Pharmaceutical Pricing in India: Affordable Healthcare vs Market Incentives

The Supreme Court is pressing the Centre to rein in medicine mark-ups, while the industry warns about supply and survival. How India prices its drugs, where the system leaks, and what a workable balance might look like

On 12 October 2026, a Supreme Court bench of Justices Vikram Nath and Sandeep Mehta heard a matter on medicine prices and made its impatience plain. The Centre had just announced that trade margins on anti-cancer drugs would be capped at 30 percent of the maximum retail price, a decision taken at a meeting of the National Pharmaceutical Pricing Authority (NPPA) on 8 October. The bench called the response insufficient, according to the Tribune's report, saying there was hardly anything to be happy about, and asked why the same logic should not apply to other medicines. The government has been given time to work out how wider capping could work, and the matter returns to court on 27 October.

This is the latest chapter in a long-running question for India: how do you keep medicines affordable for a population where most health spending is out of pocket, without choking the industry that makes India the "pharmacy of the developing world"? This post explains how drug pricing works, where it breaks down, and what the two sides of the argument actually say.

1. How India Prices Medicines

Drug prices are regulated under the Drugs (Prices Control) Order, 2013, commonly called DPCO 2013, administered by the NPPA, which functions under the Department of Pharmaceuticals. The system has a two-tier structure that matters for almost every exam question on the subject.

Category	What it covers	How prices are controlled
Scheduled formulations	Medicines on the National List of Essential Medicines (NLEM). The 2022 list has 384 drugs, and about 900 scheduled formulations flow from it	The NPPA fixes a ceiling price. The method is market-based: the average price to retailer of brands with at least 1 percent market share, plus a 16 percent retailer margin
Non-scheduled formulations	Everything else	No price ceiling. Manufacturers may raise the maximum retail price by up to 10 percent over a rolling 12-month period

The proportions are the heart of the debate. According to Department of Pharmaceuticals data cited by Business Standard, scheduled medicines account for only about 18 percent of the domestic market by value. Non-scheduled formulations make up the rest, and are about 82 percent of the roughly 98,000 stock-keeping units in the data set.

Annual revision and the emergency lever

Ceiling prices of scheduled drugs are revised each year in line with the Wholesale Price Index. In March 2026, the NPPA allowed a 0.64 percent increase, based on the 2025 WPI change, which manufacturers can apply without prior approval. The timing drew attention, since drugmakers are facing higher input costs linked to the conflict in West Asia.

The government also has an exceptional power under Paragraph 19 of DPCO 2013, which lets it fix or cap the price or margin of a drug in extraordinary circumstances in the public interest. The new cap on cancer drug margins relies on this kind of exceptional approach, and the same route was used earlier to cap prices of cardiac stents and knee implants, and during the pandemic to cap margins on oxygen concentrators and some other devices. The weakness is that these measures are meant to be temporary or product-specific rather than permanent features of the law.

2. Where the System Leaks: Trade Margins

Controlling the price a manufacturer charges is only part of the story. The consumer pays the maximum retail price, and the gap between what a manufacturer sells at and what a patient pays is made up of distributor, retailer and, in hospitals, institutional margins. This is the space the Supreme Court is now probing. Examples quoted by the bench, as reported by the Tribune, include a saline drip priced at Rs 270 against a cost of about Rs 11, an India-made cardiac stent sold for over Rs 25,000 against about Rs 5,000, and an antibiotic sold for over Rs 70 against about Rs 28. The Centre's own affidavit reportedly cites hospital margins of 170 percent to 700 percent or more on cancer medicines.

The wider market data is more mixed. Figures from the pharma market research firm Pharmarack, cited by the Department of Pharmaceuticals, indicate that about 87 percent of the non-scheduled market has a weighted average mark-up of up to 45 percent, and only about 4 percent exceeds 100 percent over the price to distributors. In other words, extreme mark-ups exist but may be concentrated in specific products and settings, particularly hospital pharmacies and medical consumables. Drug regulators in Maharashtra, Karnataka and Uttar Pradesh are now collecting local mark-up data, and Maharashtra's drug regulator flagged mark-ups of almost 1,000 percent on some consumables in September.

