According to a study, in a sample set of eight drugs under price control, prices of six dropped, while in a set of 20 not under control, they rose 10-20 per cent.

Bharat Jhunjhunwala

There is a move to bring 354 drugs under the controlled price mechanism in the New Drug Policy. Previous policies had reduced the number of drugs under price control to less than a hundred. Manufacturers were allowed to fix the price of drugs not on this list.

A study by the Delhi Science Forum on the price behaviour of drugs under and out of control is revealing. The Forum's study of eight drugs under price control and 20 drugs out of it showed a decline in the prices of six of the first set and an increase of 10-20 per cent in those of the second.

Keeping drugs under price control appears to lead to a reduction in their prices, benefiting people. The New Drug Policy also proposes that companies wanting to sell patented drugs enter into price negotiations with the Government before they are allowed to sell their products.

The other argument

These proposals have expectedly met with strong objection from the drug companies. Their argument is that increased control will hamper the growth of the industry. They will not be able to make large investments in research in the absence of lucrative prices and will not be able to face competition from multinational corporations.

This argument has merit insofar as the availability of funds for investment in research is concerned. The Indian Patents Act permitted the manufacture of patented drugs with alternative process before the World Trade Organisation was formed in 1995.

At that time, Indian companies could grow with small investments. Now, the only way to grow is to find new drugs, which require massive investment. But high prices are not the only route to such funds.

The New Drug Policy keeps new patented drugs invented by Indian companies out of price control. Indian companies can charge high prices and recover their investments without government interference as long as they develop new drugs.

R&D expenditure

Further higher income-tax relief has been provided for R&D expenditures. Therefore, only those companies will be hit that charge high prices but make no investment in research. The loss to research-oriented companies will be, if at all, much less. Higher relief on R&D expenditure will offset the loss due to price control. The main losers will be the MNCs which charge high prices in India but undertake R&D in their home countries. Indian companies would be justified in demanding higher incentive for R&D but not in demanding less price control.

Another argument against price control is that this provision can be misused and lead to opposite result. Drug companies can have high prices fixed with the connivance of government officers. The consumer will not have leeway to question such high prices as they would have the government's blessings.

Drug price control

Indeed, this is a real possibility. But the solution to this problem lies in elections, not in giving freedom to drug companies. For, the minister concerned, after all, has to present himself before the people every five years. If the people suspect the minister of such acts they can unseat him. But in the absence of such a regulation, the people will have no recourse. Control of prices of larger number of drugs, as proposed, is therefore justified.

The opposition to this measure from the drug companies is only to be expected. It is unfortunate that some NGOs have also opposed price control. An NGO recently said that the experience is that the `maximum' price set by the government often becomes the actual selling price and hence price control is likely to push up the retail price of drugs. This is ignoring the reality of price control leading to lower prices, as shown by the Delhi Science Forum study. Also, it is ignored that the maximum price determined by the government is often less than that fixed by the drug companies in an uncontrolled regime.

(The author, a freelance writer, can be reached at bharatj@sancharnet.in)

(This article was published in the Business Line print edition dated December 20, 2006)
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