Drug Pricing Policy in India

By BYJU'S Exam Prep

Updated on: September 13th, 2023

Drugs are essential for the health of society. India is one of the largest producers and exporters of medicines in the world. In spite of that, more than half of its population has no access to essential medications in government hospitals due to the heavy dependence of a majority of patients in the private sector. According to various government reports, approximately ⅔ rd of the out of pocket expenditure on healthcare is made for the procurement of drugs. To ensure affordable healthcare for all, it is vital that drugs are priced reasonably.

Objectives of drug policy:

The objectives of the Drug Policy are as follows:

  • Ensuring abundant availability at affordable rates of essential life-saving medicines of good quality;
  • Ensuring a robust and fool-proof system of quality control over drug production and promotion of the rational use of drugs;
  • To create a conducive environment to channelise new investment into the pharmaceutical industry with a view to encourage cost-effective production with economic sizes and introducing new technologies and new drugs; and
  • To strengthen the national capability for the production of drugs and medicines.


  • In 1966, it was felt by the Parliament that manufacturers were charging exorbitant rates for drugs. To control high drug rates, Drug Price Control Order (DPCO) – 1966 were passed under Sec 3 of the Essential Commodities Act (ECA) -1955.
  • Drug Price Control Orders (DPCO) are issued by the Government, in the exercise of the powers given to GoI under section 3 of the ECA-1955, in order to enable the GoI to declare a ceiling price (CP) for essential medicines. These help ensure that these medicines are available at a reasonable price to the general public. 
  • Subsequently, DPCO 1966 was replaced by DPCO 1970.
  • The Report of the Hathi Committee was issued in 1975. The Hathi Committee recommended the achievement of self-sufficiency in medicines and of abundant availability of essential medicines at affordable rates for the common man.
  • Thereafter, DPCO 1970 was replaced by DPCO 1979. DPCO 1979 was replaced by DPCO 1987 which was in turn replaced by DPCO 1995.
  • The Drugs Prices Control Order, 1995 was issued by GoI under Sec. 3 of ECA, 1955 to regulate drug prices. The Order provided for the list of price-controlled drugs, procedures for fixation of prices of drugs, method of implementation of prices fixed by the government, penalties for contravention of provisions etc. Further, for the purpose of implementing the provisions of DPCO, powers have been vested in the National Pharmaceutical Pricing Authority (NPPA). 
  • Thereafter, DPCO 2013 was notified.


NPPA was constituted in 1997 under control of the Department of Pharmaceuticals (DoP), Ministry of Chemicals & Fertilizers. It was envisaged to function as an independent regulator for drug prices. It was also meant to ensure the availability and accessibility of medicines at affordable prices to the common man.


  • implementing and enforcing the provisions of DPCO
  • dealing with legal matters related to drug prices
  • monitoring the availability of drugs, and taking remedial steps in case there are shortages;
  • collation of data on production, exports and imports, market share, profits for bulk drugs and formulations;
  • undertaking research regarding drug prices;
  • rendering advice to GoI on changes needed in drug pricing policy 


The National List of Essential Medicines of India (NLEM),2011  is a list of medicines, prepared by MoH&FW. These medicines are considered essential in India. The first such kind of list was released in 1996 which was subsequently revised in 2003. The latest list released in 2011 addresses the issues of changing disease prevalence in the country. It also takes into consideration the new medicines which are now available. 

WHO defines ‘essential medicines’ as those which satisfy the priority needs of the population. These are selected with regard to the prevalence of the disease, efficacy of drugs, their safety and affordability and quality.

The purpose of NLEM 2011 is to further promote the rational usage of medicines considering their-

  • Affordability,
  • Safety
  • efficacy

DPCO 2013 gives a definition of NLEM.  According to it, NLEM means a list published by the MoH&FW in 2011, updated and revised from time to time and which is included in the first schedule of the DPCO.


The National Pharmaceutical Pricing Policy-2012 governs the norms for drug price control. The objective of NPPP-2012 is to put in place a regulatory framework for pricing of drugs so as to ensure the availability of required medicines at reasonable rates while at the same time providing sufficient avenues for innovation and competition to aid the growth of the drug industry. This will help meet the goals of employment and shared well-being for all citizens.

