The judgement has dealt a rare stinging blow to several powerful reputations. The SC also called the petitioner a 'stool pigeon'
On 3rd November, the Supreme Court (SC) rejected a third public interest litigation (PIL) against the appointment of UK Sinha as chairman of the Securities & Exchange Board of India (SEBI). The 87-page judgement termed the petition ‘motivated’ and felt that the petitioner was a ‘stool pigeon’ of ‘surrogate phantom lobbies’. The judgement has dealt a rare stinging blow to several powerful reputations with this observation: “This is not a petition to protect the fundamental rights of any class of downtrodden or deprived section of the population. It is more for the protection of the vested interests of some unidentified business lobbies.”
On two previous occasions in 2011, similar PILs were filed by a very eminent troika of persons namely, former air chief marshal S Krishnaswamy, India’s ‘super cop’ Julio Rebeiro, and former joint director of the central bureau of investigation (CBI) BR Lall. They were represented by Gopal Subramaniam, the former solicitor general of India. In November 2011, I had described these petitions ‘bizarre’ and wondered why these persons, who had shown no interest in the many major problems with India’s capital market regulation, would go to the apex court with a petition making ‘unfounded’ allegations against the then finance minister. The then chief justice, SH Kapadia, had called it a ‘publicity-seeking petition’ and allowed it to be withdrawn twice. This time, a very combative petitioner was represented by Prashant Bhushan, a reputed advocate and now a senior leader of the Aam Aadmi Party who is known to take up public causes.
Assuming that all these activists are concerned about establishing a fair process to select the chairman of SEBI, the question is: How come none of them found anything objectionable in the appointment of UK Sinha’s predecessor CB Bhave? He was not on the final short-list and was hobbled through his tenure by an artificial ‘ring fence’ in connection with SEBI’s indictment of the role of National Securities Depository Limited (which he founded and headed for 15 years) in the IPO scam of 2006. The activists also found nothing wrong in the surreptitious attempt to grant an extension to Mr Bhave and his chosen core team of whole-time directors and executive directors, whose term ran almost concurrently, just a year after their appointment.
But time has a funny way of dealing with issues. Among those against UK Sinha’s appointment, was SEBI’s former whole-time director, KM Abraham. In a letter to the prime minister (PM),
Mr Abraham had alleged that Mr Sinha would bury the Sahara case at the behest of then finance minister Pranab Mukherjee. The Supreme Court has been dismissive of these letters. Mr Abraham has been proved completely wrong on the Sahara issue. (He was also part of the cabal of top SEBI officials close to the previous chairman who considered Jignesh Shah unfit to run an equity exchange. Mr Shah may have proved them right but the fact is that the same prescient team had found Mr Shah fit to start a currency derivatives segment). The apex court pointed out that Mr Abraham’s complaint was ‘motivated’, that it “did not espouse any public interest” and was made only after his extension at SEBI was denied, seemingly out of personal pique.
Stories of Price Manipulation
The company was earlier known as Asianlak Capital and Finance Ltd. But it changed its name, on 9 October 2013, to Global Infratech & Finance Ltd. This is a strategy to mask its inglorious past. According to the BSE, it is supposedly into ‘miscellaneous commercial services’ whatever this means. The company has committed many infractions, most notably failing to comply with BSE’s listing agreement. It was suspended from listing on 30 November 2007. The suspension got revoked on 18 November 2011. The company’s fundamentals are extremely erratic. Its net sales for the past four quarters were Rs4.68 crore, Rs1.19 crore, Rs7.74 crore and Rs1.29 crore, respectively, for the September 2012, December 2012, March 2013 and June 2013 quarters. Its net profit for the same periods were equally erratic at Rs19 lakh, Rs26 lakh, Rs16 lakh and Rs71 lakh, respectively. The stock was less than Rs1 on 25 June 2012. And now? It was quoting at a whopping Rs91.9 on 25 October 2013, translating to a massive 11388% returns! Our regulators, of course, are blind.
While market based pricing can potentially reduce pricing for two-thirds of essential medicines, there are far too many loopholes to reduce your chemist bill. Ironically, the set ceiling price of the remaining one-third of essential medicines is higher than market leader’s price. Can the prices of these drugs actually increase?
According to the new drug pricing policy, the ceiling price of essential medicines is fixed, based on the simple average of the prices of all brands of that drug that have a market share of at least 1%. The national list of essential medicines lists 348 bulk drugs, which are sold as 650 formulations. The good news is that for two-third essential medicines, there can be average price reduction of 22% (even though some reports claim reduction by 30%-40%).
The bad news is that there are far too many loopholes to really see reduction in your chemist bill. Market-based pricing (MBP) actually sets the ceiling price higher than even the market leader in the remaining one-third of essential medicines. Does it mean the market leader can legitimately raise its price to meet the higher ceiling price and in-effect can make a mockery of the new drug pricing policy?
It may not happen, but there is no penalty in case of violation. According to Para 13(2) of Drug Price Control Order (DPCO), 2013: “All the existing manufacturers of scheduled formulations, selling the branded or generic or both the versions of scheduled formulations at a price lower than the ceiling price (plus local taxes as applicable) so fixed and notified by the Government shall maintain their existing maximum retail price.“
According to Dr Chandra M Gulhati, editor, Monthly Index of Medical Specialities (MIMS), “There is no penalty for not following government policy on ‘not increasing the prices to ceiling levels’ unlike for those that do not decrease the price to ceiling levels. It is like saying that ‘drive on the left side but even if you don’t we will not take any action.’ There are also practical problems (a) Once the government fixes the MRP, it can not legally force manufacturers to sell the same product below MRP, such an order will be unconstitutional (b) there is no data on prices prevalent in 2012 and (c) it will hurt manufacturers who are at the bottom of the price ladder and making very little profit in case there is price increase in raw material, conversion costs etc. Thus in reality the government will be penalizing honest manufacturers.”
For the two-third essential medicines there can be average price reduction of 22%, but DPCO has given leeway of 10% price increase every year. It means that the savings can get wiped out in two years even if the raw material prices do not increase at the same rate. According to S Srinivasan, managing trustee, LOCOST (Low Cost Standard Therapeutics), “WPI (whole-sale price index) may be even more than 10 %. If they had a cost based ceiling price instead of MBP, you could factor the actual increase of raw material and other conversion costs you could have given at the same rate as say the WPI.”
NGO All India Drug Action Network has filed PIL (public interest litigation) in SC contending that MBP is never used for any price regulatory purposes and under the new policy simple average ceiling prices are in many cases higher than the market leader price. According to the NGO, “We stick to our stand of reversing to the cost-based pricing mechanism from the newly-adopted market based pricing.”
Mr Srinivasan, says, “Price control for all drugs (scheduled and unscheduled) needs to be strengthened by a grievance mechanism for the consumers to allow complains about lack of access, overpricing of medicines or any unethical marketing practices in the trade. At present in the DPCO 2013 under para 31, the ’aggrieved person(s)’ appear to be only manufacturers. There is no room for consumer grievances on unreasonable prices.”
DPCO itself covers only 14%-17% of the Rs75,000 crore pharma market. There are some wrong estimates given about it covering two-third of pharma market.
In the second part of the article, we will look at the escape routes that pharmaceutical industry can exploit to ensure there is minimum dent in their profitability.
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