The media and various consumer groups frequently draw comparisons between drug prices in Pakistan and India, with a commonly held perception that medicines are much cheaper in India.

While this is true in some highly publicised cases, an almost equal number of drugs are cheaper in Pakistan, despite the difference in market size that affords India significant economies of scale. Unfortunately, it is only the cases where Pakistan is more expensive that grab the media’s attention. It also remains a forgotten fact that not a single price increase has been given to the industry since 2001. Drug pricing is a complex issue to begin with, but it has been made even more complicated by the government’s approach to the monitoring and supervision of pharmaceutical prices.

There are over 40,000 formulations of drugs and the ministry of health burdens itself with the task of determining the price of each and every one of these-- an effort that would test the capacity of even the largest of bureaucracies.

At the same time, the number of manufacturing units has almost doubled from under 250 in 2000 to well over 400 today, whereas the number of federal drug inspectors – officers who are assigned the critical responsibility of auditing manufacturing facilities for licensing – remains only eight. It is no surprise that one finds variation not only in the prices but also in the quality of pharmaceuticals.

Whereas differences in pricing of different brands of the same molecule is actually a healthy sign of competition and augurs well for the consumer, variations in quality are clearly not acceptable and need to be eliminated through a rigorous process of regulatory monitoring and control.

The pharmaceutical industry has long argued that the best way to ensure competitive pricing is through deregulation. This principle has been clearly demonstrated in the case of the telecom sector, where deregulation and a judicious regulatory authority have brought costs down dramatically.

In 2002, the health ministry took a small step by giving manufacturers the freedom - if they chose at any time to reduce their prices below the approved level - to revert back to their original prices without having to request the ministry’s permission. This small freedom led to an immediate and substantial decrease in the prices of several major brands of life-saving medicines.

If a manufacturer knows that he has the freedom to adjust his prices in the face of an increase in cost, he will immediately revert to a competitive, rather than a protective price. Time and again, it has been proven that prices are best controlled when market forces are allowed to come into play. Yet, somehow the government still considers it wiser to subject the entire industry to an artificial control that is at a disconnect with economic reality.

Continuing with the Indian example, only 74 molecules are price-controlled in India (based on a WHO list of essential medicines), compared to every single one in Pakistan. Our industry has a turnover of $1.7 billion. The Indian market is expected to reach $ 14 billion by 2011. With a sizeable population and a fast-growing GDP, why are we falling so far behind?

The way forward: A correct regulatory mechanism could create a win-win situation for both the public and the industry, with more competitive pricing resulting from a transparent and fair regulatory environment.

As in the case of India, Pakistan should regulate the leader (ceiling) price of the 74 essential drug molecules in the WHO list. For these molecules, a regional comparison of originator MNC brand prices should be made, and any discrepancies be removed by allowing manufacturers to adjust prices upwards or downwards to meet the regional level. This exercise in price rationalisation would also ensure the availability and competitive pricing of essential drugs.

By deregulating the remainder drugs, the ministry of health can ensure a fair and transparent system that will greatly encourage world-class investments, promote healthy competition in the sector and bring costs down further in the long- term.

A transparent pricing mechanism would also provide the added benefit of allowing the ministry to focus its efforts on uniformity of standards.

Even if these prices were lowered, a large number of our people would not be able to afford their medication. It is ultimately not the industry but the government that is responsible for ensuring a social security system that provides adequate coverage and free medicine to the poor. Despite recent increases, government spending on medicines remains abysmally low.

The writer is president of the Ferozsons Laboratories Limited,