Tackling Quality Concerns In Indian Drug Exports

The pharmaceutical industry has been a bright spot in the Indian economic story, with a stellar performance both in domestic sales as well as in exports. Pharmaceutical exports have been the top five commodities exported from India over the past five years (2018-19 to 2022-23), accounting for about 21% of total sales of Indian pharmaceutical companies. However, a spate of recent events have led to heightened global concerns about the quality of drugs exported from India. These need to be addressed in order to sustain India’s leadership position in drugs exports.

The episode that caused a global uproar was the reported deaths in Gambia and Uzbekistan caused by Indian-manufactured cough syrups. The World Health Organisation (WHO) raised three alerts (in October and December of 2022 and April of 2023) about contamination in India-manufactured cough syrups. An investigation by the Central Drugs Standard Control Organisation (CDSCO) concluded that four of the twenty-three tested samples were contaminated. It directed the two pharmaceutical companies (Maiden and Marion) involved to suspend manufacturing.

In May this year, the Directorate General of Foreign Trade (DGFT) issued a notification amending the Export Policy on cough syrups exports from India. The notification requires mandatory sample tests of cough syrup, along with a Certificate of Analysis to export.

But this is a band-aid solution. The testing requirement is limited to exports of only one kind of medicine (cough syrups). It does not solve the next scandal that hit in April 2023, where multiple cases of death, illness and blindness in the U.S. were traced back to Indian manufactured eye drops. What is needed to prevent future global censure, and instead to cement India’s competitive position in the world markets, are changes on domestic manufacturing of all pharmaceutical commodities.

Mandatory testing of medicines is not a new requirement. Regulations on testing procedures for all domestically manufactured drugs exists under the Drugs and Cosmetics Act (1940), read with the Drugs and Cosmetics Rules (1945):

1. All manufacturers, retailers, traders who are directly or indirectly involved in sale, purchase, manufacturing, stocking, distribution of medicines, are required to obtain a valid license under the Act.

2. Inspectors appointed under the Act are mandated to carry out routine inspections at least once in a year for all licensed manufacturers, retailers and traders.

Despite this, drug quality continues to be a problem.

At the heart of the problem is the difficulty in knowing the quality of the drug purchased. This inherent information asymmetry means that the traditional ‘buyer beware’ approach is not adequate in the context of drugs. Unlike other goods, defects in the drugs purchased are latent: (1) the drug has a lower active pharmaceutical ingredient (API) than required or as stated on the label, (2) there is an adulterant present that reduces the quality and potency of the drug, and (3) the pharmacokinetics of the drug is incorrectly stated. These problems can only be detected by scientific testing. Reducing these problems will thus mean higher costs of quality drug production. But if not corrected, the cost on the buyers can be extended illness, a build up of resistance to the drug, and even death.

Despite its criticality, there is little evidence of how much testing is conducted for drugs in India. Inspection of the quality of drugs appears to vary widely, even when state governments are the buyers. Disclosure about Not of Standard Quality (NSQ) drugs in the public domain is infrequent and sparse. If there is coordination and information sharing about drug testing quality among various state government health agencies, there is no consolidated information available to the public. The last drug quality report put up by the Ministry of Health and Family Welfare was in 2016.

Given the lack of evidence of state capacity on testing for drug quality, the onus falls on pharmaceutical companies themselves to prove the quality of their products. Certain pharmaceutical companies in India already submit themselves to the scrutiny and testing protocols of global organisations such as the WHO, and the U.S. Food and Drugs Administration. However, this means additional costs, which may be rational to incur if pharmaceutical companies can use this certification to earn a higher price for higher quality.

But while higher revenues for higher costs incurred may hold for export markets, a barrier to a universal adoption of this approach within India are drug price control regulations. Here, all medicines which come under the National List of Essential Medicines (NLEM) have a ceiling price. This is a simple average price of all the brands, which have a market share more than and equal to 1% of the total market turnover of that medicine. But even for drugs that are non-NLEM, prices can be restricted. The increase in the price of these non-NLEM drugs can be mandated to remain below than 10% in the year.

Such price limits will affect the revenues of pharmaceutical companies, and can constrain business decisions on conducting random sample testing or obtaining other certifications for the quality of their products. This will be particularly restrictive for startup and SME companies in the pharmaceutical industry, creating an environment of low competition and innovation. For a comparison, 53 out of 135 of the respondent countries in the World Drug Survey implement no price regulation policy at all.

The objective of the healthcare policy in any country is to ensure timely availability of quality medicines at affordable prices. But price controls on both NLEM and non-NLEM drugs can lead manufacturers to compromise on quality to manage loss, and to shortages in the availability of good quality drugs. This is counter-productive to both the State’s own healthcare policy objective and for its prospects of international trade.

Reforms in price controls are only one part of the overall public healthcare policy in India. There are also regulations on classification of drugs, licensing, penalties for malfeasance that are various instruments of ensuring policy outcomes. Building state capacity to carry out regular inspection of manufacturing premises, random testing of drugs across several points in the supply chain, and periodic disclosure of information on the level of NSQ drugs, can improve the availability and timely delivery of high quality drugs for all. At a time when both domestic and global demand for quality drugs is so high, rather than do small scale fixes such as mandating testing for export of cough syrup, it is opportune to re-think the framework of drug regulations to retain India’s position in the global pharmaceutical market.

Pavithra Manivannan, Charmi Mehta and Susan Thomas are researchers at XKDR Forum.

The views expressed here are those of the author, and do not necessarily represent the views of BQ Prime or its editorial team.