A large number of people in India suffer under the burden of rising drug prices and healthcare, pushing them in poverty and indebtedness. The irony here is that India is also known as the ‘pharmacy of the world’.
From April 1st, 2023, the Modi government has approved an increase in the price of essential medicines by a whopping 12.12 per cent! This is the highest ever annual increase on the price of drugs in the recent years, which had already seen an increase of 10.70 per cent in 2022. This increase would mean that a large section of India’s population will be unable to afford many life-saving and essential medicines. For example, one would have to shell out more money to buy amoxicillin for a cold or flu or cetirizine for allergy/sneezing, an injection of trastuzumab (440mg/50ml) for a life-saving cancer treatment or even paracetamol for fever. There are over 300 other essential and life-saving medicines that are part of National List of Essential Medicines (NLEM), which covers a wide range of life-saving medicines and are crucial for the health and well-being of people.
The irony of India’s healthcare system is that despite India being called the ‘pharmacy of the world,’ India is among the largest out-of-pocket expenditure (OOPE) countries in the world. It is estimated that around 64 per cent of total health expenditure in India is borne by individuals through out-of-pocket payments, with medicines contributing to around 70 per cent of the OOPE. The increased OOPE due to rising medicine costs and privatisation of healthcare pushed more people into poverty with a vicious cycle of debt trap. For example, for a patient fighting cancer, the ceiling price for an injection of trastuzumab (440mg/50ml), a life-saving drug used for treatment of breast and stomach cancer, increased from Rs. 60,298/- (2021) to Rs. 66,790/- (in 2022).[1]
According to a report by the World Health Organization (WHO) in March 2022, high OOPE on healthcare is leading to impoverishment of approximately 55 million Indians annually. The report also highlights that over 17 per cent of households in India experience catastrophic levels of health expenditures each year.
The argument by the Indian pharmaceutical industry and the government for the rising costs of Active Pharmaceutical Ingredients (APIs), which are the main ingredients of a drug or a medicine, is that the cost of importing them from China have risen. But, in reality, the high costs in healthcare and medicines is due to the policy regime implemented during the 1990s, which altered the pricing and production policies in the country, with a focus on the market, rather than the people. Furthermore, the implementation of the Goods and Services Tax (GST) in July 2017 also added to the increase in prices for medicines.
The Neoliberal Impact on the Drug Policy in India
As per the Drug (Prices Control) Order, 2013 – DPCO 2013 – the medicines listed in the NLEM are sold below a price ceiling as fixed by the National Pharmaceutical Pricing Authority. Since the old DPCO regimes were altered to cater for neoliberal policies, the first NLEM released and updated by the Ministry of Health and Family Welfare and introduced in 1996.
The DPCO 2013 linked the prices of essential medicines to Market Based Pricing and allowed yearly revision of prices of these drugs as per the Wholesale Price Index based on the previous calendar year. This marked a dramatic shift from the earlier policies that worked rather on a Cost Based Pricing (i.e., taking into account the cost of production and a reasonable profit margin for the manufacturer).
Furthermore, the DPCO 2013 focused on fixing prices of formulations (i.e., final product and based on dosages), rather than on the bulk drug (i.e., the main ingredients of a drug or medicine or the APIs), which was the case in earlier policies (i.e., DPCO 1979). In an example of insulin, all forms (tablets and injections) and dosages (miligrams), came under the price control list under the earlier regime. But with the DPCO 2013, only the forms and dosages specified under the NLEM lists would fall under the price control list, thus reducing the ambit of coverage and affordability. In DPCO 1979, for the retail prices of formulations, the concept of ‘Maximum Allowable Post-manufacturing Expenses’ was applied, which included specific post-manufacturing expenses in the retail price calculations, such as selling and distribution costs, including retail and wholesale trade margins.
Also, with NLEM, only 18 per cent of the pharmacy market is regulated as a large section of medicines are non-scheduled drugs which falls outside the ambit of price regulations. For these non-scheduled drugs, the prices are completely based on market dynamics and an annual increase of 10 per cent is allowed.
With these restructurings, the burden of rising costs of APIs has been largely passed on to the people with no protection from the government. In a country like India, where a majority of the population is excluded from the healthcare system due to lack of affordability and accessibility, this has a catastrophic impact. Further, the neoliberal policy in India also forced the closure of many fermentation-based API production plants in India, which led to bulk of the APIs now being imported from other countries.
