By R. Suryamurthy
India’s pharmaceutical industry wears two faces. One is celebrated across the world: the country manufactures nearly one in every five generic medicines consumed globally, supplies affordable drugs to more than 200 countries, dominates vaccine production, and has earned the enviable title of “the pharmacy of the world.” The other face is visible only to Indian patients standing at pharmacy counters, where the price of a medicine often bears little resemblance to what it costs to manufacture, distribute or even justify through economics. Between these two realities lies one of the country’s least examined but most consequential public policy failures—a pricing architecture that has gradually evolved not to maximize public health but to maximize commercial opportunity.
The latest report of the Parliamentary Standing Committee on Chemicals and Fertilizers should therefore not be read merely as another parliamentary document questioning administrative delays. It is, instead, an indictment of a regulatory philosophy that appears increasingly comfortable with allowing market forces to determine the price of healthcare in a country where more than half of total health expenditure continues to be borne directly by patients.
The committee’s observations expose an uncomfortable contradiction. India’s drug pricing regime projects itself as one of the most regulated pharmaceutical markets in the world. Yet, in practice, the overwhelming majority of medicines prescribed every day remain largely beyond effective price control.
The numbers tell the story. Only medicines listed under the National List of Essential Medicines (NLEM) fall under direct price regulation through the National Pharmaceutical Pricing Authority (NPPA). Those medicines account for barely 18 percent of the pharmaceutical market by value. The remaining 82 percent—nearly 70,000 pharmaceutical formulations—are categorized as non-scheduled medicines, where manufacturers are effectively free to determine launch prices, constrained only by a rule that prevents annual increases of more than 10 percent thereafter.
This distinction, which may appear technical, fundamentally alters the economics of healthcare. A company introducing a medicine can price it almost wherever the market permits, knowing that future regulation concerns only incremental increases rather than the original price itself. The result is a marketplace where competition often revolves not around lowering prices but around expanding margins through branding, marketing and channel incentives.
The Department of Pharmaceuticals argues that the situation is not as alarming as critics suggest. According to data submitted to Parliament, nearly 87 percent of the non-scheduled market carries weighted average trade margins of up to 45 percent, while only around four percent of medicines record markups exceeding 100 percent over distributor prices.
That defence misses the larger point. A medicine does not become affordable merely because most products fall below an arbitrary statistical threshold. Even a 45 percent margin would be considered extraordinary in many consumer industries; in healthcare, where patients have virtually no negotiating power and demand is determined by illness rather than choice, such margins deserve far greater scrutiny. More importantly, the committee recalled evidence from its earlier investigations indicating that several commonly prescribed medicines carried trade margins ranging between 600 percent and 1,100 percent. Whether those represent isolated cases or systemic distortions is almost secondary. The very existence of such pricing anomalies demonstrates that the current regulatory architecture permits them.
Healthcare markets are unlike ordinary markets because the consumer rarely exercises meaningful choice. The patient does not decide which antibiotic to purchase, which chemotherapy drug to select or which cardiac medicine offers better value. Those decisions are delegated to physicians, pharmacists, hospital procurement systems and increasingly sophisticated pharmaceutical marketing networks. Unlike electronics or automobiles, where consumers compare prices before making purchases, medicines operate within an information asymmetry so profound that price transparency becomes almost irrelevant because the buyer lacks both the knowledge and the freedom to substitute products.
It is precisely this asymmetry that allows pricing power to migrate steadily away from patients and toward manufacturers and distribution chains. Perhaps the most striking observation in the committee’s report concerns transparency—or rather, the absence of it.
Consumers know only the Maximum Retail Price printed on medicine strips. They do not know the Price to Stockist (PTS), the manufacturer’s realization, distributor commissions, retailer incentives or promotional expenditures embedded within that final price. Consequently, two medicines containing identical molecules, manufactured under similar conditions and serving identical therapeutic purposes can exhibit enormous price differences without patients ever understanding why.
Opacity has become an economic asset. The pharmaceutical industry increasingly functions not merely as a manufacturing enterprise but as a data-driven commercial ecosystem where algorithms determine inventory flows, prescription analytics identify high-value therapeutic segments, digital marketing influences prescribing behaviour and sophisticated supply-chain management optimizes profitability. Yet India’s pricing regulation remains rooted in frameworks conceived more than a decade ago, designed for an analogue marketplace rather than an increasingly digitized pharmaceutical economy.
