How are the prices of drugs fixed?

Drugs sold in India, whether generic or branded, are either scheduled or non-scheduled drugs as per the Drugs and Cosmetics Rules, 1945.

The prices of all scheduled drugs is capped. But, the Drugs (Prices Control) Order, 2013 (DPCO 2013) allows 16% margin to the retailer, as per para 19 of the DPCO, within the ceiling price fixed by the government. The distributor generally has a 8% trade margin. They are not permitted to increase the price more than 10% in a year.

This means that chemists can give concession up to 16% in controlled drugs and up to 20% in unscheduled drugs. The distributor or the company can directly give up to 30% discount. High cost products are marketed directly by the companies. In most cancer products the hospitals make 30% margins or more.

Non-scheduled drugs, on the other hand, are not under price control. So, the pharmaceuticals are at liberty to decide the margin and they may decide the MRP. They fix the MRP of these drugs in such a way that there is generous amount of trade margin for wholesalers and retailers. However, it is reported by the industry that as a norm rather than the law, the retailer enjoys a trade margin of 20% and the distributor a trade margin of 10% for non-scheduled drugs. This comprises 89% of the market of non-scheduled medicines with 27321 products. So, only about 11% (5503 products) have a trade margin of more than 30%. But, the government can and has been intervening whenever the need arises to cap the prices of drugs when brought to its notice under Para 19 of the DPCO.

Most disposables, reagents, devices, equipments are unscheduled products with no price control.

Here are few related terms and their meaning.

Retail price of a drug: This is the price at which a drug is sold to a consumer. The manufacturer is required to print such a price on the label of the product. In case of controlled formulations, the retail price is a price arrived at or fixed in accordance with the provisions of DPCO, 1995.

Local taxes extra: This now means GST.

Total amount required to be paid: Printed MRP (Maximum Retail Price) plus GST. However, a medicine can be sold below this price.

Loose medicines: If a retailer sells loose quantity (unpacked), the price of such medicine should not exceed pro-rata amount of the price printed on the label of the container, plus 5% thereof.

Price control: Only 74 out of about 500 commonly used bulk drugs are kept under statutory price control. All formulations containing these bulk drugs either in a single or combination form fall under price-controlled category. However, the prices of other drugs can be regulated, if warranted in public interest.

Dr KK Aggarwal

Padma Shri Awardee

President Elect Confederation of Medical Associations in Asia and Oceania   (CMAAO)

Group Editor-in-Chief IJCP Publications

President Heart Care Foundation of India

Past National President IMA