Reports[2] suggests that over the years, high OOPE on health has pushed a significant portion of the population in India to living below the poverty line, which increased by 4.2 percentage points in 1993–1994, 4.8 percentage points in 2004–2005 and 4.5 percentage points in 2011–2012.
‘Pharmacy of the World’
India accounts for 20 per cent of global generic medicine exports by volume and supplies over 50 per cent of global demand for vaccines.[3] India dominates the global pharmaceutical supply chain in terms of generic drugs. But this was not the case before 1970, when India decided to abolish product patents.
Before independence, India’s drug production was largely in the hands of foreign multinationals. Their dominance ensured artificially high prices of medicines, which led to inequities in healthcare access, with affordability being a barrier to adequate treatment and care for the majority of people.
The Patents Act of 1970 was a crucial milestone in ushering India into an era of self-reliance in generic drug production. This act abolished product patents for “as food or as medicine or drug” and only allowed for process patents. This allowed Indian companies to manufacture generic versions of patented drugs from different processes. This, along with a strong public sector research and manufacturing capacity, played a momentous role in facilitating the growth of the domestic pharmaceutical industry and promoting access to affordable medicines.
At that time, the global pharmaceutical industry and the western countries, condemned India’s patent laws and claimed that without the patent protection, pharmaceutical research and development will come to a standstill. Counter to this, India’s public sector research institutions like Central Drug Research Institute, Regional Research Laboratory (now CSIR-Institute of Minerals and Materials Technology), Indian Council of Medical Research (ICMR) and Central Tuberculosis Research Institute, among others spearheaded the development of new drugs like Centchroman (Ormeloxifene), Filaricide (Diethylcarbamazine), Nimorazole, MFP-1 (Melarsoprol), Pyrazinamide, etc.
By the mid 1980s, Indian pharmaceutical companies gained expertise in drug manufacturing and research, leading to the emergence of a robust indigenous pharmaceutical industry.
In 1995, India acceded to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) to give neoliberal policies and privatisation a thrust in the country. This led to altering of patent laws reversing the 1970s’ product patent regime, introducing an extended duration of patent protection as well as data exclusivity. This required countries to protect confidential or undisclosed data submitted by pharmaceutical companies to obtain approval for marketing of new drugs.
As a result, the entry of generic drugs into the market was delayed, reducing competition and potentially increasing drug prices. There had been a considerable delay in manufacturing low-cost generic alternatives as the 20-year patent protection under post TRIPS patent laws was implemented, which then severely impacted healthcare.
Though a Compulsory Licensing (CL) clause was introduced in the patent laws to provide access to affordable generic versions of patented drugs in cases of national or public emergency or due to lack of affordability, etc, it was rarely invoked by the governments. One notable (and first ever) case of CL was of Natco vs. Bayer in 2012 for the Kidney cancer drug sorafenib tosylate (sold under the brand name Nexavar) manufactured by Bayer. Natco Pharma, an Indian generic drug manufacturer, sought a compulsory licence to produce and sell a more affordable version of the drug. The Controller of Patents granted the licence based on the grounds of affordability and accessibility. The drug was priced by Bayer at US $5,608 per month (around Rs. 2.8 lakh), while Natco’s generic version cost Rs. 74/- per tablet, which equals Rs. 8,800/- per month (120-capsule pack).
Today, Modi government has put the CL clause into cold storage. The last CL was given in 2013 in the case of cancer drug dasatinib (marketed as Sprycel) owned by Bristol-Myers Squibb.
COVID-19 Pandemic Exposed Failure of India’s Drug Regulations
The post TRIPS changes in drug pricing regulation regime and its adverse impact on people came bare during the covid pandemic. The prices of essential drugs and medical devices required to fight covid witnessed an artificially inflated increase. The prices of Antivirals (remdesivir), anti-inflammatory drugs (steroids), antibiotics, pain relievers, antipyretics, bronchodilators, oxygen concentrators that formed the therapeutic ecosystem against covid was out of reach for a large section of Indian population.
According to observers, during the pandemic waves, the government apathy, lack of affordability and access to healthcare and failed regulations killed more people than the disease itself.