A Parliamentary Standing Committee on Chemicals and Fertilisers, in a report presented in December 2025, reached similar conclusions. It noted that price controls apply only to NLEM drugs, that initial prices of non-scheduled drugs are not regulated, that price-to-stockist data is not public, that online drug platforms lack any price fairness mechanism, and that the DPCO allows margin capping only for a limited period. It recommended considering price control for non-scheduled formulations and amending DPCO 2013 to include legal provisions for trade margin rationalisation.

3. Trade Margin Rationalisation Explained

Trade margin rationalisation (TMR) is the concept at the centre of the current policy movement. Conventional price control sets a ceiling price for a particular formulation. TMR instead limits the gap between the manufacturer's price to the distributor and the price the consumer pays, so it can be applied across many products without fixing each one's price individually. It has been used so far only through the exceptional Paragraph 19 route, for limited periods or products, such as a pilot on high-priced anti-cancer medicines.

In August 2026, the Department of Pharmaceuticals told a parliamentary committee that it is examining a proposal to build TMR into the DPCO itself, with no timeframe set. Pharma industry associations and consumer groups have supported the framework in principle but have made recommendations on the method of calculation, the cap percentage, phasing and the data period. MSME associations have warned that applying TMR to non-scheduled formulations could hurt smaller firms, cost jobs and disrupt supply in remote areas.

4. The Case for Stronger Price Control

• Out-of-pocket burden: Medicines are a large share of what Indian households pay for health care themselves, so a high mark-up on a chronic or cancer drug can push a family into debt.
• Constitutional framing: Article 21 has been interpreted to include the right to health, and Article 47, a Directive Principle, asks the State to improve public health. The Supreme Court's present line of questioning draws on this idea, and it has said that ensuring the availability of price-controlled medicines is the government's responsibility.
• Information asymmetry: Patients rarely know what a drug costs the seller. Transparency measures, such as publishing price-to-stockist data, address this directly.
• Gaps in coverage: With only about 18 percent of the market by value under ceiling prices, the argument runs, most of what patients buy is effectively unregulated.

5. The Case for Market Incentives

• Distribution costs are real: The Centre told the court that higher trade margins support distribution in remote areas, and that capping margins too far could stop medicines from reaching them. Low-turnover and cold-chain products cost more to stock, and a thin margin may lead retailers to drop them.
• One cap does not fit all: Medicines differ in demand, storage and distribution costs. Experts quoted in the press say a single percentage across all products may not be practical and suggest category-specific margins.
• Small manufacturers: Smaller firms often rely on the trade channel to build markets, and MSME bodies warn they are most exposed to a blanket cap.
• Evasion risk: Manufacturers may change pack sizes, discounts or channels to avoid caps, and enforcement depends on reliable data and capable regulators.
• Innovation and investment: Predictable returns support investment in quality and new products. Price controls that look arbitrary can discourage that, and the industry is also working under external pressure.

On that last point, the industry is already absorbing shocks from abroad. According to Pharmexcil data, India's pharmaceutical exports were 8.1 billion US dollars in the April to June 2026 quarter, up 6.8 percent from a year earlier, with the United States the largest destination at about 31 percent. The US has imposed a 100 percent tariff on specified patented pharmaceutical products under Section 232, but generic drugs are not covered, and India is among the jurisdictions eligible for zero duty on certain specialty medicines. The conditions attached to that exemption mean the outlook is not settled, but the point for the pricing debate is that Indian firms are exposed to global policy uncertainty while also facing tighter domestic scrutiny.

6. Looking for a Middle Path

Most policy proposals try to protect both access and incentives rather than choose one. The main tools are listed below.

