P.T. Jyothi Datta

Mumbai, March 1

CONSUMERS, it seems, will soon have to fork out more money on their medicines. Having digested the impact of Budget 2005, drug companies and analysts tracking the segment feel that medicine prices are set to increase anywhere between two and six per cent.

Ipca Laboratories, for instance, has already effected a 6 per cent increase on medicines across the board, Ipca's Executive Director-Finance, Mr A.K. Jain, told Business Line. Prices have been increased in segments such as pain, anti-bacterials, heart-related ailments, skin ailments and central nervous system medicines.

Over the last couple of months, drug companies had been holding their horses in the hope that Budget `05 would bring them some relief. In January, the Centre issued a directive to calculate excise duty on the Maximum Retail Price. This put companies that outsource their work in a quandary.

Nevertheless, they waited for an increased abatement to neutralise the hit on performance. But even an increased abatement at 40 per cent did not satisfy companies and a price increase on medicines was imminent. But the proverbial last nail for the industry was when the Budget did not halve the 16 per cent excise duty on medicines, something that the industry was hoping for.

"Prices will definitely increase. The current abatement level does not cover our investments. We had asked for a 60 per cent abatement, at which rate prices would be neutral," observed Dr Swati Piramal, Director-Strategic Alliances, Nicholas Piramal India Ltd.

With the implementation of Value Added Tax prices should have come down. But with the build-up to April, when VAT will be implemented, fraught with directives that are likely to push up medicine prices, companies are left with two options, says Mr Kewal Handa, Executive Director with Pfizer. "Either they increase prices now and when VAT is implemented, prices get neutralised. Or they will revisit the issue in April. The real impact is going to be felt in April," he said, and added that Pfizer was evaluating its options.

More than branded drugs, it will be the generic or chemically similar drugs that are going to take the price increase. They largely promote their medicines through high trade margins, which are unlikely to take a hit given the competition in the domestic market. To prevent the company's profitability from taking a beating, companies would pass the price increase to the consumer, a pharma analyst said.

(This article was published in the Business Line print edition dated March 2, 2005)
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