- Prepared by Dr. Fuad Halim (General Secretary, People’s Relief Committee, West Bengal)
The recent announcement of the GST Council to enlist 33 drugs in the Nil category and the remaining drugs and medical appliances in the 5% category is a step which is too little and too late.
Zero GST on 36 Life Saving Drugs: Relief for Whom?
It must be noted that the 36 drugs, including three drugs for rare diseases Velaglucerase Alpha for Gaucher disease, Alglucosidase Alfa for Pompe disease and Emicizumab for hemophilia, are listed in the 0% category GST, are rarely prescribed by a specialist doctor. These drugs are prescribed by a few super specialist doctors to a very small number of patients as these drugs are recommended for very rare diseases. Most of these 36 drugs are not manufactured in India and are imported from different places. These drugs are very essential for the treatment of their respective diseases and the huge cost of these imported drugs along with the reduction in GST will still keep them prohibitively costly. Essentially relief requires that the Government of India allows the production of these imported drugs in India through compulsory licensing and revisiting our patent laws. By facilitating the indigenous manufacturing of these drugs the cost to the patient can be much more significantly reduced for these 36 and many other drugs.
Shrinking Tax-Free List
Prior to the GST regime many state governments kept numerous drugs (varied by state) on the Nil category list. The 36 drugs put in the Nil category list is far below the number of drugs that were available tax free previously.
A revised DPCO
The announcement to reduce all other Drugs and medical appliances from 12% to 5% will have a very temporary cost benefit possibility over the coming 6 months from 22nd September 2025 to 31st March 2026. The Government of India, via the DPCO (Drug Price Control Order 2013), has permitted all pharmaceutical companies the right to increase the cost of manufactured drugs up to 10% annually in the month of April without prior approval or government clearance. This is going to offset the 7% benefit (GST reduction) to the consumer from April 2026 as a general increase of 10% is potentially waiting. A robust DPCO is the need of the hour. The NLEM (National List of Essential Medicines) Which contains only 20% of the medicines available in the market has to be reworked to include a larger number of medicines which are of Public Health importance. The DPCO pricing has to revert back to the Hathi Committee recommendations of calculating the MRP (Maximum Retail Price) based on the production cost of the respective drugs. This change in the DPCO calculates the MRP (average of the MRP of all those who have more than 1% market share) on the market value of major players of respective drugs.
Taxing the Sick : A Moral Failure
People purchase medicines and medical appliances not as a choice but compulsion. The underlying principle that people who fall sick cannot be a source of revenue for the central and state governments stands violated. Since the GST Regime started in 2017 drugs and medical appliances have been a source of huge earnings for the central and state governments. This needs to be stopped and governments should not be financially benefited by taxing the sick whom the government has failed to provide health services in the first place. The Government not only is absent as a provider of care but when citizens are taking the burden of their own care the Government hauls in revenue.
Revenue Over Relief
Keeping the above principle in mind one also needs to realise that the incremental cost increase permitted by the government of India to Pharmaceutical manufacturers (DPCO permits up to 10% increase of price every April) will almost equalise the reduction of 7% of GST revenue in a few years’ time. In fact, the 5% GST collections on medicine in 2026-27 will be more than the total GST collections on the same account in 2018-19, despite having higher taxation of 12%.
Unclear Benefit to Consumers
Will the consumer eventually benefit from these changes? The modality of the new GST regime is yet to be announced. The drugs along with the printed MRP inclusive of the GST of 12% are already available in the market. How the 7% reduction of GST is to be transferred to the customer remains unclear. Batches of medicines with expiry dates up to 2028 have been released by the manufacturers and distributed all over India printed with the older MRP. We await the Government’s clarification in this regard. This reduction of GST should be transferred directly to the patients’/ end purchasers rather than siphoned off by the pharmaceutical companies due to inadequate procedural guidelines.
Commercial Health Insurance: A Profit-Driven Model
GST has been reduced on the premiums of Health Insurance and Life Insurance. We appreciate that this will reduce the premiums. However, we should closely assess the impact of this GST reduction and what percentage will actually benefit the common Insurer .
We all know that Health Insurance companies often reject claims or pay only a part of the claim. Insurance Brokers Association of India stated in a report in 2023 (The Indian Express), that among 29 companies working in the field of health insurance, 20 paid less than 80% of the amount of money claimed by their clients and 10 paid for less than 80% of the number of claims raised by their clients. According to the Insurance Regulatory and Development Authority of India, Annual Report 2022-23, Incurred Claims Ratio (Total value of claims paid by the Insurance Company divided by the amount of premium collected by that Insurance Company) is reducing over the years. This means that the Health Insurance companies are making significant higher profits. The union government has allowed 100% FDI in health insurance. Doors have been opened for the private domestic and foreign insurance companies to make huge profits from the health insurance market of India. Only about 14% of the population in our country has voluntary personal health insurance. The government is doing some demand side promotion by reducing the GST on premiums. Common people are being cajoled into purchasing health insurance so that the insurance business and consequently the private healthcare sector can grow further. The Insurance companies are not going to transfer the 18% reduction of GST directly to the customers as they are already raising the issue of ITC (Input Tax Credit) which may offset the GST reduction by 3-8%.
The Universal Health Coverage plan appears to be in form of the Government reducing their responsibility of providing healthcare services, and instead facilitating an insurance-like mechanism. Through this the people directly or indirectly (state funded insurance schemes) will basically purchase healthcare from the private sector.
Actually the state and central governments are supposed to provide healthcare services to the people. However following the neo-liberal pro-corporate economic policy prescriptions, the Governments are gradually shirking their responsibilities of providing health service to the people. The large scale funds that are being used by the central and state governments for state funded health insurance schemes and for promoting voluntary personal health insurance, could have been much better utilized for development of the existing government hospitals, and for building new government hospitals and improving and expanding existing infrastructure and services.
GST Cuts Amid Global Trade Tensions
This reduction in GST has to be seen in context with the ongoing tariff war between India and the USA. The 50% tax levied by the USA on Indian goods will certainly reduce the market of Indian goods in the USA. India is one of the biggest suppliers of medicines and vaccines internationally. This reduction in GST is aiming to give some relief to the major Pharmaceutical players both Indian and US. However, we must remember that the tariff war exposes the crisis of International Finance Capital and the National Markets along with its fault lines. GST reduction purporting relief, will not benefit common people in the long run. The Health and its Economic policy needs to be rethought in a pro-people direction.
Our Demands
- Comprehensive and effective DPCO should be formulated and implemented to significantly reduce the price of medicines.
- Product Patent on medicines must be reverted back to Process Patent.
- There must be 0% GST on all medicines and medical equipment.
- Govt. must take steps to maintain proper quality of all medicines.
- The governments must provide all health care services to the people free of cost.
- The Government of India should spend about 5% of the national budget for health.
- The State Governments must also adequately increase their expenditure for health so that the common people can get the required health services.
- A significant part of the health budget should be utilized for Primary and Preventive care.
- Primary and Preventive level of care must be given prime importance and must be improved.
- The infrastructure of the existing government hospitals must be developed further. New public health facilities also should be built at every tier to provide adequate health services to the people.
- The governments must effectively regulate the Private Healthcare sector and Health Insurance sector.
