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Rethink the draft pharma policy

The draft National Pharmaceuticals Policy 2006 seeks to recognise the premier role of government in the promotion of health care of the people, especially the poor. However, the means chosen may not be really effective. It provides, among other things, for the levy of a health cess of two per cent (similar to the education cess) on "various" Central taxes to finance the supply of drugs for the Rashtriya Swasthya Bima Yojana and for the subsidised treatment of cancer, AIDS, and certain other illnesses. It is easy to levy taxes but difficult to ensure that the funds so raised are effectively used to benefit the targeted groups rather than middlemen or better-off sections that wield influence over the administrative machinery or the political system. The levy of indirect taxes under one head or another might cumulatively affect costs of production and eventually lead to lower consumption of goods and undermine revenue realisation itself. Further, resorting to indirect taxes, rather than direct taxes, which take into account the paying capability of the citizen, is socially regressive. Before any scheme of collection of a health cess is implemented, the potential for tapping direct taxes alone should be explored, and democratic decentralisation of powers right up to the village level ensured. The proposal for lowering the excise duty on all drugs from 16 per cent to eight per cent and raising the turnover limit for excise exemption to Rs.5 crore from Rs.1 crore for small-scale manufacturers should help reduce the cost of drugs. But steps must be taken to prevent artificial splitting of production capacity, a tactic adopted to take advantage of SSI concessions.

The draft pharma policy (its `Part B' relating to statutory price control is awaited) states that generic drugs will be totally free from price control and that these will be given preference in government purchases. It also seeks to link approval for patented drugs with price negotiations. These provisions reveal a continuing lack of confidence in the capability of Indian companies to innovate and develop drugs. Every `generic' drug was once an `innovator drug' commanding a premium price during the term of the patent; this compensates innovating companies for the costs and risks of product development and testing. Any built-in disincentive for patented drugs will only put off the day when national companies acquire the capability to come out with innovator and advanced drugs. It is true that drugs out of patent can be used effectively, with substantial social and cost benefits. However, thrusting generic drugs one-sidedly on public hospitals patronised mainly by the poor is tantamount to denying them the benefit of the latest advances in medicine. Also, regulatory approval for drugs should be based solely on safety and efficacy and not vitiated by considerations of price. In many developed countries approval is linked to price negotiations but then the state assumes responsibility for the health care of all citizens and provides a social safety net for them.

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