GST effect: Drug shortage likely as stocks dip by 50%

BENGALURU: To avoid losses on inventory during transition to the GST regime, traders and distributors across India have stopped lifting medicine stocks from manufacturers in the past 75 days, affecting supply to customers.

Medicine inventory in retail stores has dropped 50%. Drugstores typically keep a 40 day stock, but it has come down to 20 days in the past two and-a-half months. The impact of the scarcity of drugs is likely to be felt in July too. “Dear customer, due to GST transition, please expect drug shortage in July and plan your purchases in advance to avoid inconvenience,“ read an SMS sent by Family Pharma, a chain of chemist stores operating in Bengaluru, to its customers. Pharmacists and manufacturers have been in talks with the Centre and the GST Council to get clarity on how they can price medicines and who will bear the losses over existing stocks. Absence of clarity has led to limited stock being lifted. The Centre has guaranteed input tax credit benefit to manufacturers on scheduled drugs (whose prices are regulated by the government).

Maximum Retail Price (MRP) on medicines is inclusive of all taxes, and present prices have been decided on the existing tax regime. Under GST, prices will need go up, but not on existing stocks. “The Centre, last week issued a circular (with a formula) allowing us to increase the MRP by 2.5% from July 1, under GST. On the existing stock, the manufacturers will get input benefit on scheduled drugs, but will have to bear losses on non-scheduled medicines. Despite this, manufacturers will see a loss of 2.5% on existing stock,“ Indian Pharmaceutical Association president (industrial division) Subhash B Rijhwani said.

While manufacturers have to bear 2.5% loss on existing stock, traders will incur a 1% to 1.2% loss. “Overall, we'll incur losses of up to 8%, which we can't afford. We have written to manufacturers asking for reimbursement. If not, we will return the existing stock,“ said Suresh Gupta, honorary secretary, All India Organization of Chemists and Druggists.

He said: “We've stopped picking up stocks. At least 20 manufacturers have said they'll reimburse, but we need assurance in writing,“ A senior office-bearer of the Indian Drugs Manufacturing Association said that traders aren't picking stocks despite assurances.