TRANSFER PRICING 9 companies account for a substantial proportion of drug output, the pattern of drug production is such that is caters to the needs of a "small elite". An analysis of the production pattern in 1972 of 27 foreign subsidiaries showed that, of the formulations marketed by them, vitamins accounted for 16 per cent of the total value, expectorants and cough syrups for 3 per cent, analgesics and antipyretics 8 per cent, tranquilizers and sedatives 7 per cent and antihistamines 4 per cent.5 Such a pattern of durg production is by no means in keeping with the pattern of diseases in the country, where infectious and parasitic diseases and respiratory diseases are the major kinds of illnesses present. In the case of drugs required for these diseases, the installed capacity tends to be far less than the licensed capacity, and even the installed capacity is not utilized. Capacity utilization has been estimated at 12 per cent for anti-leprosy drugs, 14 per cent for triacetazone (an anti-tuberculosis drug) and 53 per cent in the case of insulin.6 On the other hand, capacity installed and production in areas like vitamins and tonics have exceeded licensed capacity, because the industry has successfully clamoured for the r egularization of excess capacities in these areas. Efficacy of Controls In the light of the above analysis of the operations of multinationals, what can we say about the efficacy of piecemeal measures of control like equity dilution under the Foreign Exchange Rugulation Act and the Drug Price Control Order (DPCO)? Such measures undoubtedly meet with hostile responses from the foreign sector in the industry, but they, in the final analysis, in no way serve to alleviate the effects of the multinationals' strategy on prices and the composi. tion of output. In fact, they only aggravate the distortions that already exist. To start with equity dilution, when the multinationals do accept dilution orders after protracted negotiations, the reduction in foreign share in equity is achieved through an issue of new share to the public and the subscribed capital invested in expansion of capacity. Since the multinationals would be interested in repatriating a share of the margin on additional sales of branded drugs, one can expect that they would in all probability resort to a greater degree - of transfer pricing in future. This in turn implies that manufacturing expenses would increase necessitating a greater reliance on the production and sale of "elite drugs" that can be sold at suitable prices. A similar effect can be expected from the implementation of the Drug Price Control Order, which, barring the case of a few bulk drugs, really controls the mark-up on costs. This would have encouraged a greater resort to transfer pricing and a diversification away from controlled areas. In fact, in the few cases where final product