On January 28, the Finance Ministry issued a notification withdrawing customs duty exemptions on 76 medicines. The move immediately caused an uproar as it led to a rise in prices of at least 10 HIV and four cancer drugs that are currently being imported into the country. The list also contains growth hormones, blood thinners and drugs for arthritis and heart ailments.

Biocon chairperson and managing director Kiran Mazumdar Shaw lambasted the move in a series of tweets and in interviews to newspapers, saying that it adversely impacted the government’s aim to make healthcare affordable and accessible in India. The National Human Rights Commission took cognisance of the matter based on news reports and sought explanations from the finance and health ministries on why they were implementing a mechanism to make life-saving drugs costlier.

In contrast, many domestic drug manufacturers backed the move saying that, since Indian companies were already making most of the drugs on the list, patients would not be affected. Health activists, too, were in favour of the customs duty imposition since it will indirectly promote the indigenous pharmaceutical market and ultimately have the most benefit for patients.

So what is in this opinion-dividing notification of January 28?

The notification, in essence, modifies a 2012 list of items that qualify for import duty exemption or relaxation. For one, it removes 15 medicines from the list of finished drugs exempted from customs duties. Amit Sengupta, health activist and national convenor of the Jan Swasthya Abhiyan, says this means that the drugs will attract a 35% duty and lead to a substantial price rise. He adds, however, that there are a number of generic versions of these medicines that are available for much less.

Abciximab - Blood thinner, Filgrastim - Bone marrow stimulant, Imatinib Mesilate - Chronic Myeloid Leukemia, Irinotecan - Colon Cancer, Rivastigmine - Dementia.
Abciximab - Blood thinner, Filgrastim - Bone marrow stimulant, Imatinib Mesilate - Chronic Myeloid Leukemia, Irinotecan - Colon Cancer, Rivastigmine - Dementia.

Like in all other industries, a customs duty on imported products incentivises the local production of medicines. Local production of cheaper generics ultimately benefits the patient. Speaking to Business Standard, MS Mani, senior director of Deloitte India, a consultancy firm, pointed out that Indian companies find it unviable to sell their products in India because of local taxes and export the medicines instead. At the same time, the customs duty waiver made it cheaper to import the same drugs. Removing the waiver will help promote local manufacturing for the local market.

Depending on China

Aside from removing 15 finished drugs from the list, the notification deleted 61 Active Pharmaceutical Ingredients, which are the main technological components of drugs that have an effect on the body. The move would have an impact of only 2-3% on the cost of a finished drug, Sengupta estimates.

An API is packaged in tablet or capsule form to be ingested by a patient. Sengupta feels that there is a need to stimulate indigenous API manufacturing, a sector where China is racing ahead.

“Today there appears to be a cozy division of labour between low- and middle-income countries, where you assume that China will make the API and India will make the finished products,” he said. In fact, although Indian manufacturers supply 30% of the world’s generics, India imports more than 75% of APIs needed to make these medicines from China. Experts worry that when China gathers enough steam on finished medicines, it will export them directly to larger economies rather send APIs to Indian to convert to finished products.

India's rising dependence on China for APIs. Source: RIS Policy Brief (February 2015)
India's rising dependence on China for APIs. Source: RIS Policy Brief (February 2015)

Sengupta reasons that, with the domestic market stagnating, Indian pharmaceuticals are dependent on exports. “If you look at the top ten Indian companies, all of them are in the range of 50%-70% revenues from exports,” he said. “Now if exports are going to be threatened by China, then our generics industry is over.”

The Haemophilia problem

The Finance Ministry had made some concessions by reinstating Octreotide – used to treat side effects of cancer, growth hormones Somatropin and anti-haemophilic factors VII and IX – on the customs waiver list. There is no generic version of the blood factors VIII and IX and they either have to be extracted from blood plasma or manufactured through expensive recombinant DNA techniques.

“The Indian manufacturers produce only 5% or less of factors. That is why we say that unless you have the capability to make recombinants, you should not take it out of the custom waiver,” Rupal Panchal of the Haemophilia Society in Mumbai. Panchal estimates that a haemophilia patient in India, who needs between 30,000 units and 50,000 units of blood every year, spends Rs 4.5 lakh to Rs 10 lakh on treatment. If factors VII and IX had been removed from the customs exemption list, their cost would have gone up by 20%, possibly more if states imposed value-added tax on them.

“After all our appeals to the government, they put the anti-haemophilic factors back on notification where customs will not be applicable,” said Panchal.