The committee’s criticism of delayed Trade Margin Rationalisation (TMR) therefore deserves wider attention than it has received. Successive governments have acknowledged that excessive trade margins inflate medicine prices. During the pandemic, authorities successfully employed trade margin controls to reduce prices of anti-cancer medicines and medical devices. The principle was accepted. The mechanism worked. Patients benefited.
Yet permanent institutional reform has remained trapped in endless consultations. This delay is revealing because it illustrates a broader pattern in Indian economic regulation. Markets that generate concentrated profits often acquire extraordinary institutional patience. Years of stakeholder consultations, committee deliberations, impact assessments and industry representations become acceptable when commercial interests are involved, whereas patients confronting catastrophic medical expenditure receive no comparable regulatory urgency.
The committee rightly rejected the Department’s justification regarding higher prices for trade generics sold in rural markets. Officials argued that logistics, inventory financing and transportation costs justify higher retail prices. Such reasoning would be economically persuasive were it not for its social consequences.
The poorest consumers are effectively subsidizing distribution inefficiencies through higher medicine prices simply because they live farther from urban supply chains. Healthcare economics thereby reproduces geographical inequality instead of correcting it. Rural illness becomes structurally more expensive than urban illness—not because medicines cost more to manufacture but because regulation tolerates pricing structures that pass every inefficiency directly to the patient.
The debate extends well beyond affordability. Medicine prices increasingly influence treatment adherence, disease progression, hospitalization rates and ultimately national productivity. Patients who discontinue hypertension medication because of cost are more likely to develop strokes. Diabetics skipping prescriptions because retail prices are unaffordable impose exponentially larger costs upon the healthcare system later through complications requiring hospitalization. High medicine prices therefore function not merely as private expenses but as macroeconomic liabilities. This is where India’s pharmaceutical ambitions encounter their greatest contradiction.
The country seeks to become a global pharmaceutical innovation hub, expand high-value manufacturing, attract investment into biotechnology, strengthen research capabilities and dominate emerging therapeutic markets. All these objectives are legitimate. But no healthcare ecosystem can sustainably celebrate export competitiveness while domestic affordability steadily deteriorates.
The parliamentary committee implicitly raises a more profound question than drug pricing alone. Who ultimately owns the economic gains generated by India’s pharmaceutical success? Are they to be captured almost exclusively by shareholders, manufacturers, distributors and marketing networks, or should patients—the very foundation upon which the industry exists—also share those gains through affordable access? Public policy has thus far answered that question largely in favour of commercial efficiency. Future policy cannot afford to do the same.
Artificial intelligence, predictive analytics, blockchain-enabled supply chains and real-time pharmaceutical databases are rapidly transforming global medicine markets. These technologies offer governments unprecedented opportunities to monitor manufacturer prices, distributor margins, retailer behaviour and regional pricing disparities almost instantaneously. The Integrated Pharmaceutical Database Management System (IPDMS), referenced by the committee, could become the foundation of a fundamentally different regulatory model—not one dependent upon sporadic inspections or retrospective investigations, but one capable of continuously identifying abnormal pricing patterns across the entire pharmaceutical supply chain.
Such a transformation would represent a shift from reactive regulation to intelligent regulation. However, technology alone cannot compensate for policy hesitation. The central issue remains philosophical rather than administrative. Should medicine be treated primarily as a market commodity governed by commercial logic, or as a public good whose pricing requires continuous regulatory vigilance because healthcare markets inherently fail the assumptions of classical competition?
The parliamentary committee has unmistakably chosen the latter view. Its report argues, directly and indirectly, that India’s existing framework no longer reflects the realities of a pharmaceutical industry whose scale, sophistication and profitability have outgrown regulations drafted for an earlier era.
The government now faces a choice. It can continue refining an architecture that regulates only fragments of the market while allowing pricing power to migrate elsewhere. Or it can undertake the more politically difficult task of redesigning pharmaceutical regulation around transparency, real-time data, rational trade margins and consumer welfare.
For decades, India has proudly exported affordable medicines to the world. The next great pharmaceutical reform will not be measured by how many countries buy Indian drugs or how many billions of dollars the industry earns in exports. It will be measured by something far simpler and infinitely more meaningful: whether an ordinary Indian patient can walk into a neighbourhood pharmacy, purchase a prescribed medicine without financial anxiety and trust that the price reflects medical value rather than regulatory failure. That, ultimately, is the true test of whether India is merely the pharmacy of the world—or whether it has finally become the pharmacy of its own people. (IPA Service)
