor in ensuring access to medical care
for all sections of society, particularly the country's poor.

Price controls have become an important tool in the government's arsenal for making drugs
more affordable. According to data by AIOCD-AWACS, around 14 percent of drugs by
value, and 25 percent by volume fall under price controls. For the fiscal year ending
September 30, 2019, India's pharmaceutical industry is worth Rs 1.36 trillion.

How are the prices of drugs regulated?

Every few years, the Health Ministry, in consultation with experts, draws up a National List
of Essential Medicines (NLEM). These medicines, which are deemed necessary for the
treatment of common conditions, are automatically subject to price control under the Drug
Price Control Order (DPCO).

Under NLEM 2015, the price of a total 376 drugs and 857 formulations are under price
controls.

Furthermore, under Section 19 of the DPCO, 2013, the government has the authority to
impose price controls on any item of medical necessity. This provision was used to regulate
the prices of cardiac stents and knee implants.

The National Pharmaceutical Pricing Authority (NPPA), an independent body of experts in

the Ministry of Chemicals and Fertilizers, enforces these prices and the availability of the
medicines under the NLEM.

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What formula is applied?

The DPCO uses a pricing mechanism based on the market. The ceiling price is calculated
using the simple average price of all brands with at least a 1% market share of the total
market turnover of that drug, plus a notional retailer's margin of 16%.

The Department of Industrial Policy and Promotion will allow an annual increase in the
ceiling prices of scheduled medicines based on the Wholesale Price Index. There is no way to
save money.

Prior to 2013, the DPCO used a cost-based pricing mechanism based on the costs of
manufacturing a medicine as well as reasonable profit margins. Health experts have argued
that this policy resulted in comparatively lower prices than the current market-based policy.

Recent Changes

The National Pharmaceutical Pricing Authority (NPPA) has fixed the ceiling price of 93
essential formulations including pain killers and drugs used to treat cancer, rheumatoid
arthritis, heart disease, bacterial infections, pneumonia, tuberculosis, thyroid, epilepsy, and
urinary tract infections.

The move will lower the cost of drugs, and manufacturers who fail to comply will be required
to deposit the overcharged amount with the government.

"All manufacturers of scheduled formulations who sell branded or generic or both versions of
scheduled formulations at a price higher than the ceiling price shall revise the prices of all
such formulations downward not exceeding the ceiling price plus goods and services tax as
applicable if any," according to a government notification.

Drugmakers are required to submit a drug price list to the drug regulator via the Integrated
Pharmaceutical Database Management System (IPDMS) and a copy to the state drug
controller and dealers. For example, the price of Digoxin formulation 0.25 mg, which is used
to treat heart conditions, has been set at 7.14 per tablet, and the price of Pyrazinamide
formulation 1000 mg, which is used to treat tuberculosis, has been set at 9.39 per tablet.

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Similarly, the price of a litre of milk has risen by a factor of ten.

"Manufacturers who fail to comply with the ceiling price shall be liable to deposit the
overcharged amount in accordance with the provisions of the Drugs (Prices Control) Order,
2013 and the Essential Commodities Act 1955," the notification stated.

Makers of drug formulations with an MRP lower than the ceiling price must keep the existing
MRP. In addition to this, every retailer and dealer is required to display the price list at their
business site in a manner so as to be easily accessible to anyone.

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 THEORETICAL MODEL OF PHARMACEUITCAL PRICE CEILING

While the generic and branded company types would be included in the standard model of
the off-patent pharmaceutical market, this scenario does not apply to India and other
"branded generics" markets. This section will feature three different firm types to account for
this: a multinational firm (referred to as a "multinational firm"), a well-known local generic
exporting company ("exporter firm") and a smaller, less well-known local generics company
("local firm"). According to this model, all businesses will lower their prices in reaction to a
fixed price ceiling, but given constant quality standards, the high-quality international
business should increase market share and revenues.

Furthermore, it demonstrates that local businesses will be most likely to leave the market
following the establishment of a price ceiling if marginal costs are sufficiently similar across
producer types. The model put forth here makes the assumption that quality standards remain
consistent over time and that businesses do not alter their quality in response to price control
legislation. This might be the situation when various regulatory standards or liability
standards apply to different firm types, resulting in immovable minimum product quality
standards. This may not hold true for major markets like Brazil and India where multinational
and exporting generics firms may have multiple facilities that adhere to various
manufacturing standards (for example, a facility approved by the U.S. FDA for goods headed
to the United States and a facility approved by the Indian Food and Drugs Control
Administration for goods headed to the Indian market).

However, in practice, it might be challenging for a small, regional generics company to

invest in advertising and build a reputation that will make it comparable in quality to larger,
exporting companies. In cases when price limits are selective and don't apply to all the goods
sold by a particular producer, the presumption of continuous quality may still be valid. If
quality can be seen in these circumstances, businesses are unlikely to change their level of
quality because doing so could harm their reputation in more lucrative regions without price
limitations.

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LAISSEZ -FAIRE MARKET

Consumers perceive quality disparities in goods produced by various firm types in free-
market branded generics markets. Three different business types operate in these markets,
each with a different perception of the quality of its products: multinational corporations,
which are the original developers of pharmaceuticals; exporting generics corporations, which
invest in brand recognition; and smaller local generics corporations, which sell their products
only locally and typically do not make such investments.

MODEL PREDICTIONS

In conclusion, a price ceiling can alter the free market's equilibrium by lowering the costs of
both the products it directly affects and those that were already priced below the ceiling. The
demand for the premium, expensive goods with a good reputation will rise, and their market
share will rise as well. Additionally, until price ceilings are sufficiently low, producer exit
may not happen. Although it seems contradictory given that low-priced businesses are those
that are least directly impacted by price ceiling legislation, price ceilings are more likely to
result in the exit of low-priced businesses if marginal costs are comparable across company
types. Three testable predictions are generated by this set of findings:

Prediction 1: Even if a product's ex-ante price was below the established price ceiling, prices
will decrease across all company types after legislation.

Prediction 2: After legislation, sales and market share of multinational items will both rise.
The impact on global market share and sales, however, is unclear when the constant marginal
cost and uniform patient preferences assumptions are relaxed.

Prediction 3: Small, local businesses are most likely to see producer exit, assuming
sufficiently equal marginal costs across producer types.

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CONCLUSION

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 BIBLIOGRAPHY

 https://www.brookings.edu/wp-content/uploads/2020/03/Medicines-in-India_for-
web-1-1.pdf
 https://economictimes.indiatimes.com/defaultinterstitial.cms
 https://www.moneycontrol.com/news/business/explainer-how-drug-prices-are-
regulated-in-india-4606751.html
 https://www.livemint.com/news/india/more-essential-drugs-come-under-price-
regulation-11673286461190.html
 https://www.1mg.com/
 http://janaushadhi.gov.in/productlist.aspx

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