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Detailed FAQ on the Distribution and Import of Pharmaceuticals in India

Published on : 10 Aug 2020

Detailed FAQ on the Distribution and Import of Pharmaceuticals in India

Distribution of Pharmaceuticals in India

The Indian pharmaceutical distribution system has a limited number of orbits – the pharmaceutical manufacturers; the clearing and forwarding agents (CFAs/ depots); stockists; wholesalers; and retailers.

Clearing and Forwarding Agents

  1. What constitutes the role of the carrying and forwarding agent (CFA)?

The Indian pharma industry’s distribution set-up is perceptibly fragmented and has evolved on the basis of a tiered sales tax structure, which consists of the central sales tax (CST), and the local sales tax. While the inter-state sale of goods attracts the central sales tax, the interstate transfer of goods does not attract any tax. In order to avoid the CST, all medium and large pharmaceutical companies have established a carrying and forwarding agent (CFA); alternatively, company depots are established in each state, and goods are transferred as an interstate stock transfer. On the other hand, the smaller companies adopted the super-stockist model (since the cost of infrastructure for depots or CFAs outweighs the accrued tax benefits).

  1. Why have CFAs gained more prominence than company-owned depots?

In order to cut overheads following liberalization, pharmaceutical companies increasingly replaced company-owned depots and warehouses with CFAs.

  1. Are CFAs part of a production company, under contract to a single company? Or can they work for several companies?

The Ernst and Young account suggest that CFAs are part of the production company; however, the typical CFA would represent about six companies. However, it should be noted that when stockists receive goods from a CFA, they are invoiced in the name of the producer, and not in the name of the CFA.

  1. Is the fee of the CFA fixed?

The fee of the CFA may be a fixed percentage margin or may depend on the turnover. However, there still lies a great deal of uncertainty about how much they receive; it may range from 2 and 4 percent on a high turnover product to 10 percent on a low turnover one.

Stockists/ Wholesalers

  1. What is the role of wholesalers in the pharmaceutical market?

In the 70s and 80s, when attempts were made to introduce to expand the orbit of drug distribution to include emerging markets, many small players became stockists and wholesalers in order to be able to compete with retailers, especially because of the increased profitability of drug marketing, as opposed to drug production.

  1. From how many companies do stockists market and distribute pharmaceutical products?

They typically market products of 6-8 pharmaceutical products, and only a handful distribute products of more than 50 companies. Mergers and acquisitions of pharmaceutical companies have resulted in the doubling of the number of stockists per company – this has fostered a great deal of competition at the distribution level.

  1. What are the margins paid to the wholesalers?

There is also a lack of scholarly consensus on this matter; while some say that stockists get 8-10 percent of their sale price to the retailer, others report a margin of 8 percent on the maximum retail price of price-controlled drugs and 16 percent on de-controlled drugs.

  1. What is the estimate of the number of stockists in India?

The current estimate is 60,000, this a figure supplied by the All-India Organization of Chemists and Druggists, who are able to control entry into this position. However, given the increasingly tough competition, and what with stockists shifting gears to settle into the lucrative domain of retailing, a decrease in the number of agents at this level is to be expected!

Retailers/ Pharmacies/ Dispensing Practitioners

  1. What is the role of retailers in the pharmaceutical market?

Retailers account for about 70-80 percent of the pharmaceutical sales in the country, with the remainder being sold directly through hospital pharmacies. In rural India (that accounts for 25-35 percent of the market, private medical practitioners usually keep stocks of most of the medicines that they expect to prescribe. Most small hospitals and nursing homes also have in-house pharmacies and require patients to buy drugs on the premises.

  1. What are the margins paid to the retailers?

Retailers are entitled to margins of 6 percent for controlled formulations, and 20 percent for de-controlled formulations on the maximum retail price; this is set by Law, and may even be printed on the medication. However, it must be noted that this formal position often masks considerable variations, whether by company, retailer, drug, when there is a supply-demand imbalance, or when a stock of drugs is approaching its “sell-by” date. Often, manufacturers, stockists, distributors, and others offer price reductions to the retailers to move drugs quicker or to increase the margin that can be earned by the retailer.

  1. What are the kinds of operations that the retailers engage in?

Retailers comprise a wide variety of different kinds of operation, that range from small shops to retail chains. The small shops in India’s retail sector are typically family firms, with a single owner or a set of brothers, continuing an extended family tradition. These shops typically have a small number of employees, whose turnover is quick.

At the other end of the retail continuum exists chains of retail outlets. These include Apollo, Lifeken, Medicine Shoppe, CRS Health, and Health Glow. These one-stop chains are offering prescriptions and OTC drugs, health supplements, health foods, alternative medicines like Ayurveda and homoeopathy, home and personal care products, tele-medicines and pathology collection centres under one roof. In order to wield the immense added advantage of round-the-clock operations, it added extended value-added services such as free home delivery, prescription reminder service, loyalty programs, and OPD departments.

