IMPLICATIONS OF INDIAN RAW MATERIALS IMPORT ON PHARMACEUTICALS

TARIQ AHMED SAEEDI (tariqsaeedi@hotmail.com)
Aug 25 - 31, 2008

While government of Pakistan has introduced nine various tariff lines or tax incentives on importation of pharmaceutical raw materials from India, it seems to quickly upgrade its balance of trade over the neighboring country at the closure of this fiscal year as it clearly shows its bilateral trade specificities to enhance exports of medicinal products across the border in the latest trade policy statement 2008-09.

Intention of increasing exports to maintain balance of trade with India or other trade partners on equitable term is tenable, but will canalization of low cost pharmaceutical raw materials import to local manufacturers and widening of export base ensure determination of prudent prices of medicines for local consumers?

"Not at all," said Humayuon Fazal, Vice Chairman, Pakistan Chemists & Druggists Association while talking to this scribe. He says raw material import from India will not give price relief to consumers of medicines in Pakistan. Cost of Indian pharmaceutical raw materials is relatively low. Mainly on two reasons his assumption that cost effective import will unlikely to bring down price of the end products is based.

He explains firstly it is not a unique instance when local medicines manufacturers would have access to low cost raw materials. China has long been a cost effective supplier of medical ingredients for Pakistan's pharmaceutical industry. Even then, prices of medicines are not commensurate with the plausible price structure. "The problem lies somewhere else," hinted Humayuon.

He says, "It is not the cost of raw materials which lift up price, but marketing costs are the major driving force behind medicinal products price hike in Pakistan". To promote sale of their medicines, pharmaceutical manufactures or traders who import medicines from across the border pleases doctors through commissions, and other payoffs, he said.

Besides, companies spend lavishly on conferences, seminars, and symposia in order to market their formulas. Subsequently, all costs submerge in the end price tag. He says if donations to doctors for prescribing specific brands of medicines get reduced, consumers will get price advantage. "Doctors are equally culpable of surging medicines prices."

To a question, he replied, the ratio of over the counter sale or non prescribed purchase is very scant. Chemists sell what doctors prescribe. Usually they can not pass on particular formula to consumers; at least for certain drugs chemists are obliged to demand prescriptions.

Like in many other sectors where international determinants set forth product price, also in pharmaceutical industry international link causes price storm in life saving drugs, antibiotics, and other medicines. Ministry of health is the supreme authority in the country of setting prices of pharmaceutical products. It takes under consideration quotes presented by manufacturers especially multi national companies.

Giving a rough estimate, he said, "Pakistan imported probably 30-40 percent finished medicines from various countries" while the industry managed to increase its export revenue to $210 million. Pharmaceutical industry is on 7th rank in exporting sectors of Pakistan. Currently, the capital volume of local industry is near the magnitude of Rs. 89 billion or $1.32 billion and there are 405 manufacturing units of pharmaceutical operating around the country.

Trade policy for this fiscal year came up with many resolutions to foster growth of foreign exchange revenue in pharmaceutical industry. Along with showing its tendency to build relation of local health services sector with Indian pharmaceutical industry, government has also showed its readiness to incentivize local exporting medicinal manufacturers. It has propounded to award pioneer industry status to Biotech drugs manufacturing and provide tax incentives to encourage export of value added products and in particular those products manufactured by small and medium enterprises. Draw back rate for pharmaceuticals will increase by 1% of freight on board.

Furthermore, government will subsidize 50% cost of the registration of herbal medicines in foreign countries. Similar to what is done in the case of export of pharmaceutical products. It has also been decided that Ministry of Health will establish bio-availability and bio-equivalence laboratories in the National Institute of Health.

Government will support setting up of pharmaceutical plants by providing depreciation allowance facility of 90% in the first year on investment in plant, machinery, and equipment. Now, pharmaceutical exporters can send free samples of up to 10 percent of the purchase order to abroad and hold in retention 15 percent of their export proceeds.

All will probably go well with the desire of flourishing export sectors and improving exporting capacity of indigenous pharmaceuticals production. But, prior to be indulged in the obsession of increasing foreign exchange, it would be prudent on the part of economic policy makers had internal deformities been disentangled primarily for the benefits of the people at large.

Humayuon said, "Sense of nationalism is rapidly neutralizing". He says it is necessary alike for the economy and the society. The life saving profession of health service has been fraught with the inhumane commercial motives. Free trade with India would have translated cost-cut benefits to end users had it been there no structural disorders in the supply chain of pharmaceutical industry of the country. Ministry of health should first pay heed to suggestions which are in favour of masses and must put right required anomalies of price structure of pharmaceuticals.

While local industry enjoys tax free status, indirect tax nullifies cost benefits to manufacturers. Advisably, permission of finished medicines from India would be advantageous. Generally Indian pharmaceutical industry spends less on packaging, minimising consumer prices of medicines. In contrast, local industry has to sustain general sales tax levied over package printing in Pakistan.