THE CONTEXT: Recently in March 2022, the concerns have been raised that consumers may have to pay more for medicines and medical devices if the National Pharmaceutical Pricing Authority (NPPA) allows a price hike of over 10% in the drugs and devices listed under the National List of Essential Medicines (NLEM). The following article explains everything about the pricing of essential drugs in India.

WORKING OF PRICING MECHANISM

• All medicines under the NLEM are under price regulation. The NLEM lists drugs used to treat fever, infection, heart disease, hypertension, anemia, etc, and includes commonly used medicines like paracetamol, azithromycin, Cardiac Stents, Knee implants, etc.
• The Health Ministry prepares a list of drugs eligible for price regulation, following which the Department of Pharmaceuticals incorporates them into Schedule 1 of DPCO.
• The Standing Committee on Affordable Medicines and Health Products (SCAMHP) will advise the drug price regulator the National Pharmaceutical Pricing Authority (NPPA) on vetting the list. The NPPA then fixes the prices of drugs in this Schedule.
• As per the Drugs (Prices) Control Order 2013, scheduled drugs, about 15% of the pharma market, are allowed an increase by the government as per the WPI (Wholesale Price Index) while the rest 85% are allowed an automatic increase of 10% every year.
• The annual change in prices of scheduled drugs is controlled and rarely crosses 5%.
• Under the Drugs and Cosmetics Act 1940, the drugs are classified in schedules, and regulations are laid down for their storage, display, sale, dispensing, leveling, prescribing, etc.

Essential Medicines List:

• As per the World Health Organisation (WHO), Essential Medicines are those that satisfy the priority health care needs of the population. The list is made with consideration of disease prevalence, efficacy, safety, and comparative cost-effectiveness of the medicines.
• Such medicines are intended to be available in adequate amounts, inappropriate dosage forms, and strengths with assured quality. They should be available in such a way that an individual or community can afford them.

National List of Essential Medicines of India:

• The WHO EML is a model list, the decision about which medicines are essential and remains a national responsibility based on the country’s disease burden, priority health concerns, affordability concerns, etc.
• Ministry of Health and Family Welfare, Government of India hence prepared and released the first National List of Essential Medicines of India in 1996 consisting of 279 medicines. This list was subsequently revised in 2003, 2011, and 2021.

ABOUT THE NATIONAL PHARMACEUTICAL PRICING AUTHORITY

The National Pharmaceutical Pricing Authority (NPPA) is a government regulatory agency that controls the prices of pharmaceutical drugs in India. It was constituted by a Government of India Resolution dated 29th August 1997 as an attached office of the Department of Pharmaceuticals (DoP), Ministry of Chemicals and Fertilizers as an independent regulator for pricing of drugs and to ensure availability and accessibility of medicines at affordable prices with Headquarter at New Delhi, India.

Drugs (Prices) Control Order 2013:

• The Drugs Prices Control Order is an order issued by the Government of India under Sec. 3 of Essential Commodities Act, 1955 to regulate the prices of drugs.
• The Order provides the list of price-controlled drugs, procedures for fixation of prices of drugs, method of implementation of prices fixed by Govt., penalties for contravention of provisions, etc.
• For the purpose of implementing provisions of DPCO, powers of Govt. have been vested in NPPA.
• The DPCO 2013 contains more than 600 scheduled drug formulations spread across 27 therapeutic groups. However, the prices of other drugs can be regulated, if warranted in the public interest.

KEY FUNCTIONS OF NPPA

NPPA INITIATIVES

• The National Pharmaceutical Pricing Authority (NPPA) is headquartered in New Delhi and to increase its reach across the country, NPPA has set up a Price Monitoring and Resource Unit (PMRU) in the various Indian States and Union Territories.
• These PMRUs have been set up under the Consumer Awareness, Publicity, and Price Monitoring (CAPPM) scheme.
• As of March 2022, there are 23 states/UTs with the most recent addition of Himachal Pradesh on 23^rd March 2022 as the 23rd Price Monitoring and Resource Unit (PMRU). The pharmaceutical authority aims to set up a price monitoring unit in each and every state and union territory across India.

SIGNIFICANCE OF NPPA

• It is important to fix the prices of certain important drugs so that they are affordable and accessible to every citizen of the county and the National Pharmaceutical Pricing Authority ensures the same.
• It mandates that no supplier can sell a drug for more than its Maximum Retail Price (MRP).
• NPPA also played a crucial role during the pandemic time in the country by either fixing or regulating the prices of essential drugs and devices.

 AN ANALYSIS OF THE ISSUE

• The pharma lobby is asking for at least a 10% increase for scheduled drugs too rather than going by the WPI. Over the past few years, input costs have flared up and one of the reasons being 60%-70% of the country’s medical needs, are dependent on China.
• NPPA has been receiving applications for upward price revision under para 19 of DPCO, 2013, for the last two years citing reasons like “increase in Active Pharmaceutical Ingredient – API (key ingredient) cost, increase in the cost of production, exchange rates, etc. resulting in unavailability in sustainable production and marketing of the drugs.
• India is dependent on China for over 60% of its API requirement; higher API costs for price-controlled medicines reduce profits and sometimes even make the production of these drugs unviable in India.

