Reform expectations from Union Budget 2017-18 in pharmaceutical e-commerce

Like beauty care, fashion, durables and many other vertical distribution sectors, pharma e-commerce distribution is also expected to produce strong vertical players.
Budget 2017

Indian pharmaceutical retailing is in a very interesting situation today. The tools to develop remarkable new solutions are materialising, in part, owing to the boom in e-commerce and the startup sector. Like beauty care, fashion, durables and many other vertical distribution sectors, pharma e-commerce distribution is also expected to produce strong vertical players due to both, the large size of opportunity and the unique challenges distribution poses for the sector.

Because e-commerce promises to bring a very large chunk of pharmacy into the organised sector, it is somewhat natural that the ‘burden of compliance’ lies on online pharmacies. However, given the benefits that online pharmacies promise for consumers, and also the government’s inclination towards stimulating the white economy, this budget has expectations for reform enabling large-scale pharmaceutical e-retailing.

Online pharmacy regulation is grappling with multiple problems. Two key issues come to mind:
Unorganised Regulatory Environment: The compliance regime of the average traditional pharmacy lacks customer prescription record management. In practice, adherence is mostly a function of the neighbourhood pharmacist’s familiarity with the customer. It is fairly obvious that this is not a scalable compliance regime, as it can be evidenced only through mystery shopping. On the flipside, the tradition of stringent data management in e-commerce implies regulation adherence is observed less subjective. This might imply having to turn down customer orders that the neighbourhood pharmacy may entertain, which can be a handicap on growth.

The e-commerce consumer: One of the hallmarks of an e-commerce retailing venture is great customer experience enabled by the use of technology. The average urban smartphone user now has options to order everything, from groceries to a buying car online; he expects similar convenience with pharmaceuticals. The adoption of technology in the unorganised sector has traditionally been limited to very rudimentary sourcing and inventory management systems and lately, ordering with your neighbourhood pharmacist on their personal Whatsapp number; practices such as smart inventory management and a tech-based order taking process are still alien. However, the law does not explicitly call out the use of such media at various stages of pharma retailing as legitimate. For example, one has to look at the IT Act to even verify that a photo of a prescription has the same legal value as a prescription presented physically in person at a pharmacy. There is a need for regulatory reform that recognises the realities of the present day consumer’s environment.

Budget 2017-18 is going to be unique in many ways. It is the first time ever that the Railway budget will be merged with the General Union Budget. Post demonetisation, it will also be very interesting to see how the government takes measures to boost digital transactions. GST is a great example of simplification of outdated regulation that opens up the economy for tremendous growth opportunities. It would be expected of this government to take steps towards similar bold, inclusive reform that is grounded in practical reality, and hand-hold different sections of the market towards a robust compliance regime.

The Jan Aushadhi Yojana is evidence that the government understands both, the challenges (viz. affordability for the poor) and the unique opportunity (viz. large generics market) in the Indian Pharma industry, from a consumer standpoint. In fact, the government has recognised the immense value that e-commerce can add to the consumer in this industry in its move to legitimise e-pharmacies operating on a traditional pharmacy license, recently.

Interestingly, as part of start-up India, the government already has taken steps to simplify compliance for startups. As per startup India action plan, startups can follow compliance regime of self-certification for certain labour and environment laws. What remains to be seen is whether this could work in pharma retailing, and if so, in what form.

This article has been authored by Nandit Pathak, Co-Founder, Aermed.

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