With price controls so much a part of political vocabulary now, let?s turn our attention to a sector that has always had price control: essential drugs. It will be a good test of this policy. Just about a year ago, the finance ministry had informed the ministry of chemicals and fertilisers that the availability and affordability of essential drugs can be best ensured by market competition. The latter?s response was to stiffen price controls for drugs. Since 1963, when the government passed its first drug control order to regulate prices of medicines, more control has almost always been the default response. The government, over the years, also set up two public sector companies to provide drugs at cheap prices. It kept in abeyance economic logic?recognition of product patents?for three decades to develop the domestic drug industry. So, all the prescriptions that ministers are brandishing now to bring prices to heel in other sectors have been tried out.
The result? The domestic drug industry took off only after the strictest restrictions were dismantled. Instructively, in an earlier episode of drug price rise, the nodal ministry had sought more controls, while all other departments, including the PMO, had advised that price controls simply encouraged manufacturers to import the stuff rather than manufacture it. The advice then was that a shift to a drug price control that permitted companies a 50% markup on the imported price worked better. But the most salient takeaway from the decades-long price control plan is the unanimity in the views of all ministries, barring chemicals, of course, that increasing the span of control, including using the Essential Commodities Act, by bringing more medicines under the inspector raj, only diluted the efficacy of the system. The Planning Commission looked at the scenario and concluded that price control proves counterproductive, discourages new investment and limits competition. Now, if only the same wisdom would apply when the government considers price controls as a dramatic anti-inflation measure. Control simply changes economic incentives by reducing supplies. But Ram Vilas Paswan, who is famous for asking drug companies to reduce prices, is also the minister most agitated about current steel prices. Can the pharma sector?s lessons hope to get a chance for a fair hearing?