India, despite being a developing country is the biggest provider of cheap and affordable medicines
in the world. This has started a debate in the world where developing countries maintain the need to
keep medicines affordable for the masses but developed countries believe in earning huge profits
for investing it further in research. India has a huge population and affordable medicines are one of
the basic needs of the people. As such, it is important to keep the medicine prices to the minimum.

National Pharmaceutical Pricing Authority (NPPA) is the one that decides the price of medicines
according to the National Pharmaceutical Pricing Policy, 2012 and the Drugs (Prices Control) Order
(DPCO), 2013.

Since medicines are required even for the marginalised sector of society, it is important that they are
available at affordable prices. As such, NPPA does the price control for essential medicines. It not
only fixes the ceiling price of scheduled medicines but also monitors the prices of non-scheduled
medicines so their price does not exceed the MRP more than 10% every 12 months.

The difference in pricing also comes from the patent procedure. Patent laws of India were amended
to ensure that the process of making medicines was patented and not just the final products. This
ensured that India was able to create generic copies of medicines at a fraction of price compared to
western countries. It also helped to make India the pharmacy of the world’s poor. India’s production
of cheap medicines ensured that Africa got enough drugs to deal with HIV problems even with a
population of millions.

There is also a fixed formula for estimating the cost of the drug, on the basis of which the price is
fixed. The method of calculating the price depends upon the medicine and whether it is generic or
not. The traditional cost-based pricing method uses various cost components to determine the
essential cost, later adding profit/margin to it. These components include the cost of API, cost of
excipients, cost of duties applicable, cost of packaging material and cost of labour and overheads.

But even in this price method, there is the issue of transfer pricing mechanism which is under
scanner by various RTI activists and NGOs. Following is the formula for calculating retail price (RP):

Retail Price = (Raw Material Cost + Packing Material Cost + Packaging Cost + Conversion Cost) (1+
Maximum allowable profit exemption/100)

With MAPE being 100, the formula is RP = (RM + PM + PC + CC) X 2

But this method is used only for essential medicines. For non-essential medicines, it is the company
(manufacturers) who determine the cost and price.

Another factor that impacts the medicine cost in India is that India has a huge pharmaceutical
industry and as such raw material for manufacturing pharmaceuticals is available in abundance. As
such, India is also one of the biggest exporters of pharmaceuticals in the world. Though there have
been legal battles over patents in medicine, the Supreme Court has mainly ruled keeping the basic
necessities of people in mind.

Therefore, in this part of the World Intellectual Property Rights has not overtaken Human Rights yet.
Medicine costs in India do not depend on one independent body. It is a collective effort of
pharmaceutical industries, National Pharmaceutical Pricing Policy, Supreme Court and Patent Laws.
But still, in case of non-generic drugs and pharmaceuticals, the cost of medicines is often very high
since regulatory laws are not as strict as they should be. This makes some medicine rates quite high
as compared to others. Hence, the Indian government must review the drug policy again to ensure
better availability of medicines.