Trade margins are being suggested by DPCO and hence almost everybody in industry is following the same practice. This leads to almost 16%-20% margin on MRP for a pharmacist and 10% margin for stockist or distributors in this chain. In other words when MRP is Rs. 100 actual realisation price for company becomes Rs. 72 and overall margin Rs. 28 is given from MRP to middlemen!
Secondly, the manufacturing companies are licensed in each state in such a way that there is over capacity to manufacture medicines in India. Contract manufacturing wave has further taken ride and has saved the manufacturing cost, manufacturing charges which are also stipulated as per DPCO is the earning of contract manufacturers.
This overcapacity has rendered support to so many manufacturers or marketers who manufacture their products with these contract manufacturers. As a result we have plethora of generics available.
Recently Competition Commission of India released POLICY NOTE for affordable healthcare and mentions the first issue of high trade margins.
Considering this context, the policy note is talking about the trade margins stipulated by law or as a result of increased availability and high competition that those small manufacturers are offering high margins beyond stipulation on MRP.
To improve direct sale, generic manufacturers offer more margins to push their products. These trade margins have been very well exploited.