Drug Price Regulation in India

India controls the prices of many medicines so that ordinary people can afford them. The main rulebook for this is the Drugs (Prices Control) Order, 2013, called the DPCO. The body that applies these rules and fixes the prices is the National Pharmaceutical Pricing Authority (NPPA). Together, they decide how much a company can charge for an essential medicine and how much it can raise prices every year.

Why does India control medicine prices?

Medicine is not like a normal product. When you are sick, you cannot wait for a sale or "shop around"; you buy what the doctor writes. Patients also cannot judge which brand is better, so they cannot bargain. In India, most health spending comes straight from people's own pockets, and a long illness can push a family into debt. Price control tries to stop companies and sellers from taking unfair advantage of this weak position of the patient.

What is the legal basis?

The DPCO is not a separate Act of Parliament. It is an order issued by the Central Government under Section 3 of the Essential Commodities Act, 1955. Section 3 lets the government control the production, supply, distribution and price of goods it has declared "essential", and drugs are one of them. This is why breaking the DPCO is punished under the Essential Commodities Act.

Where did it come from?

India has had drug price orders for more than 50 years.

• 1970: The first Drugs (Prices Control) Order came out in May 1970. It used a "cost-plus" method: the government added up the cost of making a medicine and allowed a fixed profit on top.
• 1974–75: The Hathi Committee studied the drug industry. Its report shaped India's first Drug Policy of 1978 and the next order, DPCO 1979, which covered a very large number of medicines.
• 1987 and 1995: New orders slowly reduced the number of medicines under control. DPCO 1995 stayed in force for about 18 years.
• 1997: The NPPA was set up on 29 August 1997 to fix and enforce prices.
• 2012–2013: The National Pharmaceutical Pricing Policy (NPPP), 2012 changed the method from cost-based to market-based pricing. DPCO 2013 put this into force and linked price control to the National List of Essential Medicines (NLEM).

Who is the NPPA?

The NPPA is an attached office of the Department of Pharmaceuticals, which is under the Ministry of Chemicals and Fertilizers. (The Department of Pharmaceuticals itself was created in July 2008.) Its main jobs are:

• fixing and revising ceiling prices of controlled medicines;
• watching the prices of medicines that are not controlled;
• catching companies that charge more than allowed (called overcharging) and recovering that money with interest;
• tracking shortages and the availability of medicines;
• collecting data on production, imports, exports and profits of drug companies.

How are prices fixed for essential medicines?

The DPCO divides medicines into two groups.

• Scheduled formulations: medicines listed in the First Schedule of the DPCO. This list is taken from the NLEM, made by the Ministry of Health and Family Welfare. The NLEM 2022 has 384 medicines.
• Non-scheduled formulations: every other medicine.

For a scheduled medicine, the NPPA fixes a ceiling price: the maximum price anyone can charge. The method (Paragraph 4) works like this:

1. Take all brands of that medicine that have at least 1% market share.
2. Find the simple average of their price to retailer (PTR), the price at which the chemist buys.
3. Add a 16% margin for the retailer.

Any company selling above this ceiling must bring its price down. Companies already selling below it cannot raise their price above the ceiling.

How do prices change each year?

Under Paragraph 16, the ceiling prices of scheduled medicines are revised every year on 1 April, based on the change in the Wholesale Price Index (WPI) of the previous calendar year. If wholesale prices rose by 2%, ceiling prices can also rise by about 2%. Ceiling prices are fully recalculated when the NLEM is revised, or after five years, whichever comes first.

What about non-scheduled medicines?

They are not price-capped, only monitored. Under Paragraph 20, a company may raise the MRP of a non-scheduled medicine by at most 10% in 12 months. If it raises more, the NPPA can bring the price back to the 10% level and recover the extra money with interest. This is why most cancer medicines, which are non-scheduled, could still carry very high prices.

