Gujarat chemists fear 50% profit erosion with new DPCO

AIOCD plans to approach the Supreme Court against new new drug price control order

Gujarat based chemists fear as much as 50 per cent erosion in profitability if the proposal to reduce chemist margin is new drug price control order (DPCO) is implemented.

Jashvant Patel, president of the Federation of Gujarat State Chemists & Druggists (FGSCDA) said, "While the DPCO actually aims at reducing the cost of medicines for patients by increasing the basket of drugs under the pricing control, for a majority of companies the rates would not come down significantly. However, in contrast, the margins of chemists would come under pressure."

Under the old DPCO of 1995, chemists and druggists had a 16 per cent margin for retailers and 8 per cent for wholesalers for drugs whose prices were controlled by the National Pharmaceutical Pricing Authority (NPPA). For non-DPCO drugs the margin was at 20 per cent. However, the new pricing policy mandates further margin reduction of 4 per cent and 2 per cent respectively for retailers and wholesalers on 348 drugs as per the DPCO.

Patel also explained that with inflationary pressures high, the overhead costs have also gone up, and this puts further pressure on margins. The overall turnover of the chemists (around 600,000 wholesale and retail chemists across the country) is around Rs 72,000 crore per annum. Of this around 14,000 chemists in Gujarat account for nearly 10 per cent of the national turnover, Patel claimed.

"Around 50 per cent of our profits would be eroded thanks to the new policy. Nearly 50-60 per cent of the overall turnover now comes from DPCO drugs, and taking a hit in margins would significantly reduce our profitability at a time when cost pressures are high," he explained.

The FGSCDA is affiliated to the All India Organisation of Chemists & Druggist (AIOCD), is now likely to approach the Supreme Court against the DPCO. Patel further informed that the all-India chemists' body is meeting in Goa on July 28, and a decision on the future course of action would be taken then. The AIOCD has already approached the Union government and has submitted a memorandum to the concerned ministries.