The NPPP, 2012 envisages regulation of the rates of formulations identified on the basis of essentiality. Further, the NPPP 2012 seeks to regulate drug prices on the basis of essentiality of the drug through market-based pricing (MBP) of formulations. This is as opposed to regulating bulk drug prices via cost-based pricing (CBP) of bulk drugs. The new policy proposes to fix price ceiling on the National List of Essential Medicines (NLEM) on the basis of the average price of all the brands having a market share of greater than or equal to 1% of the total market turnover of that drug.

As per the provisions of NPPP-2012, all the importers/manufacturers of medicines specified under NLEM-2011 will be under the purview of price control policy. Such medicines will have a maximum retail price (MRP) equal to or lower than the ceiling price (plus local taxes as applicable) as notified by the Government for respective medicines.

DPCO 2013

CP means a price fixed by the Government for Scheduled formulations which have been specified in the DPCO 2013.

No person is authorized to sell any drug to a consumer at a price exceeding the price notified by the NPPA. CP of drugs is revised on the 1st of April every year on the basis of the WPI of the previous year. Prior Government’s approval in this regard shall not be required. However, manufacturers who wish to avail the revised CP have to intimate the NPPA within 15 days of such revisions. In case of a decline in WPI, a corresponding reduction in the rates shall be made. MRP at no point in time can exceed CP plus local taxes. 

For medicines not under price control, there is no control over the launch price. Manufacturers are allowed to increase MRP by 10% annually. Therefore, while essential medicines are subject to price controls in the form of ceiling prices, the non-essential medicines are subject to a managed price increases.

The CP notified by the Government is applicable to imported drugs also.


  • Supreme Court in a judgement in a PIL against DPCO 2013 averred that the Market Based Pricing (MBP) was unreasonable. The court ordered the government to review its policy (NPPP 2012)
  • Access to essential medicines for common people is less than 40%.
  • High-profit margins are still charged by manufacturers and dealers.
  • NLEM comprised of only 348 drugs, thereby leaving many other essential drugs outside its purview.
  • Average ceiling prices turned out to be higher than prevailing retail prices in cases of many essential medicines.
  • Demand for other essential drugs such as those for the treatment of HIV/AIDS, TB, Cardio-Vascular Diseases, Mental Disorders, Diabetes, Cancer, etc in the NLEM.
  • Inadequate survey of market prices of all the medicines on the NLEM.
  • The NLEM covered only certain doses of medicines.
  • It did not cover Fixed Dose Drug Combinations (FDC).
  • Inadequate penalties by NPPA in case of non-compliance with its orders.
  • Prevalent prescription of branded drugs over generics despite programmes like Jan Aushadhi Scheme.


These are based on the NITI Aayog recommendations.

Standing committee on affordable medicines and health products (SCAMHP) was formed by the Ministry of Chemicals and Fertilizers to decide the list of drugs which should be under price control.

Current Methodology for Pricing of Drugs:

The Health ministry prepares the NLM. The department of pharmaceuticals (DoP) then incorporates NLEM into DPCO. Following this, NPPA fixes the prices of drugs.

Proposed Methodology for Pricing of Drugs:

The SCAMHP will be headed by Niti Aayog Member (Health). It will be a recommending body to the National Pharmaceutical Pricing Authority (NPPA) regarding the prices of pharmaceutical products. It has also been empowered to take any issues with respect to price control of the drugs. The committee can take a matter for examination, suo-moto or on the recommendations/request of DoP, NPPA and Department of Health & Family Welfare.

NPPA has been credited as having reduced the out of pocket expenditure on medicines in India by a substantial degree. As such, concerns have been raised regarding the above-proposed changes. It has been suggested that the SCAMHP is an attempt to dilute the powers of NPPA, in order to favour domestic and multinational drug manufacturers.


  • Free provision of drugs to the most vulnerable sections of society, as done in Brazil.
  • Public procurement and provision of essential medicines, as done in Tamil Nadu and Rajasthan.
  • State-led insurance model can also help reduce healthcare costs and out of pocket expenditure on drugs. The Arogyashree model of Andhra Pradesh combines both public procurement of essential medicines and state-led insurance. Ayushman Bharat scheme of Government of India is a step in the right direction.
  • Jan Aushadhi scheme needs to be implemented in mission mode with the provision of a grievance redressal mechanism. Further, rules regarding the mandatory prescription of generic drugs along with branded drugs are the need of the hour.

The right to health is an integral part of the right to life (Article 21)as per the supreme court judgment in PBKMS vs State of West Bengal (1996). Access to essential medicines is an essential part of the right to health. As such, drug prices need to be regulated to ensure this right for every citizen.

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