The Indian Drug Manufacturers' Association (IDMA) has urged the government not to initiate the capping of trade margin on generic drugs as this would force the retailers to close their business resulting in non-availability of medicines in rural areas. The medicines available in rural areas are due to the generics business model adopted by the big manufacturers. The capping of trade margin will only affect the operations of thousands of SSI/MSME units.

The association fears, if any step is taken to cap the margins and reduce the prices would prove disastrous for the consumers as well as for the manufacturers. Most of the medicines are manufactured in SSI/MSME plants. The initiative would result in unemployment of persons engaged in these units

Trade generics or generic business is promoted by propaganda distributors. These sales are aimed at rural areas, wherein the manufacturers don't have a presence through their own representatives, but reaches the areas through propaganda distributors. Propaganda distributors appoint representatives to canvas for the product with doctors in rural areas. The cost of meeting the doctors and canvasing, which has been shifted from the manufacturer to the propaganda distributors needs to be reimbursed. This reimbursement is facilitated through higher margins. This in effect the propaganda distributor does not enjoy huge margins, as they also have to incur expenses for marketing activities.

Out of the total 8 lakhs retail chemist shops in India, a large number of chemists are present in rural and semi-rural areas. Major manufacturers don't have a presence in these rural areas. If medicines are available in these rural areas, it is due to the generics business. In much of rural India, the doctors dispense the medicines. These doctors are supplied the required medicines through this multi layered channel of distribution.

The availability of medicines in rural areas may get affected due to unviable operations of retail on account of low volume of business, which will deprive the rural population of essential medicines.

IDMA in its representation to ministry states that in rural areas the volume of business is very less. This with normal 20 per cent the retailers will not be able to run the business profitability. Secondly the retailer has to abide by all rules and regulations like employing pharmacist, cold facility and range of products. All these involve cost. With low volume in rural areas, these costs cannot be recovered. Hence, additional incentives by way extra margins are given so that the retail business is made profitable in rural area to ensure availability of essential medicines in abundant quantity. This would only force the retailer to close the business resulting in non-availability of medicines in those areas.

The propaganda distributors are given higher margins as reimbursement expenses for appointing representatives, ensuring movement goods, maintaining warehouse with facilities like cold room, staff to maintain warehouse, etc. The existing system includes, C & F, super C & F, propaganda distributors; distributors, hospital pharmacies, Pharmacy chains, Jana Aushadhi (by GOI). Thus, any capping will only further complicate the distribution channels.

IDMA also cleared the understanding that if manufacturers can give higher margins in one channel of distribution, the manufacturers are earning super profit, which should be passed on to consumers, is factually wrong. The margins are not profits to distributors or retailers, but reimbursement of expenses and some extra margins to make the retail profitable in rural areas.