CIRCUIT BREAKER. Regulating for the minority

The fracas over the Government’s recent decision to cap the prices of diabetes and cardio-vascular drugs makes one wonder at the topsy-turvy world of Indian regulations.

How did it come about that sectors such as financial services, which impact only a fraction of the population, have such elaborate and water-tight regulations for consumer protection, while those such as healthcare and real estate, which have a large impact on the day-to-day lives of most people, get by with hardly any regulatory oversight?

Just consider how the pharma regulator the National Pharmaceutical Pricing Authority (NPPA) has been waging an ineffectual battle with the drug industry, for lack of a clear policy framework.

Efforts to impose a semblance of control on drug prices began with the Drug Pricing Control Order of 1995 when 74 active pharma ingredients were brought under price control. Manufacturers were asked to sell these drugs at cost plus a nominal profit margin.

However, manufacturers promptly decided to ‘phase out’ many of these drugs citing losses. Taking stock of this issue after a good 17 years in 2012, the regulator identified a new list of 348 ‘essential’ drugs whose selling prices would now be capped. Cost-plus pricing was replaced by a more industry-friendly formula of averaging selling prices.

Recently, it was also decided to include 108 diabetic and cardio-vascular drugs not in the earlier list, in the ambit of price control.

But this has had the pharma industry up in arms. Asserting that the NPPA had no right to regulate ‘non-essential’ medicines, it has promptly gone to court.

Consumer groups have been protesting that there is no justification for price differentials of up to 12-15 times between different brands of the same drug. But with the courts likely to take their time deciding on the issue, the NPPA proposals are likely to be in limbo for now.

Contrast this with the banking sector, where the Reserve Bank of India has an eagle eye on the pricing decisions of individual banks and is quick to crack the whip on any attempt at differential or discriminatory pricing. Not only has the regulator laid down a precise formula by which each bank may calculate the interest rate on all its loans (the base rate), it also intervenes quite often (and effectively) on minor pricing decisions such as ATM charges or penalties charged to customers.

Then there is the yawning disparity between the regulations for financial market players and those in other sectors.

Today, anyone calling himself a ‘financial advisor’ is expressly barred by the Securities and Exchange Board of India (SEBI) from accepting commissions from the product company. Stock brokers, mutual fund distributors and insurance agents, when they sell financial products, are required to make disclosures to the investor on the commissions they earn on the products they are plugging.

Just contrast this with medical advisors. It is an open secret that pharma companies actively lobby doctors to prescribe their brands with gifts, trips and the odd personal favour. The doctor in turn is free to prescribe the most expensive brand of any drug without making any disclosures to the patient about his own close ‘rapport’ with the pharma company or the availability of cheaper generic options. Informal ‘tie-ups’ between the medical fraternity and diagnostic centres are legion, with the former often receiving a share of the fee collected from the patient.

Yet, all such practices go unregulated, in the hope that the code of conduct or other self-regulatory mechanisms will keep the medical fraternity from straying off the straight and the narrow.

If you were to apply the rules of financial market distribution to the healthcare sector, you would require doctors to disclose freebies from pharma companies or diagnostic labs, so that patients can make an informed decision. You would also insist that the doctors only recommend the generic version of a drug in their prescriptions, while leaving the actual brand choices to the patient.

But why pick on healthcare? Many other large sectors that the aam aadmi has a daily brush with also offer feeble protection to their consumers. Take real estate. Only a minuscule proportion of Indians buy initial public offers (IPOs). Yet, such investors, under SEBI’s aegis, have mandatory access to a prospectus detailing the company’s financials, operations, the promoters’ antecedents and a long list of risk factors.

In contrast, while making a hefty down-payment on an apartment, what disclosures or performance guarantees does the home-buyer get? Very little, save for a glossy brochure showing an artist’s rendering of the property and the floor plan.

The decision to buy property is usually one of the biggest financial decisions that a householder will make. Yet, he gets hardly any protection from a variety of malpractices, from mis-selling (using super-built up area to overstate size) to financial fraud (differential pricing) to even cases of builders wholly reneging on their commitment.

In fact, property buyers were not even considered ‘consumers’ until the Competition Commission of India ruling against DLF in 2011, which held that selling property was indeed a ‘service’, with the customer entitled to protection against abuse. CCI’s investigation revealed that the builder entered into one-sided contracts with buyers which allowed him to make arbitrary changes to the property during construction.

Why, property buyers aren’t even entitled to compensation if the apartment they invested in, collapses into rubble as the recent collapse of a newly built apartment in Chennai has underlined. Yet, while SEBI’s regulations governing investor protection are two decades old, the new law (Real Estate Regulation Bill 2013) to protect consumers from malpractices in the real estate sector, is hanging fire in Parliament.

In fact, if you really think about it, there’s a fairly long list of sectors that could do with the hawk-eyed oversight that the financial markets are today subject to. For instance, did you know that while you need an RBI licence to start a bank, you don’t need any approvals to run a pre-school for toddlers? Or that while a portfolio manager cannot do business without a registration, private nursing homes and clinics easily can?

It would certainly do ordinary consumers a whole lot of good if other sector regulators took a cue from the hyperactive financial regulators, not just in framing their rules, but also in enforcing them on their constituents.

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