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Excise on drugs reduced to 8%

In an attempt to change the pharmaceutical landscape of the country, the government will set ceilings on trade margins, migrate to a uniform regime of maximum retail price, do away with branded generics and reduce excise duty on all pharma products by half to 8 per cent, as part of the National Pharmaceutical Policy, 2006.

The draft policy also lays down that drug companies will have to negotiate with the government for setting prices for patented drugs.

It also says that the government will buy drugs at deep discounts. The draft is being circulated for comments, which have to be submitted by January 25. The policy will take effect in April 2006.

Acknowledging that trade margins have been a subject of intense debate, the draft policy prescribes that for generics not under cost-based price control, the wholesale margin be 15 per cent and the retail margin, 35 per cent. These margins are not prescribed at present and vary sharply, touching 1,000 per cent in certain cases.

The wholesale margin for all drugs under cost-based price control - branded as well as generics - will be set at 8 per cent and the retail margin at 16 per cent. This is in step with what is prescribed under the current price control system.

For branded drugs not under cost-based price control, there will be a 10 per cent wholesale margin and a 20 per cent retail margin.

The draft seeks to do away with branded generics by confining the use of the term "generic" only to drugs sold under their chemical names.

There will be no control on the prices of generic drugs, neither cost-based nor MRP-based, and these will be preferred for public procurement and distribution.

At present, nearly all packaged goods in the country are sold at their MRPs, except drugs, for which the drug price control order prescribes a certain retail price with local taxes extra.

Recognising that this often leads to extra charges, the draft has suggested that the MRP concept, inclusive of taxes, be applicable to medicines sold in packaged form.

Excise duty has been reduced to remove the tax arbitrage that saw companies rushing to low-tax pockets like Baddi in Himachal Pradesh.

Patented drugs launched in India after January 1, 2005, will be subjected to mandatory price negotiations before any marketing approval can be granted. An expert committee will be set up for carrying out the negotiations.

Bulk buying by the government will consist of generic drugs on a preferential basis and have ceilings set, under which manufacturers will have to apply through open tenders.

Drug dosier

  • Trade margins for 'generic generics' capped at 15% or wholesale and 35% or retail
  • Shift to MRP inclusive of all taxes
  • Govt procurement at 65% of NPPA prices for price controlled drugs and 50% of MRP for the rest
  • Compulsory price negotiations of patented drugs
  • Debranded generics to be preferred for government procurement, stay outside price control
  • Excise on all pharmaceutical products to be halved to 8%


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