With retailers staying cautious in building up inventories of drugs, chemists and stockists of pharmaceutical products reported a fall in transactions after the goods and services tax (GST) took effect on 1 July, according to a pan-India survey conducted by global healthcare information provider QuintilesIMS.
For this survey, QuintilesIMS interviewed 350 stockists and 149 chemists to study the impact of GST on the pharma supply chain. 90% of the stockists said their sales to chemists had declined post-GST.
Of the total, 34% stockists said the fall in sales was up to 10%, while 9% stockists said the decline was over 40%.
In transition to GST, retailers were trying to clear their stocks, which is why stockists saw an impact on their business. Overall inventory building at stockist as well as the retail level remained subdued, Prem Sethi, director, new offerings development and product management at QuintilesIMS, said.
According to the market research unit of the All India Organisation of Chemists and Druggists (AIOCD), distributors or stockists were holding 28 days of inventories as of 7 August, which is higher than 17 days as of June-end but still lower than average inventory of 40 days at the end of May.
Ahead of the debut of GST on 1 July, medicine distributors had reduced stocks to avoid potential losses. Under GST, most medicines are taxed at 12%, while life-saving drugs, including insulin, are taxed at 5%.
On the pre-GST stock, distributors can avail of 100% credit on Cenvat (central value added tax) if they possess a central excise invoice issued by the manufacturer, importer, super-stockist or carrying and forwarding (C&F) agent. In case they do not have an excise invoice, then credit can be availed of only on 40% of the central GST, which could lead to losses.
The de-stocking in the trade channel ahead of GST impacted India business growth of most pharmaceutical companies in the quarter ended June.
The Indian pharmaceutical market contracted 2.4% on year to Rs9,280 crore in July due to operational issues faced by the industry for GST implementation, as per data from the market research unit of AIOCD. The market showed modest improvement in August, registering on-year growth of 2.4% to Rs10,317 crore.
According to QuintilesIMS survey, stockists and chemists believe teething troubles on GST implementation will end in one to three months. Already 97% of stockists and 61% of chemists have upgraded their software in accordance with GST policy and the remaining are likely to do so in up to three months.
On the whole GST is expected to bring in operational efficiency in the supply chain as inter-state transactions will become tax-neutral and companies may no longer need state-wise carrying and forwarding agents but stockists and chemists have not seen such efficiencies playing out so far, as per the survey.