C P CHANDRASEKHAR^ PRABIR PURKAYASTHA^ Transfer Pricing in the Indian Drug Industry: An Estimate and its Implications GIVEN the lack of any significant development of indigenous technical capability during the colonial period, post-war industrialization in India had inevitably to rely on forgeign know-how and technology. Indian entrepreneurs found that, even to exploit the domestic market, now open to them as a result of the protectionist ^ policy of the newly -independent state, they had to obtain much of the required technology from producers in the developed world. Hence, despite its apparent hostility to foreign capital and technology, the government had to pursue a policy of permitting the import of technology wherever required. In course of time, encouraged by the profitability of producing for a luxury market, attuned to the consumption patterns and brand names prevalent in the developed capitalistic world, domestic entrepreneurs insisted on the pursuit of a more liberal policy towards foreign investment and technology. Ad hoc responses to 'such pressures, often necessitated by foreign exchange difficulties, resulted in a gradual process of liberalization. The earlier hostility towards foreign capital gave way to a policy which did not attempt to control either the extent or nature of capital and technology imports, but merely specified the conditions'under which such imports could be made. These conditions included, inter alia, collaboration with a domestic producer, dilution of the extent of equity holding, payment of high taxes on royalties and dividends earned and the acceptance of ceilings on profit repatriation, and controls on prices and production. It hardly bears stating that the reliance on foreign capital and technology had as its corollary a drain of surplus from the country. And the imposition of controls on foreign companies, we shall argue, by no means reduced this drain. The trend towards the liberalization of policies with regard to foreign capital suited the needs of those international companies which were the technological leaders in their field. Many of these *Centre for Economic Studies and Planning, Jewaharlal Nehru University, New Delhi **National Thermal Power Corporation, New Delhi « " »