Financial Daily from THE HINDU group of publications
Monday, Jul 12, 2004
Industry & Economy - Budget
Drug prices likely to go up 2-4 pc
P.T. Jyothi Datta
Mumbai , July 11
FOR consumers complaining about the creeping increase in the price of medicine, the going is set to get worse. Drugs are likely to see a price increase of 2-4 per cent as an aftermath of Budget 2004-05, according to pharma industry representatives.
A net price increase of about 3-4 per cent is on the cards as a result of a combination of factors mentioned in the recent Budget, Mr Ranjit Shahani, President, Organisation of Pharmaceutical Producers of India, told Business Line.
"The two per cent cess on education will have a cascading effect, despite the credit one may get going forward. Then there is the service tax of 10 per cent, combining with the tax one will have to pay on royalty and technology. Job work will also be in the excisable net, but the impact of this is not known yet. All this adds up and when balanced out with a VAT of possibly four per cent - as agreed upon previously - there still seems a net price increase on the cards for medicine."
Similar concerns are expressed by Mr Kewal Handa, Executive Director (Finance), Pfizer.
Given the cascading impact of the education cess and service tax on transportation and the processing fee on royalty and intellectual property right-related matters, Mr Handa expects a price increase of about three per cent.
"This may balance out if VAT comes in at four per cent. But if VAT comes in at 12.5 per cent, it will create a steep increase in medicine prices."
A Ranbaxy official said: "Input costs are expected to go up by two per cent." This will have its impact but how the different factors play out, depending on what is VAT-able, etc., will have to be seen, he added.
"Besides, will the high competition in the domestic market allow companies to pass the price on to the consumer?"
Dr Kamal K. Sharma, Managing Director of Lupin, also agreed that prices on input material going into medicines would see an increase. He agreed that competition would prevent companies from passing on "too much of the price increase" to consumers.
"Even topline molecules see copied versions coming out at half the price. And with the freedom to do this on new products ends with 2005, I see a proliferation among people making the same drugs."
Since withholding the price increase from the consumer would result in companies carrying the burden on their bottomline, there would be "some trade-off between prices and volumes produced", he added.
Industry analysts said that companies carry a tax burden of about 37 per cent, including a 16 per cent excise duty, octroi, etc. Further, some of them have distributor margins up to about 30 per cent.
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