  1. How do these chains operate?

A chain with a system of 400+ pharmacies and 50+ franchises works in cooperation with the manufacturer, on account of the immense negotiation powers it has in that relationship. The group does not do the purchasing through the distributor necessarily but positions themselves as the distributor, and buy from the manufacturer, getting the wholesale margins in the process. Purchasing it at that price, they sell it at the consumer rate. Given that the margins soar, they accordingly are able to provide better services, with added benefits for patients and customers.


  1. What are the procurement systems in India?

The two primary procurement systems in India comprise state/ government procurement, and procurement by large private health institutions. As per a report prepared for the National Commission on Macroeconomics and Health, government procurement accounts for about 6 percent of total pharmaceutical sales in India.

  1. How is central/ state government procurement structured?

There is no single central government procurement office, despite 25 percent of the total public sector drug volume being procured by the Central Government for the Central Government Health Services, Armed Forces Medical Services, and Public Sector Units, and State Sector Units.

The Medical Stores Organization (MSO) is the body responsible for the procurement and supply of quality medicines, and medical instruments to Central Government hospitals and dispensaries in rural and suburban areas.

  1. What are other duties of the MSO?

The MSO is also responsible for the distribution of drugs supplied by international organizations such as UNICEF, CIDEA, WHO, and USAID. It bears specific responsibilities for vaccines received from the aforementioned organizations, under various agreements entered with the Government of India. It is also responsible for stores maintained for national eradication programs such as anti-malaria, anti-leprosy, anti-TB, AIDS, as well as Family Welfare under the National Health and Family Welfare Programs.

  1. How is private purchasing conducted by large users?

Large private hospitals negotiate prices with CFAs and distributors, and accordingly avoid retailer margins, in addition to availing of bulk purchase discounts. The Community Development Medicinal Unit supplies approximately 450 organizations, at prices significantly lower than those quoted by manufacturers for general purchase. In addition, NGOs can also buy directly from producers who provide them with special terms.

Collective Organizations

  1. Are there collective organizations in the retail sector?

The main association is the All-India Organization of Chemists and Druggists (AIOCD), with its state branches. This institution dates back to 1921 when the Bengal Chemists and Druggists Association (BCDA) was established, followed by corresponding associations in Chennai, Mumbai, and Delhi. In 1944, these collectively established the All-India Retail Chemists Association, and from 1972 onwards, the Indian Organization of Chemists and Druggists. It was only in 1975 that these three all-India bodies merged to create the All-India Organization of Chemists and Druggists (AIOCD).

  1. What is the role of collective organizations in the retail sector?

The AIOCD negotiates agreements with the drug producer associations. These agreements often specify the percentage of trade margins for various categories of drugs and allow the local branches of the AIOCD to block the entry of new companies.

Licensing for Drugs Manufacturing

  1. What are some registration and licensing requirements regarding drug manufacturing facilities?

These mandate the License for Capital Goods import (for items other than the freely importable goods under the Import Policy); License for Raw Materials Import (for items other than the freely importable goods under the Import Policy); Factories Act registration; Labor Laws registration; Pollution Control Board clearance; electricity supply; building permission; water supply; land lease or purchase; sales tax registration; excise duty registration; explosives license; licenses for storing petroleum products; registration under the Boilers Act; registration under Standards of Weights and Measures; registration with the State Director of Industries; among others.

Licensing of Drug Retailers

  1. Do sales offices need to be licensed?

Under the Drugs and Cosmetics Act, sales offices, pharmacies, or any other sales outlet/ stocking point for drugs need to be licensed to do so by the State Government that has jurisdiction over that particular office/ pharmacy. Where the drugs are sold or stocked for sale at more than one location, a separate, discrete license is required for each such venue.

  1. What are the requirements and conditions for such a license?

The site should meet the specification of minimum area and equipment; the compounding of drugs on the premises should be executed by a registered pharmacist; the sale of any prescription drugs should be under the monitored supervision of a registered pharmacist; a prescription register, or a cash/credit memo book should be maintained; the prescription register should contain the specified particulars of the sale; no prescription drug shall be sold without a prescription.

  1. What other legislations do wholesale and retail outlets require local registration under?

These include the Shops and Establishment Act; the Standard of Weights and Measures Act; labor legislation, and sales tax legislation.

Import of Pharmaceuticals in India

In India, the import of drugs is regulated under the auspices of the Drugs and Cosmetics Act of 1940, and the Drugs and Cosmetics Rules of 1945. At present, bulk drugs (with active pharmaceutical ingredients), and finished formulations are regulated under the aforementioned Act. It is critical to note that any substance that falls within the definition of drug required to be registered prior import into the country.

