Medicine prices in India are set to go up by 1-2 per cent as the National Pharmaceutical Pricing Authority has decided to permit companies to factor in the rising packaging and processing costs into the retail price.

The panel will notify the revised three costs -- for conversion, packaging and packing material -- shortly. The norms were finalised last week after a six-month-long analysis of the market.

The average input cost escalation will be around 10 per cent, sources say. Since the three costs together account for about 20 per cent of the production cost, a 10 per cent increase will result in 1-2 per cent rise in the retail price, they say.

The prices of all medicines under direct price control -- over 25 per cent of the Rs 35,000-crore domestic market -- will undergo this cost revision. Since rules disallow companies from raising the prices of controlled medicines beyond 10 per cent a year, the revision of the three costs will help them cover the input cost escalation in that particular segment.

The cost revision, an annual exercise, is carried out after collecting data from a section of drug manufacturers. The NPPA had, on December 31, 2007, written to drug companies seeking information on these three costs.

The panel recently increased prices of over 100 medicines to help companies set off the rising cost of raw materials.