Indigenous MedTech industry products commercial viability may get impacted by Government trade margin rationalization approach

Government’s is trying to control the prices of medical devices like pulse oximeter, blood pressure monitoring machine, nebulizer,

Indigenous MedTech industry products commercial viability may get adversely impacted by the Government’s move to price control medical devices like pulse oximeter, blood pressure monitoring machine, nebulizer, digital thermometer and glucometer by the latter’s trade margin rationalisation (TMR) approach.

Industry has therefore sounded an alarm saying that the trade margin rationalization (TMR) formula is flawed and may lead to shortages of these medical devices in the retail supply chain.

The national drug price regulator National Pharmaceutical Pricing Authority (NPPA) has capped the price of these five medical devices by a TMR formula through a notification dated July 13, 2021 by invoking the provisions of Paragraph 19 of the Drugs Prices Control Order (DPCO) – 2013. The move is aimed at making these medical devices affordable through price control as per a prescribed formula in the wake of increase in demand due to pandemic.

According to Kishore Khanna, Managing Director from Noida based Romsons Group Private Limited, which manufactures nebulizers, pulse oximeters and blood pressure monitors indigenously, “NPPA has stipulated 70% margin in the formula but the formula is actually of 70% mark up and not 70% margin. It is actually a 41% margin which may lead to shortages in the supply chain of these indigenous 5 devices. NPPA should not use “Markup” and “Margin” interchangeably which is factually incorrect. Trade margin is basically the difference between maximum retail price (MRP) and manufacturer’s price whether it is an overseas or Indian Manufacturer.”

“Indian manufacturers need level playing field with overseas manufacturers and by equating them with importers, the Government of India has inadvertently made importers pseudo manufacturers. The importers then claim they are the voice of industry, which is the root cause as to why manufacturing is floundering in India,” Khanna adds.

Industry has been recommending that trade margins need to be rationalised but from the first point of sales which is when GST is charged initially in case of imports on imported landed prices and in the case of domestic industry based on ex-factory discounted prices.

According to an Indian manufacturer, “The overseas manufacturer and Indian importer have been given the advantage to fly their kite with a longer string of estimated over 2.6 times import landed price whereas the domestic manufactures and Indian factories has to fly kite of MRP with a shorter string of 1.7 times ex- factory price at a competitive disadvantage. So why will any manufacturer feel strategically advantageous to Make in India? The said order will therefore continue to inadvertently encourage Imports and continue to discourage domestic manufacturing.”

“Such a small trade margin of 41% (mark up of 70%) in the supply chain is not adequate. Considering the huge territory of the country and trade margin includes distributor’s margin + freight and logistics + wholesalers margin + freight and logistics + semi- wholesaler’s margin + freight and logistics, dealers margin + retailer’s margin. Therefore, the trade margin should be 75% to 100% that means 3 to 4 times of the sale price to the distributor (first Point at which GST charged or Import landed Price),” Khanna explains.

“If the prices are kept as per the current order, it is expected that there will be significant shortage of medical devices in the market which may result in hardships to the patients and end users,” he further adds.

The Indian manufacturers have also pinpointed that on many medical devices, the trade margins over import landed prices is found irrationally high at 10 to 20 times.

“While TMR is a welcome move to rein in profiteering on essential medical devices, the domestic industry feels that the methodology used will create a trade imbalance by giving importers an undue advantage. The point of margin rationalisation should be the point where GST is first paid – import price in case of importers and not distributor’s transfer price. The large importers can book large profits taking advantage of the transfer price mechanism in their out of India parent company while Indian companies can’t do that. We urge the government to provide a level playing field to domestic industry and allow us to compete on basis of quality,” explains Gaurav Agarwal, Managing Director (MD) of Bengaluru based Innovation Imaging Technologies Pvt Ltd (IITPL), which manufactures indigenous cardiac cath labs and Director of Noida based Innvolution, which manufactures stents and catheters.

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