THE WAY FORWARD

• We all are aware of the shortage of Remdevisir injections in May 2021 and black marketing and hoarding which led to skyrocketing prices. In this context, Bombay HC has asked the Centre to include Remdesivir in the list of Scheduled Drugs and regulate its price. Such steps should be proactively taken by the government with the foresight of emerging situations.
• The interests of pharmaceutical companies shall not be put ahead of the lives of ordinary citizens. As of 23^rd March 2022, only 14% of people in low-income countries have received at least one vaccine dose against COVID-19. India and South Africa have thus, taken a firm position that when lives are at stake, such essential products should be treated as global public goods and IPRs under TRIPS Agreement must be waived.
• NPPA shall also revise the list of essential medicines at short and regular intervals to have a positive impact on the availability and rational use of medicines.
• In the longer term, India needs to build capabilities to manufacture the key ingredients for these medicines.

THE CONCLUSION: Having an Essential Medicines List (EML) results in a better quality of medical care, better management of medicines, and cost-effective use of health care resources. This is especially important for a resource-limited country like India. The decision is to ensure, that life-saving essential drugs remain available to the general public at all times. To avoid a situation where drugs become unavailable in the market and the public is forced to switch to costly alternatives this is the first time the NPPA, known to slash prices of essential and life-saving medicines, is increasing prices in the public interest.

MAINS QUESTIONS:

1. Elaborate on the role of the National Pharmaceutical Pricing Authority (NPPA) in ensuring the availability of life-saving essential drugs to the general public at all times.

THE CONTEXT: As economic activity started showing signs of picking up in the second year of the pandemic, the global economy faced the fresh challenge of rising global inflation. COVID-19 related stimulus spending in major economies along with pent-up demand boosting consumer spending pushed inflation up in many advanced and emerging economies. The surge in energy, food, non-food commodities, and input prices, supply constraints, disruption of global supply chains, and rising freight costs across the globe stoked global inflation during the year.

RETAIL INFLATION

The retail inflation, as measured by Consumer Price Index-Combined (CPI-C) moderates to 5.2% in 2021-22 (April-December) from 6.6% in the corresponding period of 2020-21. The Survey also says effective supply-side management kept prices of most essential commodities under control during the year.

DOMESTIC INFLATION

Compared to many Emerging Markets and Developing Economies (EMDEs) and advanced economies, the Survey finds that Consumer Price Index – Combined (CPI-C) inflation in India has remained range-bound in the recent months, touching 5.2% in December 2021. This was possible largely because of the proactive steps taken by the Government for effective supply management.

GLOBAL INFLATION

• In 2021, inflation picked up globally as economic activity revived with the opening up of economies. Inflation surged from 0.7 % in 2020 to around 3.1 % in 2021 in the advanced economies. For instance, inflation in the USA touched 7.0 % in December 2021, the highest since 1982. In the UK, it hit a nearly 30 years high of 5.4% in December 2021. Among emerging markets, Brazil witnessed inflation of 10.1% in December 2021 and Turkey also saw double-digit inflation touching 36.1%. Argentina has been experiencing inflation rates above 50% during the last 6 months.

RECENT TRENDS IN RETAIL INFLATION

• Retail inflation, well within the target limits of 2% to 6%, declined to 5.2% as against 6.6% during April – December 2020-21. The Survey states that this was largely attributed due to the easing of food inflation. Food inflation, as measured by the Consumer Food Price Index (CFPI), averaged at a low of 2.9% in 2021-22 (April-December) as against 9.1% in the corresponding period last year.
• A “refined” Core inflation has been constructed to exclude the volatile fuel items. The items of “petrol for vehicle” and “diesel for vehicle” and “lubricants & other fuels for vehicles”, in addition to “food and beverages” and “fuel and light” have been excluded from headline retail inflation. Since June 2020, refined core inflation has been much below the conventional core inflation, indicating the impact of inflation in fuel items in the “conventional” core inflation measure.

DRIVERS OF RETAIL INFLATION

• Major drivers of retail inflation have been the “miscellaneous” and “fuel & light” groups. Contribution of miscellaneous increased to 35% in 2021-22 (April – December) from 26.8% in 2020-21 (April – December). According to the Survey, within the miscellaneous group, a subgroup of “transport and Communication” contributed the most, followed by “health”. On the other hand, the contribution of food & beverages declined from 59% to 31.9%.

“FUEL & LIGHT” AND “TRANSPORT & COMMUNICATION”

• Inflation in the above two groups for the period of 2021-22 (April – December) has been largely due to the high international crude oil, petroleum product prices, and higher taxes.

MISCELLANEOUS

• Apart from transport & communication; “clothing and footwear” inflation also saw a rising trend during the current financial year possibly indicating higher production and input costs (including imported inputs) as well as due to revival of consumer demand.

