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Price controls are work of bad economists, politicians

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India: Back to the 20th Century?

Price controls are work of bad economists, politicians

Just when you think India has taken an economic step forward into the 21st century, it stands up and asserts its right to take two steps back.

Over the past few years, India has moved to strengthen intellectual property rights and abandon its legacy of counterfeiting and piracy. That’s important because the country has a strong entertainment industry — "Bollywood" produces more films than Hollywood — as well as one of the largest pharmaceutical industries in the developing world.

And yet … the government agency that oversees pharmaceuticals has proposed placing 354 "essential drugs" — medicines such as antibiotics that are considered fundamental to providing basic health care — under the Drugs Price Control Order (DPCO), in addition to the 74 drugs that are already price controlled.

Moreover, the government agency wants to limit the drug companies’ "maximum allowable post-manufacturing expens" (MAPE) to 150% of production costs. Imposing price controls is a disincentive for pharmaceutical research and development and limits the growth of intellectual property.

Does the agency think that price controls are needed to ensure drugs are affordable for low-income populations?

Remember, the reason that some people claimed developing countries were justified in ignoring patents and buying from India was because the drugs there are high quality and low cost. That’s in part because generic competition is rampant in India, and the cost of living is very low.

Indeed, observers have pointed out that the market price of some generics in India — only a few patented drugs are on the essential-medicines list — is actually lower than the controlled price.

As of this writing it appears that the Indian government is willing to put most of the medications under the DPCO. That’s a huge mistake. Most of Europe imposed price controls on drugs years ago and then sat back and watched most of their pharmaceutical industry move to the U.S. India is a world leader in producing generic medicines and aims to be a leader in new drug development.

Price controls are what poor countries with bad economists and worse politicians do. Emerging economies with political visionaries turn to free markets. Which one will India be?

For more TechBytes go to ipi.org.

Written By

Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Follow him on Twitter: @MerrillMatthews.

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