A parliamentary panel has asked the government to examine the possibility of going back to a cost-based mechanism for fixing the prices of essential medicines since the existing market-based regime has raised concerns over affordability and pricing transparency. The panel said that the changes can be brought through “suitable statutory amendments” and that the sole reliance on market data for price fixation might not be able to detect price distortions caused by market monopolies and excessive mark-ups at various levels of the pharma supply chain.
The standing committee has further asked the department of pharmaceuticals (DoP) whether the shift from cost-based to market-based pricing has created room for drugmakers to exploit regulatory gaps. It has also asked the government as to why cost audits, despite being a statutory tool, are not being used for price fixation, and suggested the need to undertake backward cost analysis to trace profit margins across manufacturers, distributors and retailers.
Government Defends
The government, however, defended the existing regime by saying that Drugs (Prices Control) Order (DPCO), 2013 does not permit cost-based pricing. “There is no provision in DPCO, 2013 to consider cost-audit-based data for price fixation,” DoP told the committee adding that ceiling prices are determined using market data by averaging the prices charged to retailers (PTR) by all brands – with at least a 1% market share – and adding a 16% retailer margin.
Before DPCO, 2013 came into force, drug prices were fixed under a cost-based system that linked ceiling prices to manufacturers’ production costs and prescribed margins. The shift to market-based pricing under National Pharmaceutical Pricing Policy (NPPP), 2012 was aimed at making the process more transparent while balancing affordability with industry growth, investment and innovation.
The department argued that tighter price controls across the board could discourage fresh investments, technology upgrades and capacity expansion, ultimately affecting long-term availability of medicines.
The panel also indicated that the NPPP, 2012 and DPCO, 2013 might require revisions to reflect changes in the pharma industry. While NPPP sets the policy for drug pricing, DPCO implements it by regulating the prices of essential medicines.
Experts said that leaving essential medicines entirely to market forces can, in some instances, lead to artificial price distortions and higher price. “Pharma pricing should be anchored in production costs. While strict standards for drug quality and safety are absolutely vital, the government’s primary duty is ensuring that life-saving medications remain affordable to all consumers,” said Sanjay K. Chadha, managing partner at BSK Legal.
Concerns Over NPPA Consultation Process
Additionally, the panel scrutinised the transparency of NPPA’s price-fixing method. Between December 2022 and November 2025, the authority uploaded 1,426 draft price worksheets but received just 30 representations – 29 from pharma companies and one from an industry association. In only six cases, the proposed pricing calculations underwent revisions following stakeholder feedback, raising questions over the effectiveness of the consultation process.
The committee observed that “while ensuring affordability, access cannot be jeopardised and the life-saving essential drugs must remain available to the general public at all times.” It pointed out that NPPA had itself invoked Paragraph 19 of DPCO, 2013 to allow one-time price increases of up to 50% for certain essential formulations after drug companies found them commercially unviable so that patients were not forced to switch to more expensive alternatives.