On the sidelines of the 74th session of the UN General Assembly in New York, a slew of meetings were scheduled purportedly to move forward the dialogue on trade. The Donald Trump administration appears to be breaking away the typical outcomes of trade negotiations yielded in the past: “broad, comprehensive agreements that would cover whole swathes of issues.” President Trump is adopting a more transactional approach on striking trade deals. This gives him an opportunity to address different constituencies within the US, example pharmaceuticals, farmers, information technology and so on. There is some anticipation that this current and ongoing dialogue could lead to a limited Indo-US package on trade.
Trade-related tensions between India and the US peaked in May this year when the US withdrew the zero-duty benefits worth $5.6 billion, hitherto given to Indian exporters under the Generalized System of Preferences. India imposed retaliatory tariffs on 29 products imported from the US. The US, inter alia, argued that the price controls levied on medical devices in India discriminate against the import of high-technology products, and is forcing US producers to sell in India at a loss. The National Pharmaceutical Pricing Authority (NPPA) of India had irrefutable evidence of profiteering in medical devices by American suppliers and manufacturers, through gross abuse and huge overcharging. India had little option but to place price caps on cardiac stents and knee implants, to make these affordable and, therefore, more widely accessible across the country for those in need.
While taking on board the primary concerns of the US, India could point out that it is not unreasonable to address irrationally high trade margins that have led to profiteering and abuse. On its part, India should agree to introducing amendments in the DPCO (Drugs Price Control Orders), to allow for trade margin rationalisation with respect to notified devices. This will not curtail the pricing of manufacturers in any way. Trade margins for medical devices could be capped to rational levels (as suggested by the NITI Aayog in 2018), and added to the selling price indicated by the domestic/overseas manufacturer at the first point of sale (i.e. at the import-landed price when they enter India, where GST becomes initially applicable). This would provide for sufficient flexibility to facilitate and enable differential pricing for innovative medical devices. Consumers/patient groups would feel reassured that rampant profiteering is being curbed. MRPs would be visibly more reasonable. Profits for traders and retailers would be rationalised. And there would emerge a level-playing field for domestic manufacturers vis-à-vis foreign manufacturers. The supply chain economics would remain viable, and more ethical marketing will prevail. If the US agrees, this would be a win-win situation for both sides.
However, these are negotiations, and India’s standpoint is equally compelling.
One, the Indian medical devices market remains heavily dependent on imports. India imports close to 80% of the demand for medical devices, and of this the US has an estimated share of 30%. Within the Indian market, the US has already achieved a dominant supplier status. Statements about US corporates having limited access to this market may not be a reasonable grievance. On the contrary, the fact is that Indian manufacturers do not get reciprocal access to US markets on account of the non-trade barriers (NTB) imposed by the US administration. Would the US agree to meaningfully reduce these NTBs that continue to stymie our medical devices industry?
Meanwhile, within the government of India, there is a sharpened focus on medical devices as distinct from drugs, and very soon a new division dedicated exclusively to medical devices could become operational under the aegis of India’s national regulatory authority, the Central Drugs Standard Control Organisation.
Two, during 2015, India’s medical devices industry was opened up to 100% foreign direct investment (FDI) via the automatic route. The scope for investments, however, was restricted by the narrow definition of medical devices in the Drugs and Cosmetics Act, 1940. In 2018, India expanded the range of items defined as ‘medical devices’ in the FDI policy, and clarified that medical devices will no longer be defined by the Act. The domestic medical devices industry would benefit from the technology transfer as this opening up was intended to encourage 100% greenfield manufacturing units. On the ground, however, trading units and warehousing units have proliferated. There are some concerns here, and a course correction as part of the trade package would be in order. In contrast, FDI in the brownfield pharmaceuticals sector remains ‘reserved’ for approval, if it is over and above 74%.
Three, India is widely applauded for being the pharmacy of the world. Every third tablet sold globally originates from an Indian manufacturer. India’s ability to supply affordable medical products (devices and medicines/drugs) is benefiting needy patients worldwide. Any trade package that compels India to withdraw these safeguards on public health, i.e. the price caps applied on the most frequently used medical devices like cardiac stents and knee caps to make these more accessible to the masses, will not be welcomed, because “any solution which is not affordable is no solution at all,” said Dr Devi Prasad Shetty, chairman Narayana Health.
Four, since the US regulatory approval processes are challenging, stringent and very expensive, overall their market entry fees do not make it commercially viable for Indian manufacturers to export to the US, while the $15 billion Indian market is wide open for American companies. In India, import fees levied by the Drug Controller General (CDSCO) are very low in comparison. India should press for agreement on some parity in this matter by bringing the CDSCO import licence fees on a par with the fees encountered by Indian manufacturers.
Friction on trade matters would begin to dissipate if due consideration is paid to the reasonable need of both sides. An Indo-US ‘limited’ trade package is welcome so long as it is fair and even-handed. – Financial Express