At least once a month, Bhavik Kumar, founder and CEO of Medibox, gets a panicked call. The callers are worried Indian medicine distributors, desperate to either shut down or get acquired. As the head of Medibox, a digital platform for e-marketing, e-procurement and e-distribution of medicines and healthcare products, Kumar is in a unique position. While, on the one hand, his platform helps connect distributors to pharmacies, the network he has created means that Kumar is able to help connect these beleaguered distributors to potential buyers. One way or the other, Kumar does what he can.
Ever since the inception of the Goods and Services Tax (GST) on 1 July 2017, the calls have only increased in frequency. You see, GST has been something of a death blow to India’s circuitous pharma distribution set-up. Already, around two-thirds of small pharma distributors have shut shop.
The pharmaceutical supply chain in India is chaotic at best. Consider this: A handful of players control the entire chain in the US. In India? It takes 80,000 distributors along with over 8,00,000 retailers. The relay starts at the drug manufacturer with Carrying and Forwarding Agents (C&Fs) who operate within a state and under its tax regime. They ensure the drugs reach the thousands of distributors for a service charge from pharma companies, who have corporate offices in metros. From here, without any organised or expected pattern, distributors supply semi-wholesalers who, in turn, sell to pharmacies spread across the country.
It’s a complicated process, and it comes with significant drawbacks. Medicines being inaccessible in certain geographies or expiring. Problems costly to both life and business. “Why is Lux soap available everywhere in the country but paracetamol or life-saving drugs are not? Why do Rs 3,000 crore ($414.4 million) of medicines expire each year in warehouses?” Kumar indicates that the circuitous, unorganised system is to blame.
Enter, GST.
GST, a ‘one nation-one tax’ system, has drastically altered the Indian pharmaceutical distribution landscape. With the removal of state-level taxes, the valuation of traditional drug distribution businesses has been slashed by a third on account of competition from distributors in other states as well as far-flung warehouses now being in less demand.
This would never have been possible before GST, with state-level taxes ensuring that local distributors would always have a significant pricing advantage. By breaking down tax borders, GST also did away with the need for many middlemen. In addition, it effectively legitimised online pharmacies, thereby simplifying the supply chain.
The growing demand for services like Medibox is an example of this. Sure, the 700-odd distributors using Medibox’s e-distribution platform are a small drop in the ocean of India’s 80,000 drug distributors. But they represent the start of a change.
