May 6, 2002	Monday	Safar 22, 1423

PAKISTAN, a developing country with a poor record of achieving targets in the social sector going back decades, is plunging deeper and deeper into a bottom-less pit.

According to reports the foreign loans soared up from $6.341 billion in 1977 to a gigantic $42 billion in 2001. Its mal-utility can be judged from the facts that the development projects either declined or stayed static, the prices of essential items have gone up, the net earning of the common man lagged behind and poverty showed steep upwards trends.

Statistics show that in the last decade the prices of essential kitchen items went up by 35 per cent. In the fiscal year of 1997 the average per capita income was $485 and in the fiscal year that ended in 2001 the average per capita income of the average family sunk to $420. In his recent address to the Lahore High Court Bar, the Consultant of the World Bank stated that the rate of poverty has increased. In the last ten years it went up from 26 per cent to over 40 per cent. According to one WHO official we might have crossed the 50 per cent mark.

In this background it has been reported that the ministry of industries in consultation with the pharmaceutical industry is planning to deregulate drug prices. Before commenting on this issue let me give its background history.

It all started in 1992/93 when the Uruguay Round of GATT was approaching the final stage and the last irritants between US, Canada and EU were being removed to prepare the ground for the birth of WTO. Free market economy was the talk of the town in some developing countries like Pakistan. The policy-makers without going into the details of that complex legal document were busy convincing their governments of the positive impact of the free market economy on the social sector. Little did they know that even in the developed countries there was no such thing as free trade market for certain essential items pertaining to life, nutrition and public health. In their wisdom under the pressure of this powerful industry they equated drugs with other commodities and decided to deregulate them.

In Pakistan this task was given to three successive committees, the Tariq Sidiqui Committee, the A G N Kazi Committee and Shahnaz Wazir Ali Committee which resulted in the emergence of the concept of ‘controlled and decontrolled’ drugs in 1994. In plain words it meant the government would keep its hold on the price of 25 per cent of the drugs and the remaining 75 per cent were left to the industry for price adjustment through free competition in the market. Thus the firms were allowed to fix the prices of their drugs wherever (different in different provinces) or whenever they wanted.

That ill-perceived step resulted in the rapid escalation of prices up to 1000 per cent in some cases. By the time the government realized this contretemps, the majority of the firms had made such huge profits that, according to some statisticians, they could remain in surplus for the following 8-10 years without increasing the prices of their drugs.

A ‘gentleman’s agreement’ was reached between the ministry and the industry not to raise prices of ‘the decontrolled drugs’ without the permission of the government. It was ironic to see that instead of freezing prices until a true picture of the haphazard price rise emerged, the government gave more raises of 28.8 per cent to the ‘decontrolled drugs’ and 21.4 per cent to the ‘controlled drugs’ between 1994 and 1996 adding further agony to the poor patients.

From 1996 till 1999 no raise was given to the prices of drugs pending recommendations of a ministerial committee set up to rationalize drug prices. The committee was going to base its recommendations on the answers to the following questions put forward to the industry:

1. Does the industry still purchase raw materials from the original source on the patent price for those drugs whose patent period had expired?

2. Are the prices of raw materials they purchase for their non-patent drugs competitive in the international market?

3. What are the prices of their raw materials in Saarc countries, Egypt and Iran?

4. Whether the sources from which they are importing these raw materials are the basic producers of these drugs, if not then where are these raw materials imported from and at what price?

5. Are there any international studies to show superiority of these raw materials over the sources which supply raw materials at competitive prices?

6. Did they have any add-back made to their income due to differences in prices of raw materials? Which were the raw materials?

7. Are they aware that these raw materials are now available from different sources worldwide and their substitutes are also available in the markets?

8. What is the cost of each drug unit at the break-even -point?

9. What is the cost of those drugs at the outlet-point?

10. What is the calculated price (optimum price) of those drugs at the outlet-point?

11. What is the retail marketing price of those drugs?

12. How can they help the government and ensure the supply of raw materials at competitive rates?

After holding three meetings with the industry the government changed and the process was not followed up. Instead, in 2000 prices were increased in the range of 8-10 per cent for the ‘controlled’ and ‘decontrolled’ drugs respectively. In 2001, to get a further raise of between 10-15 per cent, the pharmaceutical industry pleaded their case with the following supporting points:

1. That this industry is contributing more than 10 per cent of the country’s total revenue by way of income tax, custom duty, sales tax, excise duty etc

2. That it is totally based on imports of raw materials either from its principals or licensers.

3. That no price increase was allowed since June 19, 2000 (which was after Oct. 1996)

4. That since the last price increase, a rough estimate of the devaluation of Pak Rupee vs US dollar is around 25 per cent.

5. That the average inflation rate is 10 per cent.

6. That there is imposition of sales tax on all packaging components (non-transferable).

7. That there has been an increase of income tax rates (with effect from 1.7.2001): Public company @ 35 per cent, and private company @ 45 per cent. They were successful but not happy when they got a raise of 3 per cent for the ‘controlled’ and 4 per cent for the ‘decontrolled’ drugs.

Coming back to the issue at hand, it has always been the practice of the industry to approach the finance ministry, ministry of industries or the CBR to intervene whenever it fails to persuade the health ministry in getting its desired increase in drug prices. Rationally it is their right to do so but what seems anomalous is that at times these ministries/divisions take decisions in isolation sidetracking the stand of the ministry of health.

In a similar circumstance the Hafiz Pasha Committee was formed in 1998 which came up with recommendations that wou