Capping profits will wipe out low-cost generic medicines, drugmakers write to PM Modi

Trade bodies representing MSMEs write to PM after big players agreed to Modi govt’s proposal to cap trade margins for all medicines at 30% of MRP.

Medicines | Representational image | Pexels

New Delhi: Capping the profits of chemists and distributors will lead to a shortage of low-cost medicines in India, over 8,000 Micro, Small and Medium Enterprise (MSME) drugmakers have warned the Union government in a letter written to Prime Minister Narendra Modi. 

The letters, accessed by ThePrint, have red-flagged the government’s decision to cap the profit margin of drugs, not already under price control, at 30 per cent of the maximum retail price (MRP).  

The letters were written on 6 December by two associations — the Laghu Udyog Bharti (LUB), which represents over 7,500 medium and small drugmakers and the Himachal Drug Manufacturers’ Association (HDMA), which represents over 650 drugmakers. 

They have requested the government to fix the maximum retail price (MRP) of each molecule so that the prices of medicines in one category are uniform across the country, instead of cutting margins.   

“We request you to find out another way and uniform formula for all segments instead of margin capping as otherwise it will give boost only to ‘bahubalis’ (strong players) of the industry who are able to sell drugs on high prices and can put MRPs accordingly so that channels of distributors, stockists, retailers would obviously promote their brands,” reads the letter by LUB. 

“We are afraid that the drug prices will increase instead of decreasing.. With capped profit margins, retailers and wholesalers will be encouraged to sell drugs with higher MRPs,” the HDMA letter reads. “With this, over a period of a couple of years the producers and sellers of cheap medicines will be wiped out from the market.”   

The drugmakers have also warned that if the rule kicks in officially, there could be massive layoffs in the sector. “We expect to chuck out 10 lakh employees if the traders margin are fixed based on MRPs,” said Rajesh Gupta, who heads both the LUB and the HDMA.  

According to the MSME industry, generic drugs help doctor treat 70 per cent of the population in rural areas due to the affordable pricing. 

Big players struck deal

The letters come after big drugmakers and trade bodies agreed to the Modi government’s proposal to cap trade margins for all medicines, outside price control, at 30 per cent during a meeting in the last week of November.

The non-branded generic industry is worried as now its profits would also be 30 per cent of the MRP.  “We are worried as branded drugs are costly. Hence 30 per cent of their MRP will be higher than on ours,” Gupta said. “It will encourage traders, distributors and stockists to promote their drugs rather than ours.”

This is the Modi government’s second attempt at regulating the sector. In March, the government had first capped the traders’ margin of nearly 400 oncology medicines.

The government has, otherwise, been pushing for generic drugs to reduce out-of-pocket expenditure of consumers. In 2017, Medical Council of India (MCI) directed doctors to compulsorily write molecule or salt name in prescriptions as against the practice of writing brand names with the intention of boosting the sales of generic drugs in India. 

The government also ordered pharmaceutical companies to print molecule names prominently on packs over brand names, another initiative on educating the consumer about generic versions over the branded one.   

Moreover, the government itself sells generic medicines through over 5,000 stores under the Pradhan Mantri Bhartiya Janaushadhi Pariyojana.