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Issue of high trade margins in essential medical devices

March 17, 2026 5 min read Polity & Governance Economics GS2 GS3
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What Happened

  • The government acknowledged the problem of high trade margins in medical devices included in the National List of Essential Medicines (NLEM), where the NPPA has authority to fix ceiling prices.
  • The National Pharmaceutical Pricing Authority (NPPA) under the Department of Pharmaceuticals fixes ceiling prices only for medical devices explicitly included in the NLEM — currently a very narrow list of four items: cardiac stents, drug-eluting stents, condoms, and intrauterine devices (IUDs).
  • For medical devices outside this list, the NPPA has experimented with a Trade Margin Rationalisation (TMR) approach — capping trade margins in the supply chain — for items such as 42 anti-cancer medicines, oxygen concentrators, pulse oximeters, and nebulisers.
  • A committee under the Ministry of Health and Family Welfare is developing the first-ever National List of Essential Medical Devices (NLEMD), which will expand the base for ceiling price regulation.
  • The problem of high trade margins arises because medical device supply chains typically involve multi-layered intermediaries (manufacturer → distributor → stockist → hospital), with each layer adding significant mark-ups far above the actual cost.

Static Topic Bridges

Trade Margin Rationalisation (TMR): A New Pricing Tool

Trade Margin Rationalisation (TMR) is a regulatory approach distinct from the traditional ceiling price mechanism. Instead of fixing the maximum retail price (MRP) at the manufacturer's level, TMR caps the percentage margin that each level of the supply chain — from manufacturer/importer to distributor to retailer/hospital — can add. This approach is particularly useful for medical devices and non-scheduled drugs where production costs are difficult to assess using the market-average formula under DPCO 2013.

  • The NPPA first deployed TMR in 2018 for 42 anti-cancer drugs (scheduled for price control under Paragraph 19 of DPCO 2013), significantly reducing the gap between trade price and MRP.
  • During the COVID-19 pandemic (2021), the government used a TMR approach for oxygen concentrators, pulse oximeters, and nebulisers — setting maximum retail prices through emergency notifications under DPCO 2013 Paragraph 19.
  • Under a standard TMR framework, a manufacturer can sell at a notified price, distributors can add a capped margin (e.g., 8%), and retailers/hospitals can add a further capped margin (e.g., 16%) — eliminating the inflated mark-ups common in unregulated device markets.
  • The TMR approach requires robust price-monitoring infrastructure; NPPA enforces compliance and penalises violations through the Essential Commodities Act, 1955.
  • Unlike MRP-based controls, TMR allows price discovery at the base level to remain market-driven while preventing exploitative mark-ups downstream.

Connection to this news: High trade margins in essential medical devices indicate the TMR approach, while effective for specific items, has not been systematically extended to the broader device market — a gap the proposed NLEMD seeks to close.

Medical Devices in India: Regulatory Framework and CDSCO

Medical devices in India are regulated under the Drugs and Cosmetics Act, 1940 (as amended), with the Central Drugs Standard Control Organisation (CDSCO) under the Ministry of Health serving as the primary regulatory authority. The Medical Devices Rules, 2017 (notified under the D&C Act) classify devices into four risk-based categories (Class A–D) and mandate licensing, clinical investigation, and post-market surveillance requirements. However, regulatory approval for safety/efficacy is a separate track from price regulation — a device can be approved by CDSCO but remain unpriced by NPPA if it falls outside NLEM.

  • Medical Devices Rules, 2017: Four risk categories — Class A (low risk, e.g., bandages), Class B (low-moderate, e.g., hypodermic needles), Class C (moderate-high, e.g., dialysis machines), Class D (high risk, e.g., cardiac stents, implantable pacemakers).
  • India notified all medical devices under the D&C Act from April 2020 (previously only about 23 specific device types were notified).
  • NPPA's current NLEM coverage for devices: only 4 items — coronary stents (bare metal), drug-eluting stents, condoms, and IUDs.
  • Cardiac stent price caps (introduced 2017) are among India's most impactful device price control actions: stent prices fell by 80-85% after NPPA's intervention under Paragraph 19 of DPCO 2013.
  • The proposed National List of Essential Medical Devices (NLEMD) is being developed to create a systematic, evidence-based device list analogous to NLEM for drugs, enabling comprehensive price regulation.

Connection to this news: The current price control architecture for medical devices is far more limited than for drugs — only 4 devices face mandatory ceilings vs. 764 drug formulations. The NLEMD initiative represents the structural fix needed to address the device pricing gap.

Essential Commodities Act, 1955 and Its Role in Price Regulation

The Essential Commodities Act (ECA), 1955 is the central legislation that empowers the government to regulate the production, supply, distribution, and pricing of essential goods. Drugs and medical devices fall under this framework via the DPCO (issued under Section 3 of the ECA). The Act operates under Entry 33 of the Concurrent List, allowing both Parliament and state governments to regulate essential commodities.

  • Section 3 of the ECA, 1955 confers power on the Central Government to control prices of essential commodities by order — the DPCO 2013 is such an order for pharmaceuticals.
  • The ECA has been amended multiple times; the Essential Commodities (Amendment) Act, 2020 removed cereals, pulses, oilseeds, edible oils, onions, and potatoes from ECA coverage for private traders under normal conditions — but drugs and medical devices remain fully covered.
  • Violations of NPPA's price notifications (selling above ceiling price) are punishable under the ECA with imprisonment up to 7 years.
  • The NPPA enforces price compliance through field inspections, can direct recovery of overcharged amounts from manufacturers/importers, and can revoke licences.
  • For devices not under price control, consumer recourse lies under the Consumer Protection Act, 2019 (deficiency in service, unfair trade practices) and the Clinical Establishments Act, 2010.

Connection to this news: Expanding NPPA's jurisdiction to cover a broader NLEMD would require either updating Schedule-I of DPCO 2013 (which flows from NLEM) or issuing fresh notifications under Paragraph 19 — both routes are available within the existing ECA framework without new legislation.

Key Facts & Data

  • NLEM coverage for medical devices: 4 devices — coronary stents (bare metal), drug-eluting stents, condoms, IUDs
  • Cardiac stent price reduction after 2017 NPPA intervention: 80-85% decline
  • DPCO 2013, Paragraph 19 — emergency power to fix any drug/device price
  • Medical Devices Rules, 2017 — 4 risk classes (A, B, C, D); all devices notified under D&C Act from April 2020
  • CDSCO — Central Drugs Standard Control Organisation; primary device regulatory authority
  • TMR applied to: 42 anti-cancer medicines, oxygen concentrators, pulse oximeters, nebulisers (COVID-19 period)
  • Drugs with ceiling prices under NLEM 2022: 764 formulations
  • Essential Commodities Act, 1955 — Section 3 enables DPCO; ECA penalty: up to 7 years imprisonment
  • Essential Commodities (Amendment) Act, 2020 — removed agricultural commodities from ECA (drugs/devices unaffected)
  • Proposed National List of Essential Medical Devices (NLEMD) — under development by Ministry of Health