FOOD AND BEVERAGES

• “Oils and fats” contributed around 60% of “food and beverages” inflation despite having a weight of only 7.8% in the group. The demand for edible oils is largely met through imports (60%) and fluctuations in international prices have been responsible for the high inflation in this subgroup. Though India’s imports of edible oils have been the lowest in the last six years, in terms of value, it has increased by 63.5% in 2020-21 as compared to 2019-20.
• Inflation in pulses declined to 2.4% in December 2021from 16.4% in 2020-21.With an increase in area sown for Kharif pulses to a new high of 142.4 lakh hectares (as of 1^stOctober 2021) pulses inflation is on a downward trajectory.

RURAL-URBAN INFLATION DIFFERENTIAL

• The gap between rural and urban CPI inflation declined in 2020 as compared to the higher gaps witnessed from July 2018 to December 2019. The factor largely responsible for divergence, for brief periods, is the component of food and beverages.

TRENDS IN WHOLESALE PRICE INDEX-BASED INFLATION

• WPI inflation has shown an increasing trend and has remained high during the current financial year touching 12.5% during 2021-22 (April – December). The Survey describes that part of the high inflation could be because of a low base in the previous year as WPI inflation has been benign during 2020-21.

• Crude petroleum & natural gas subgroup under WPI has witnessed very high inflation and stood at 55.7% in December 2021. Within manufactured food products, edible oils were a major contributor.

DIVERGENCE BETWEEN WPI AND CPI-BASED INFLATION RATES

• The Survey attributes a host of factors for the divergence witnessed between the two indices. Some of them, amongst others, include the variations due to base effect, the conceptual difference in their purpose and design, the price behavior of the different components of the two indices, and lagging demand pick up. The Survey states that with the gradual waning of base effect in WPI its divergence in WPI and CPI inflation is expected to narrow down.

HOUSING PRICES

• The residential housing sector was also affected by COVID-19 induced restrictions through both supply and demand channels.
• Amidst initial COVID-19 restrictions, not only did the construction of new houses slow down but the launch of new housing projects also got delayed. With the loss of income, uncertainty about future income, and stay-at-home orders, home buyers delayed their housing purchases.
• During the second COVID-19 wave (April-June, 2021), transactions of housing properties were once again impacted adversely, but not as much as it was seen during the first COVID-19 wave (April-June, 2020).

PHARMACEUTICAL PRICING

• Several steps have been taken to ensure the affordability of drugs and medical devices. Ceiling prices for 355 medicines and 886 formulations were fixed for medicines under the National List of Essential Medicines, 2015 until 31 December 2021.
• Retail prices for approximately 1798 formulations were fixed under DPCO, 2013 till 31 December 2021.
• During the recent years, exercising extraordinary powers under DPCO, 2013 in the public interest, prices of coronary stents and knee implants have also been fixed.
• NPPA also capped the trade margin up to 30 percent on selected 42 anti-cancer non-schedule medicine on a pilot basis in February 2019.

LONG TERM PERSPECTIVE

• Given the importance of supply-side factors in having a predominance in the determination of inflation in India, certain long-term policies are likely to help. This includes changing production patterns which would lead to diversification of production of crops, calibrated import policy to address uncertainty, and increased focus on transportation and storage infrastructure for perishable commodities.
• Better storage and supply chain management is required to ensure availability in lean season and reduced wastages of horticulture and other perishable essential commodities to reduce the seasonal spikes in prices for consumers, glut for the farmers in times of good harvests due to lack of marketing infrastructure, resulting in distress sales.
• Effective utilization of the Agriculture Infrastructure Fund for investment in viable projects for post-harvest management infrastructure for perishable commodities can help improve agriculture infrastructure in the country.
• Schemes like Operation Green and Kisan Rail need to be exploited further to protect the interests of the farmers as well as the consumers.

HIGHLIGHTS

• The average headline CPI-Combined inflation moderated to 5.2 percent in 2021-22 (April-December) from 6.6 percent in the corresponding period of 2020-21.
• The decline in retail inflation was led by the easing of food inflation.
• Food inflation averaged at a low of 2.9 percent in 2021-22 (April to December) as against 9.1 percent in the corresponding period last year.
• Effective supply-side management kept prices of most essential commodities under control during the year.
• Proactive measures were taken to contain the price rise in pulses and edible oils.
• Reduction in central excise and subsequent cuts in Value Added Tax by most States helped ease petrol and diesel prices.
• Wholesale inflation based on the Wholesale Price Index (WPI) rose to 12.5 percent during 2021-22 (April to December).
• This has been attributed to:
• Low base in the previous year,
• Pick-up in economic activity,
• Sharp increase in international prices of crude oil and other imported inputs, and
• High freight costs.
• Divergence between CPI-C and WPI Inflation:
• The divergence peaked to 9.6 percentage points in May 2020.
• However, this year there was a reversal in divergence with retail inflation falling below wholesale inflation by 8.0 percentage points in December 2021.
• This divergence can be explained by factors such as:
• Variations due to base effect,
• Difference in scope and coverage of the two indices,
• Price collections,
• Items covered,
• Difference in commodity weights, and
• WPI being more sensitive to cost-push inflation led by imported inputs.