Also, during the covid-19 pandemic, in July 2021, the Parliamentary Standing Committee on Commerce in a report ‘Review of Intellectual Property Rights Regime in India’ had recommended the government to consider waiving patents rights and issuing CLs temporarily to tackle the inadequacy in availability and accessibility of covid-19 vaccines, drugs and devices. But, there was no response from the Narendra Modi government.
Smothering the Public Sector
The public sector research and manufacturing in India was the bedrock of India's journey towards becoming the ‘pharmacy of the world’ and gaining dominance in the generic drug market. But, the privatisation policies of the subsequent governments have smothered these units into closure or non-functioning. This has led to an increase in cost of both bulk drugs (APIs) or formulations as they are now dependent on market dynamics.
For example in bulk drug production, India used to be a world leader in fermentation technology based APIs (like Gentamicin by Hindustan Antibiotic Limited, Penicillin G/V by Indian Drugs and Pharmaceuticals Limited), but due to the anti-public sector policies of the government and the increasing focus on market based approach, many of these units have shut down.
One such case is of Pen-G, a starting material for a majority of semi-synthetic penicillin, and 6-APA, for which, in the late 1990s and mid-2000s, India had significant domestic production by the Hindustan Antibiotic Limited in public sector. However, the last decade and half has seen a steady decline in local production with many units closing down.[4] Today, India is fully dependent on imported APIs for Pen-G and 6-APA.
Moreover, the DPCO 1979 had made it mandatory for companies producing formulations to produce the required bulk drugs from the basic stage. A ratio parameter required linking “the production of formulations to indigenous production of bulk drugs. This helped companies acquire the technology that boosted the indigenous production of bulk drugs and increased domestic production.[5]”
Similar is the case with vaccines in India. In an article titled ‘COVID-19 Vaccine Debacle: Why are people left at the mercy of the market?’, published in Liberation (May 2021), we had looked at how India’s public sector vaccine units, that once was the backbone of immunisation programs are left to die a slow death. The article notes:
“Despite providing government advance and money for clinical trial (ICMR spent Rs 46 crore) to SII’s COVISHIELD and Bharat Biotech’s COVAXIN (which was produced in collaboration with government institutes like ICMR and National Institute of Virology), Modi allowed these companies to engage in super profiteering… The story of [public sector] HLL Biotech Ltd’s IVC represents the criminal act of sabotaging the public healthcare system and free universal vaccination program, leaving people at the mercy of private players. Amid the COVID-19 pandemic and shortage of vaccines, IVC could have boosted India’s COVID vaccination drive but the facility only contributed by manufacturing hand sanitizers.”
The final nail in the coffin is the Modi government’s decision in 2021 to close down two pharma PSUs, i.e., Indian Drugs & Pharmaceuticals Ltd. and Rajasthan Drugs & Pharmaceuticals Ltd., and divest in three (Hindustan Antibiotics Ltd, Bengal Chemicals & Pharmaceuticals Ltd and Karnataka Antibiotics & Pharmaceutical Ltd).
These PSUs were the cornerstones that shaped India’s success story towards self-reliance in pharmaceuticals and providing affordable and quality drugs and medical devices. Today, with the shift towards ‘profit over life’ mantra of the Modi government, people are left to the mercy of the market.
GST hits hard
The GST, which came into effect on July 1st, 2017, replaced the earlier tax regime of excise duty, value-added tax (VAT), and central sales tax (CST) across the country. Under the previous tax system, medicines were subject to a variety of taxes. With the implementation of GST, formulations and other health-related items fall in three categories: GST at 12 per cent, 5 per cent and zero.
The GST on formulations is 12 per cent for most medicines, including those of NLEM list, as compared to the earlier 9.5 per cent effective rate (VAT + excise duty). Medicines which earlier had no excise duty but had 5 per cent VAT, like ORS and insulin, were kept in 5 per cent GST slab. The GST regime led to an increase of 2.30 per cent for most essential medicines.
Also the increased cost of complex tax compliance was passed on to the people by pharma companies, which further added to the increase in cost of drugs.
