Why 'pricing' ails Indian pharma...

Fri, 27 Nov Pre-Open

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Pharma major Ranbaxy believes that India's pharma market is potentially among the best markets around the world. In an interview, its CEO Mr. Atul Sobti explains that the Indian healthcare industry could become a major global player. Infact, many times better than the IT industry. It has a lot of opportunities in areas such as in research, development, manufacturing and value-addition. Further, it generates a great deal of employment.

But due to price controls in the sector, it is not able to realize its full potential. Price controls are meant to keep medicines affordable for the poorer sections of the society. But the flip side is that they keep profitability low and discourage further investment into the sector. A better strategy would be to provide subsidies for those who cannot afford the medicine. That will help keep the rest of the market competitive. In any case, a properly functioning market with strong competition will ensure that prices remain low. A blanket mechanism of price controls leaves little incentive for the players. Mr. Sobti believes that China will again snatch the opportunity from us if we let the situation persist. The dragon nation is already strong in bulk drugs. It is a matter of time before it eyes the formulations pie.

In our view, the issue boils down to direct versus indirect mechanisms. There is little doubt that direct mechanisms are superior in principle. Think of Income Tax (direct) versus VAT and Excise (indirect). The former is related to the person's ability to pay, the other is blind to the fact. The developed nations rely far more on direct mechanisms – be it in taxes, healthcare or social security. Eventually, we should too.

Now the buses will run on battery

The environment is the buzzword at a time when emissions have taken the centre stage of world politics. Automobile companies are among the most directly impacted. As per a leading business daily, India's largest bus manufacturer, Tata Motors, will sell hybrid buses in India in the next few years. The vehicles will be able to switch between diesel and battery. Interestingly, hybrid buses are ideal for intercity traffic. An ideal engine burns a lot of fuel but in case of a hybrid vehicle, it actually recharges the battery. The vehicle can switch over to diesel while travelling at high speeds. In our opinion, the key issue would remain the cost of the vehicle, which is nearly twice the usual amount. Given the price sensitive nature of the Indian auto industry, it will require government assistance for these hybrid buses to get moving.