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In a first-of-its-kind move, the drug price regulator asked pharmaceutical companies to pass on the benefit of the recent excise duty cut to consumers even on medicines that are outside government’s price control. This will reduce prices by 4.58% on brands that account for three fourth of the Rs 33,000-crore domestic pharmaceutical market.

While intervening in the control-free segment of the market for the first time to emphasise that excise cut benefit should be passed on to consumers, the price regulator said emphatically that companies “must” reduce prices.

The regulator also said it will use a public interest clause in the drug pricing law to enforce Monday’s order. Finance minister P Chidambaram had halved the excise duty on all medicines from 16 % to 8 % in this year’s budget. Excise duty will now be levied on 64.5% of the MRP instead of 57.5% earlier. This works out to a 4.58% cut in the MRP on all medicines.

Drug makers have to submit a revised price list to NPPA soon. The National Pharmaceutical Pricing Authority (NPPA) had reduced the prices of controlled medicines, accounting for the rest one fourth of the market, by an equal measure immediately after the budget.

To enforce the current price cut, NPPA will use the norms meant for monitoring the price movements in control-free drugs. As per these norms (Para 10 b of the Drug Price Control Order), a company can raise the price of a control-free brand only by up to 10% in any 12 consecutive months. NPPA expects companies to first reduce the price by 4.58% and inform it. The reduced price will be the basis for any annual increase a company might want to avail in the year beginning March 1, 2008. Although companies are allowed to raise prices of control-free drugs by 10% in a year, market competition sometimes discourage them from it.

Companies increasing prices beyond the ceiling risk their products to be brought under government’s direct price control. Companies avoid that because once a product is under direct price control, they cannot hike prices within 10% ceiling too. Even for a minor revision, they have to go to the regulator. NPPA entertains requests for price revisions only after the company first complies with its order within 15 days of bringing it under government control. If the company misses the 15-day period, even that window is lost almost permanently.