India: The Critical Analysis Of The New Drugs Pricing Policy : Pros And Cons

Last Updated: 9 April 2013
Article by Mrinali Mudoi

Most Read Contributor in India, September 2016


The nod of the Union Cabinet for the new pricing policy is a boon to the Indian pharmaceutical Industry. With the implementation of the policy, the entire scenario of the pharma sector will change because drugs would not be any more a struggle to procure for common man.

But with the benefits, the bill would also bring along with it many lacunas which can prove to be a big ill factor for the foreign pharma companies to lose interest in doing business in the Indian market who until now were the major supplier of many drugs which are not available in India otherwise.

This article throws light on the pros and cons of the pricing policies and its impact on the Indian economy at large.

Brief insight of the policy

The National Pharmaceutical Pricing Policy (NPPA) aims to put in place a regulatory framework for pricing of drugs to ensure that they are available at reasonable prices to the Indian public. The Indian government is also hoping that it will come up with all measures for ensuring sufficient opportunity for innovation and competition to support the growth of the Pharma industry.

The Pros of the Policy

At present, the Pharma sector in India is following the method of cost-based mechanism to determine the price of the drugs. Unfortunately the cost-based policy not only creates an inefficient and inconsistent mechanism of price calculation but most importantly and above all, it has proved to be a failure to help medicine reach to the needy ones.

Thus, that is being the prime reason for India lacking behind, in comparison with other developed and developing country, in terms of health aspect of its population.

Under the new policy, the recommended method to be used for determining the price of drugs is the WAP based price policy which will be a simple average of all brands with one percent market share cut-off. According to a memorandum prepared by the Associated Chambers of Commerce and Industry in India (ASSOCHAM), the most efficient factors that would be derived on the implementation are as follows:-

  • The weighted average price of all brands, having greater than one percent market share formula will result in over 40 % - 70% price reduction in 60 percent of the National List of Essential Medicines (NLEM). The WAP mechanism to control the price of essential medicines will achieve twin objectives of public health and industrial growth.
  • 348 "essential" drugs, including cancer and HIV medicines will come under the purview of the pricing policy.
  • The policy would not only prove to be miracle of reduced price ranging from 40% to 77% and but it would also bring hopes to thousands of poor and needy ones who unfortunately are usually deprived from the basic health care as the Government has assured of continued availability of these medicines even after the price reduction after the implementation of the policy.
  • Under the current cost-base formula of determining the price of the drugs, the expenditure on Research & Development on export market development was not being considered at all. However, the mechanism suggested in the policy to determine the price of drugs would reflect the cost.

The cons of the Policy

Although the policy is likely to be a boon and major beneficial for that section of the economy who are the consumers i.e. patients, however it is not the same for the other section and the one who play significant role in making the drugs available to public i.e the market player of drugs. As quoted by the Indian Pharmaceutical Alliance (IPA) and Organisation of the Pharmaceutical Producers of India (OPPI), the new drug policy would have adversely impact on the profitability of Indian pharmaceutical companies.

If the policy happens to be implemented, the local drug makers will have to cut prices by 20%-25% across portfolios, while multinational drug companies will have to reduce rates by between 30% and 50%. Moreover the drug companies would be under constant pressure to cope up with the competition among the players to ensure that the drugs sold in India are among the cheapest in the world.1

IPA Secretary General DG Shah, during a press conference told Press Trust of India (PT) as "prices of many leading brands will be slashed by 50 percent to 80 percent. This will reduce industry profit by half to Rs 4,000 crore on domestic sale of Rs 67,500 crore," Forecasting on such estimations, as a consequence, it might result that the big foreign Pharma Companies may lose interest from investing or expanding production capacity in India who are the leading supplier of many essential drugs in India.

Further, it is mentioned in the draft of the NPPA, that in regards to patented drugs, all together separate committee would work on finalizing the pricing of Patented Drugs and decisions on pricing of patented drugs would be taken based on the recommendations of the Committee. It implies that Government would be much stricter in allowing foreign drug companies to carry business in Indian market with their patented drugs. As a consequence, the investor would tend to shift away from the hassle of the lengthy processes to deal with the Government and lose interest in the Indian market.


1. As analysed by Mr. Manoj Garg, a pharmaceuticals analyst at Mumbai-based brokerage Edelweiss Securities a study report.,

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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