Regulations and Public Health Expenditure
The withdrawal of several regulatory and inspection mechanisms to ensure quality and affordability of drugs has led to an increase in incidents of fake and spurious drugs (FS drugs) in India. Around 3 to 4 per cent of drugs are found to be substandard or fake, or spurious in India.[6]
Once known for high quality generic drugs, today we witness several cases of death and injury due to FS drugs, both in India and abroad. WHO in 2022 had flagged a warning over four Indian-made cough syrups thought to be linked to the deaths of 66 children in the African nation of Gambia. According to reports, analysis of a syrup made by Maiden Pharmaceuticals Limited showed the presence of "unacceptable amounts" of diethylene glycol (DEG) and another toxic alcohol called ethylene glycol. In 2019, similar reports came out from the Jammu region where children started falling sick after consuming cough syrup made by Digital Vision. Eleven children died, with lab results showing presence of DEG, an industrial solvent used in the making of paints, ink, brake fluids.
Healthcare experts argue that public drug testing labs in many states are starved for funding, short-staffed and poorly equipped. There is a severe shortage of drug inspectors to ensure quality and safety.
India’s expenditure on public healthcare including, research, development and regulations, have almost remained stagnant in real terms. According to the National Health Accounts data, public health expenditure for 2018-19 was 1.28 per cent of the GDP, which is down from 1.35 per cent in the previous financial year. It witnessed a rise during covid pandemic owing to the national emergency situation. A WHO report notes that ‘nearly 70 per cent of all outpatient visits, about 58 per cent of all inpatient episodes, and approximately 90 per cent of medicines dispensed, and diagnostic facilities in India are currently provided by either for-profit or not-for-profit providers in the private sector’.[7]
Good Healthcare Needs Strong Public Sector and Funding
If we look at the shaping of India’s drug policy regime, it is clear that a strong public sector research and manufacturing, along with robust public funding is the key to affordable and accessible healthcare for all. The government must ensure a minimum of 10 per cent budget allocation to the health sector. Instead of shutting down PSUs and slashing healthcare research budgets, India must create a robust public sector. This includes revival of PSUs to produce bulk drugs and move away from dependence on imports.
One crucial aspect in ensuring an affordable healthcare system, India needs to come out of the trap of patents and strengthen the compulsory licence regime to ensure generic production of drugs and vaccines. The long term policy should implement a drug policy based on DPCO 1979, which can help break the ‘profit over life’ based prices (dependent on market dynamics rather than the actual production cost) of patent drugs manufactured by multinational pharma companies.
To achieve healthcare for all, the changes in India’s drug regime are crucial. When people are already suffering due to price rise of essential commodities like food and fuel, the rising unemployment and stagnating wages, the rising cost of drugs will push people into poverty and indebtedness.
References
[1] Chintan, R. (2022, April 05). Increase in Drug Prices Will Hit People Hard – Need for Re-orienting Drug Pricing and Production Policy. Retrieved from Newslclick: https://www.newsclick.in/Increase-Drug-Prices-Will-Hit-People-Hard-Need-Re-orienting-Drug-Pricing-Production-Policy
[2] Selvaraj S, Karan K A, Srivastava S, Bhan N, & Mukhopadhyay I. India health system review. New Delhi: World Health Organization, Regional Office for South-East Asia; 2022.
[3] Indian Pharmaceutical Alliance. 2019. Indian Pharmaceutical Industry—The Way Forward. Occasional Paper No. 176. Available online: https://www.ipa-india.org/static-files/pdf/publications/position-papers/2019/ipa-way-forward.pdf
[4] Cherian, J.J.; Rahi, M.; Singh, S.; Reddy, S.E.; Gupta, Y.K.; Katoch, V.M.; Kumar, V.; Selvaraj, S.; Das, P.; Gangakhedkar, R.R.; Dinda, A.K.; Sarkar, S.; Vaghela, P.D.; Bhargava, B. India’s Road to Independence in Manufacturing Active Pharmaceutical Ingredients: Focus on Essential Medicines. Economies 2021, 9, 71. https://doi.org/10.3390/economies9020071
[5] Chintan, R. (2022, April 05). Increase in Drug Prices Will Hit People Hard – Need for Re-orienting Drug Pricing and Production Policy. Retrieved from Newslclick: https://www.newsclick.in/Increase-Drug-Prices-Will-Hit-People-Hard-Need-Re-orienting-Drug-Pricing-Production-Policy
[6] Singh, Prachi; Ravi, Shamika & Dam, David: “Medicines in India: Accessibility, Affordability and Quality,” Brookings IndiaResearch Paper No. 032020-01
[7] Selvaraj S, Karan K A, Srivastava S, Bhan N, & Mukhopadhyay I. India health system review. New Delhi: World Health Organization, Regional Office for South-East Asia; 2022.
