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Economic analysis plays a pivotal role in the management of medical store. The main objectives of this study were to consider always better control-vital, essential and desirable (ABC-VED) analysis with economic order quantity (EOQ), comparison of indexed cost and the actual cost, and to assess the expenditure for the forthcoming years. Based on cost and criticality, a matrix of nine groups by combining ABC and VED analysis was formulated. Drug categories were narrowed down for prioritization to direct supervisory monitoring. The subgroups AE and AV of the categories category I and II should be ordered based on EOQ. The difference between the actual annual drug expenditure (ADE) and the derived indexed cost using the cost inflation index (CII) was calculated. Linear regression was used to assess the expenditure for the forth coming years. The total ADE for the financial year of 2010-2011 was Rs. 1,91,44,253 which was only 7.68% of annual hospital expenditure. Using the inflation index, the indexed cost of acquisition of ADE for year 2010-2011 was Rs. 1,95,10,387. The difference between the two was estimated to be 2.11%. Thus, the CII justifies the demand of increased budget for next year and prompts us for cautious use of drugs. By taking into consideration the ADE of last 10 years, we have forecasted the budget for forthcoming years which will help significantly for making policies according to the available budget.