The Indian Drugs Manufacturers Association (IDMA) has appealed to the government to raise the Maximum Allowable Post-manufacturing Expenses (MAPE) to 200 per cent from the current level considering the increase in trade margins and reduction in import duties over the years.
In its response to the task force recommendations, IDMA noted that in the 1979 DPCO, the MAPE was 100% and the total trade margins allowed were 14% in case of ethical products and 12% in case of non-ethical products on retail prices. In the new DPCO, the same margins were increased to 24% (16% retail margin + 8% wholesale margin / Distributors margin) and the gross realization was reduced due to this increase in trade margins.
Considering total MRP works out to 200, with 100 plus MAPE of 100, the gross realization was only Rs 172, when calculating 200 - 14% trade margin as per DPCO 1979. As per current DPCO, the gross realization is only Rs 152, which is 200 - 24% of the trade margin as per current DPCO. Thus the gross realization has been reduced by 20 and hence an additional 20% mark up should be brought in to make it at par with 1979 DPCO margins, contended the association.
The Association noted that earlier majority of the bulk drugs were imported and the import duty used to range from 50% to 75%. Now, majority of the products are manufactured in India and import duty is reduced to 5-15%. This has resulted in much lower margin (MAPE) for the end product. As per the earlier import duty structure, if the landed cost of the product was Rs 100, then the total price would be Rs 150, with 50 % import duty. With 100% mark up, the price would be Rs 300. As per the current import duty structure, the price for the same product is only Rs 220 considering 5% import duty and 100% mark up, which works out to a difference of 40% mark up.
Further, Additional Trade margin on further 100% mark up works out to 24%, free replacement of expiries (consumer protection) is about 4%, increase in freight and transport cost due to increased oil prices is about 4% and the cost of expenses in R & D and product development to meet the post GATT challenges works out to 3%, Additional cost due to pollution control, ESIS etc. 3%, new fringe benefit taxes that has been imposed will have an impact of almost 2%.