The domestic underpinning of exports: Troubles in the world’s pharmacy

A perception has been built up that the ironically hyper-competitive Indian pharma sector is somehow earning windfall profits at the cost of the country’s poor. Nishant V Berlia, Member Management Board, Apeejay Stya & Svran Group argues why the reality is quite the opposite

Decelerating export growth, an API industry led to waste and a clinical trial industry in the freezer. These are well known concerns to both the industry and government with many initiatives being tried to reverse the slide. Overlooked and perhaps of the deepest concern is the risk of over-regulation of the domestic sector and its implications on supply chains.

In the past decade, government healthcare spending instead of reaching its own target of three per cent of GDP has fallen to one per cent of GDP whereas private sector continues at three per cent of GDP. We may debate, but one role of the government in healthcare is certainly clear.

There are weaker sections of our society for which there is a moral obligation for free healthcare and which only the government can provide for. Equally, however, it is as important to understand that the private sector can only viably supplement not replace the role of the government. Regretfully, a perception has been built up that the ironically hyper-competitive Indian pharma sector is somehow earning windfall profits at the cost of the country’s poor.

The converse is, however, very much more of fact. We have the lowest formulation prices of the world, lower even that of in effect our major raw material source, China. Moreover, in a country where modern medicine is still to reach many corners of the country, the industry has played a herculean role of ensuring availability (and at the same price) to every nook and corner of the country.

In effect, our industry of thousands of molecules/sub-industries has created the world’s third largest volume market at the lowest price. It is a natural step for those who have built these domestic supply chains, to then look to the world. In effect, it is our domestic market that has built and nourishes our export market.

And this is why price control, which even China, the world’s most powerful bureaucracy has announced withdrawal of, remains the Damocles sword over the industry. An idea created as a temporary measure during the 1962 Indo-China War, there has been one inarguable truth about any drug under price control since: stop investment. Whether it is the retailer, stockist, formulation manufacturer, API manufacturer, all will divert resources away.

The cause is not vanishing profits but the nascent high risk of trying to manage highs and lows of input prices that cannot be passed on. The industry cannot as much control these costs as the government can the price of onions. And add to this the uncertainty of a list which is revised every three years National List of Essential Medicines (NLEM). It is certainly not a recipe for Make in India.

NLEM 2015, which is actually a needed government procurement list, menacingly linked to price controls, will come and go. However, certainly there can be space for de-regulation, especially, if we can allow fertilizer, petrol and diesel de-regulation, arguably even more essential daily to the commons.

Formulations remain the only flag left flying high in the pharma sector: let us not sacrifice it and the chances of revival of the API sector on the altar of low government healthcare spending and price control.