The emergency power: Paragraph 19

Paragraph 19 lets the government fix or cap the price of any medicine, even a non-scheduled one, in extraordinary circumstances and in the public interest. It is like a "special power button" for cases where normal rules are not enough. India has used it many times:

• February 2017: ceiling prices for coronary stents (small tubes placed in heart arteries). Bare-metal stents were capped at ₹7,260 and drug-eluting stents at ₹29,600.
• August 2017: ceiling prices for knee implants, because trade margins were found to be "unreasonably high".
• February 2019: a 30% trade margin cap on 42 non-scheduled anti-cancer medicines.
• 2021: trade margin caps on oxygen concentrators, pulse oximeters, BP monitors, nebulisers, digital thermometers and glucometers during COVID-19.

Are any medicines exempt?

Yes. Paragraph 32, as amended in January 2019, keeps some medicines out of price control for five years from when they start selling in India:

• new drugs patented under the Indian Patents Act, 1970;
• new drug delivery systems developed through research and development;
• medicines for orphan diseases (very rare diseases). The aim is to reward new research. Critics argue this keeps many expensive new cancer and rare-disease medicines out of reach.

India's position and examples

India is a huge maker of cheap generic medicines, yet many patients still find medicines costly. So price control works alongside other steps:

• Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP): government-backed shops selling low-cost generic medicines.
• Tax relief: Budget 2025-26 fully exempted 36 life-saving drugs (including cancer drugs) from basic customs duty. Under GST reforms from 22 September 2025, many life-saving drugs were moved to nil GST.
• Ayushman Bharat PM-JAY: health insurance cover of up to ₹5 lakh per family per year for hospital care.

Commonly confused concepts

• NPPA vs CDSCO/DCGI: The NPPA controls prices. The Central Drugs Standard Control Organisation (CDSCO), headed by the Drugs Controller General of India (DCGI), controls quality, safety and approval of medicines under the Drugs and Cosmetics Act, 1940. The NPPA is under the Department of Pharmaceuticals; the CDSCO is under the Health Ministry.
• DPCO vs NPPP: The NPPP 2012 is a policy (the thinking and principles). The DPCO 2013 is the legal order that makes those principles enforceable.
• NLEM vs DPCO schedule: The NLEM is a health list of medicines a country needs most, made by the Health Ministry. The DPCO's First Schedule is the price-control list, built from the NLEM.
• Ceiling price vs MRP: The ceiling price is the government's maximum. The MRP is the price a company prints on its pack, which must be at or below the ceiling for scheduled medicines.
• Scheduled vs non-scheduled: Scheduled medicines have a fixed ceiling price. Non-scheduled medicines have no ceiling, only a 10% yearly limit on price increases (unless Paragraph 19 is used).

Issues, criticism and the way forward

• Narrow coverage: The NLEM covers only a part of the market. Companies can avoid control by selling fixed-dose combinations or slightly changed versions of a medicine that are not on the list.
• Market-based method: Because the ceiling is an average of existing market prices, it can still be high when all brands are expensive. Some experts favour a cost-based method instead.
• Supply risk: Industry argues that very tight prices can make some medicines unprofitable, leading to shortages or companies leaving the market.
• Weak enforcement: Recovering overcharged money is slow, and many cases go to court.
• Patented and new drugs: Many costly new medicines are exempt under Paragraph 32.
• Way forward: Experts suggest wider use of trade margin caps, better data on real transaction prices, stronger state-level price monitoring, faster recovery of overcharged amounts, and wider access to low-cost generics.

Concepts to Know

• Formulation: The finished medicine you buy (tablet, syrup, injection), as opposed to the raw drug used to make it.
• Generic medicine: A medicine with the same active ingredient, strength and effect as an original brand, sold after the patent ends, usually much cheaper.
• Wholesale Price Index (WPI): A number that shows how prices change at the wholesale level (when goods are sold in bulk between businesses). It is released by the Office of the Economic Adviser under the Ministry of Commerce and Industry.
• Market share: The part of a medicine's total sales that one brand holds. If a brand sells ₹1 out of every ₹100 sold for that medicine, its share is 1%.
• Out-of-pocket spending: Money a patient pays directly from their own pocket for treatment, without insurance or government help.
• Orphan disease: A very rare disease affecting few people, for which companies have little profit reason to make medicines.