Ultimately, the government decided to play good cop-bad cop. While agriculture minister Sharad Pawar, who was in charge of the GoM on the subject, wanted to go in for a market-based solution, the finance ministry was in favour of the existing cost-based price caps which, apart from making the industry sick, dont really work in real life. In the case of the DPCO drugs where such controls were first imposed, only 47 drugs are manufactured in the country. Indeed, things got so bizarre that the government is planning to ask foreigners buying Indian firms to give guarantees that they will not reduce production of price-controlled drugs.
Given the two extremes presented, industry will breathe a sigh of relief since the GoM has finally opted for market-price-based price caps. But the industry is still not out of the woods since average prices in an industry where price differences are huge will end up penalising the more expensive producers. In the case of Atorvastatin, if the most expensive brand costs R8.5 and the cheapest 69 paise, assuming only two producers, this means an average price of R4.59, which means a huge price cut for the market leader. And since the price-caps formula is a simple average of the prices of drugs (perhaps those which have a market share of more than 5%) instead of a weighted average based on the market share of the drugs, this means industry will still end up being hit morehow badly is not immediately clear.