India has announced that medicines will be available free to everyone who needs them from October, and that 100 crore rupees (1 billion rupees, or around $17.5 million) has been received from the Planning Commission to finance the supply of free medicines for 2012-13.

The government will fund 75% of the costs of the scheme, which are expected to total 28,560 crore rupees over five years, say government spokesmen, who describe the initiative as "game-changing."

The Office of Prime Minister Manmohan Singh has asked the Health Ministry to set up a new central procurement agency for bulk drug-buying as quickly as possible, and individual states have been sent the 348-product 2011 National List of Essential Medicines for use as reference. The states, which will finance 25% of the programme, will also be required to establish their own essential drugs lists (EDL), based on their particular local needs.

About 5% of funding will be available for the purchase of drugs which are not included on the EDLs.

Currently, out-of-pocket spending accounts for 78% of India's total health expenditures, with medicines representing 72% of that total. Only 22% of the country's 1.17 billion population now receives healthcare from the public sector, but this percentage is expected to rise to 52% in 2017, by which time the free drugs programme will be supplying medicines from 160,000 sub-centres, 23,000 primary health centres, 5,000 community health centres and 640 district hospitals, according to Health Ministry estimates.

Under the programme, states will procure medicines through an open tender, directly from manufacturers and importers. Firms applying for the tenders will be required to have Good Manufacturing Practice (GMP) compliance certificates, no-conviction certificates and specified annual turnover, and the products they supply for the scheme must have "not for sale" printed on their packaging, say government officials.

Also, it will be made mandatory for all doctors working in the public sector to prescribe generics only.

The Planning Commission reported recently that drug prices in India rose 40% during 1996-2006, with those on the EDL increasing 15% and products whose prices are not centrally-controlled or supplied through EDLs soaring 137%. It also found that 47% of hospital patients in rural India finance their treatment through loans and sales of assets, with 31% patients in urban areas also doing so.  

Moreover, a study by the Public Health Foundation of India says that India's per capita out-of-pocket spending on healthcare rose from 41.83 rupees in 2005 to 68.63 rupees in 2010, and that during the period the percentage per capita spent on medicines increased from 29.7% to 46.8%. Households now spend 10% of their income on health care, it says.