Excise cut in Union budget may bring down prices of only 10% of medicines
Ramesh Shankar, Mumbai

Although the Chemical & Fertilizer Ministry is trying its best to ensure that the drug companies pass the cut in excise duty to the consumers by reducing the drug prices by 4.58 per cent, hardly 10 per cent of the total medicines are likely to be cheaper as a sizeable number of medicines for the domestic market are manufactured in Excise Free Zones.

A conservative estimate suggests that around Rs 22,000 crore of a total Rs 33,000 crore of medicines for the domestic market are sourced from the Excise Free Zones like Baddi in Himachal Pradesh and other hubs in Uttarakhand where prices have skyrocketed owing to lack of Excise Duty on MRP. Among the Rs 11,000 crore of production in the non-exempt zones, many drugs are in the non-scheduled drugs category on which the companies are not legally bound to reduce the prices. The price cut of 4.58% mooted by the Ministry on select drugs is a pittance compared to the price rise of 326% from Excise Free Zones, which has been reported by National Institute of Pharmaceutical Education and Research. No remedy seems possible to rein in prices in Excise Free Zones.

According to sources, some drug companies are already putting up strong resistance to the Union Chemicals Minister Ram Vilas Paswan's appeal to the drug companies to pass on the benefit to the consumers on the ground that prices of several raw materials have witnessed sharp increase during the last one year.

Industry sources said that even though the drug price regulator, National Pharmaceutical Pricing Authority (NPPA) is putting pressure on the drug companies to fall in line by reducing the prices of drugs, prices of several medicines in the non-scheduled category may not come down as the prices of raw material have increased manifold during the last one year. "Several companies had, much before the Budget, requested the NPPA to increase the prices of these medicines. Due to the reduction in excise, the companies will not demand to raise the prices of these medicines", sources said.

According to industry watchers, the excise reduction will prove to be beneficial more to the drug companies and not to the consumers. The excise duty reduction from 16 per cent to 8 per cent will come in handy for the SSI units to come back to the non-exempt areas as the excise reduction has provided a somewhat level-playing field to them. After the implementation of levy of MRP-based excise in January 2005, around two thirds of total drug production has been shifted to excise free zones. Now that the government has reduced the disparity, the SSIs may come back to non-exempt zones, sources said.

Source: www.pharmabiz.com
24th March 2008

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