• Targeted TMR: Apply margin caps first where the gap is widest, such as cancer drugs, stents, implants and hospital consumables, then widen in phases using category-based margins.
• Price transparency: Make price-to-stockist data public, so that mark-ups are visible and regulators and patients can compare.
• Public generic supply: The Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP) sells generics through dedicated outlets. According to a Lok Sabha reply from the Health Minister on 24 July 2026, there were 20,149 Jan Aushadhi Kendras as of 30 June 2026, covering 776 of 784 districts, with 2,110 medicines and 315 surgical items in the basket and estimated savings of Rs 45,000 crore for citizens over 12 years. Outlets in the North-East receive a Rs 2 lakh incentive.
• Online pharmacy rules: Create a framework for price fairness and authenticity in e-pharmacies, as the Standing Committee recommended.
• Prescribing and procurement: Encourage generic prescribing and bulk public procurement, which lower costs without needing to regulate retail margins.

7. What to Revise for APSC and UPSC

• Institutions and instruments: NPPA (under the Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers), DPCO 2013, NLEM 2022 with 384 drugs, scheduled versus non-scheduled formulations, and the 10 percent annual increase limit for non-scheduled drugs.
• Concepts: Ceiling price, market-based pricing, retailer margin of 16 percent, WPI-linked revision, Paragraph 19, and trade margin rationalisation.
• Public provision: PMBJP and Jan Aushadhi Kendras, with their latest numbers.
• Related legal background: Section 3(d) of the Patents Act and the Novartis judgment of 2013 on evergreening, and the compulsory licence granted for a cancer drug in 2012. These show the earlier phase of the same affordability-versus-incentives debate.
• Constitutional hooks: Article 21 and Article 47.
• Current developments: The 30 percent cap on cancer drug margins, the Supreme Court hearings on 12 and 27 October 2026, and the proposal to bring TMR into the DPCO.

A Mains question such as "Critically examine the effectiveness of drug price regulation in India" is best answered by describing the two-tier structure, showing with figures that most of the market is outside ceiling prices, explaining why margins rather than manufacturer prices are the pressure point, and then weighing distribution and MSME concerns against the affordability argument. Finish with a phased, data-driven way forward rather than a one-sided verdict.

8. Final Thoughts

India's drug pricing system was built to protect a narrow list of essential medicines while leaving most of the market to competition and a loose annual cap. That design reflected a deliberate choice to keep the generics industry vigorous, and it has helped make India a global supplier. But the pressure has shifted from the price manufacturers charge to the margins added further down the chain, and the Supreme Court has made clear that it expects more than a cap on one category. The likely outcome is not a choice between affordability and incentives, but a more carefully calibrated set of margin rules, backed by better data. The hearing on 27 October will show how far the Centre is prepared to go.

Sources:
The Tribune: Centre caps trade margin of anti-cancer drugs at 30%; SC asks why not other medicines
LiveLaw: After Supreme Court push, Centre to cap cancer drug margins at 30%
IAS Point: Judicial push for universal drug price regulation (secondary source)
Business Standard: State scrutiny of pharma price mark-ups may lead to review of TMR policy
Business Standard: Govt weighs incorporating trade-margin rationalisation into DPCO
Business Standard: NPPA allows 0.64% hike in MRP of essential drugs
PRS India: Price rise of medicines in the pharmaceutical sector
DD India: Jan Aushadhi Kendras deliver Rs 45,000 crore savings in 12 years
Business Standard: US pharma tariffs widen, with zero duty for select Indian medicines
Indian Pharma Post: India's pharma exports rise 6.8% to USD 8.1 billion in Q1 FY27
PIB: National List of Essential Medicines 2022

This post reflects information available as of 14 October 2026. Court proceedings and policy details are evolving, so verify the latest status from the NPPA, the Department of Pharmaceuticals and the Supreme Court's order before using them in an exam answer.