“We welcome the move to rationalize and cap trade margins as has been long suggested by us which will help consumers and manufacturers but we caution government against giving competitive advantage to importers of medical devices by attempting to equate prices of importers with domestic manufacturers and the MRP as basis of trade margin instead of equating an overseas Mfrs price at which their goods enter Indian Union on CIF (cost, insurance, and freight) import price basis with Indian manufacturers ex-factory price.” Said Rajiv Nath, Forum Coordinator of Association of Indian Medical Device Industry (AiMeD).
By seeking to play with words cleverly the importers lobby is pitching to keep themselves out of the trade margin rationalization. Are importers not traders and this attempt to keep them outside the trade margin rationale is sadly reflected in Niti Aayog’s concept note? So, if we talk about rationalization of trade margins it has to include imports, you can’t have importers having over 200 percent margin as was indicated in NPPA report on catheters and guidewires and the whole supply chain have only a 35-50 percent trade margin.
Niti Aayog has sought opinion on following three options:
- MRP = Landed Cost + percentage of trade margins (as decided by the government)
- MRP = Price at the First Point of Sale (Stockist) + percentage of trade margins (as decided by the government)
- MRP = Landed cost + mark-up due to services rendered + percentage of trade margins (as decided by the government)
AIMED recommends that the government must implement the following:
- First point of sale for Mfr is Price on which GST is charged first time
- On overseas Mfr GST is charged on Import CIF landed price in BIE (bill of entry)
- On indigenous Mfr GST is charged on ex-factory price post discounts
- Indigenous Mfrs need to be equated with overseas Mfrs and not with importers
Everyone in a supply chain has intermediate costs and value addition – so what value importers are doing and the question is what’s a rational margin for them? The DOP report did not regulate the trade margins of importers and without this Make in India will be challenged and will always be at a competitive disadvantage, as Indian manufacturers will not be able to match the deep pocketed budgets for marketing, market creation, training, sponsored overseas trips, sponsored events for lobbying etc. if Importers are not considered traders and kept outside the purview of trade margins. The reason the importers state intermediate costs like R&D and clinical evaluation are not part of the Import landed price is basically to avoid custom duties. They cannot avoid customs duty by lowering transfer prices and then seek to induce hospitals with higher MRP and higher trade margins. This tactical marketing warfare has cost the consumers dearly and harmed ethical marketing.
Trade margins can be considered to be capped initially for devices notified as drugs but DOP needs to consider the AiMeD proposal which aims to control the trade margins between import landed/ex-factory price and the MRP and not the one proposed by the committee on trade margins for drugs or the options offered by Niti Aayog which is limited to margin between MRP and price to distributor as medical devices are not pharmaceutical medicines and need differential distribution channels and service support. NPPA had sought landed price from importers and we had cautioned NPPA and said it should be CIF import price which is easily verifiable from GST records and not landed price to importers warehouse as the basis.
“When a market no longer works as an open competition market for the benefit of the consumer or for domestic manufacturer and even clouds the judgement of hospitals of what is reasonable leading to loss of trust in medical profession and rage and violence against doctors, then, it is time for government to step in and regulate and tax based disincentives to print high MRP and capping of trade margins are options available to be exercised before considering price caps for priority devices to treat priority diseases” said Gurmeet Chugh, Jt Coordinator, AiMeD. He opined “GoI needs to take policy decisions to give level playing field if not a strategic advantage to domestic manufacturers while safeguarding consumers or India will remain 70-90 percent import dependent.” – Medical Buyer Bureau