  1. What do the requirements to obtain permission for the import of drugs entail?

No new drugs are permitted to be imported into the country without the sanctioning of the licensing authority, in writing. For the sake of clarity, all drugs whose composition is not recognized as safe for use by experts, and which have not been used for an appreciable period of time are to be regarded as a new drug.

  1. Who can furnish permission for the import of new drugs?

Permission for the import of new drugs can be obtained from the licensing authority after they are provided with documentary evidence of the standards of quality, purity, and strength of the drug.

  1. What should the application for the import of new drugs include?

Form 44 is the application form required for permission, and must be in accordance with appendices, namely; chemical and pharmaceutical information; animal pharmacology and toxicology data; human clinical pharmacology data; regulatory status in other countries; prescribing information; and complete testing protocol for quality testing.

  1. What are the stages involved in drug importation?

Phase 1 is Registration, Phase 2 is the obtaining of the Import License, and Phase 3 is that of Marketing.

  1. What does Phase 1 – Registration entail?

The application for the issue of the registration certificate shall be made in Form 40, either by the manufacturer or an authorized agent in India. The authorization by the manufacturer to his agent in India shall be by a power attorney that has been authenticated in India before a First Class Magistrate, or in the country of origin, before an equivalent authority, the certificate of which has been attested by the Indian Embassy of the said country. The original shall be furnished along with the application of the registration certificate.

A fee of USD 1,500 shall be paid along with the application, as a registration dee for his premises meant for manufacturing of drugs intended for import. Another fee of USD 1,000 shall be paid along with the application for the registration of a single drug to be imported into, and used in India – an additional fee of USD 1,000 shall be applied for every additional drug.

The applicant shall be liable for a payment fee of five thousand dollars for expenditure, as may be required for inspection/ visit of the manufacturing premises by the licensing authority. He shall also be liable for payment of a testing fee directly to a testing laboratory approved by the Central Government of India, or abroad, as may be required for examination, tests, and analysis of drugs.

Should the original be defaced or damaged, a fee of USD 3,000 shall be paid for the issuance of a duplicate copy of the registration certificate.

  1. What does Phase 2 – Import License entail?

An application for an import license shall be made in Form 8 to the licensing authority for drugs excluding Schedule X, and for Schedule X drugs in Form 8-A; either by the manufacturer or the manufacturer’s agent in India (who possesses a wholesale license for the distribution of drugs). It shall be accompanied by a license fee of INR 1,000 for a single drug, and INR 100 for each additional drug.

Any application for an import license in Form 8 or 8-A shall be accompanied by a copy of the registration certificate issued under Form 41. A fee of INR 250 shall be paid for a duplicate copy of the license, should the original get defaced, damaged, or lost.

  1. In overview, what does the general checklist for import consist of?

It bears;

  1. The covering letter
  2. The original power of attorney
  3. Copy of import permission for a new drug (in Form-45 for a formulation, and Form 45-A for new bulk drug substances)
  4. Copy of the wholesale license, or manufacturing license of the Indian agent
  5. Authorization letter
  6. Schedule D(I) and Undertaking, duly signed, stamped, dated with a designation of the authorized signatory of the manufacturer
  7. Schedule D(II) and Undertaking, duly signed, stamped, dated with a designation of the authorized signatory of the manufacturer
  8. Copy of the original notarized
  9. Attested/ apostilled copy
  10. An original label bearing the name of the drug, with the pharmacopoeial specification, the importer name and address as per the wholesale license, and import license number.
  11. Upload Form 40
  12. TR-6 Challan of Fees paid
  1. Are pharmaceuticals free importable?

Most pharmaceuticals are freely importable, as per foreign trade law. However, it must be noted that certain drugs may not be imported except under a license granted by the Drug Controller of India. These products cannot be imported after the date shown on the label as being a date when the potency would reduce or toxicity would increase beyond the standard permitted.

  1. What is the import duty structure?

The import duty structure relies on the classification for import tariff and excise duty. The import duties are prescribed by the Customs Tariff Act. The specific life-saving products can certainly be imported at zero duty. For most other pharmaceuticals, the duty structure would be roughly as below:

  1. Cost, Insurance, and Freight (CIF) value of the imported item: A hypothetical INR 10.00
  2. Basic duty: 30 percent of CIF value (INR 3.00)
  3. Countervailing duty: 16 percent of the CIF value, in addition to basic duty plus surcharge (INR 2.08)
  4.  Special additional duty: 4 percent of the total of all the above (INR 0. 60)
  5. Total landed cost: INR 15.68
  6.  Effective duty rate: 56.8 percent


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