The 1979 expand Drug Price Control Order (DPCO) classified drugs into four categories: I - life-saving, II - essential, III - less essential, and IV - non-essential/simple remedies. Each of these schedules had certain level of allowable mark-ups with the first three categories being price-controlled. The DPCO has undergone several modifications since then.

The 1986 DPCO, for instance, reduced the span of price-control of drugs from 347 to 166 drugs. It decreased the drugs under price control to two categories and increased the mark-up to 75 and 150 per cent. This in itself has resulted in price increases of drugs. The subsequent modifications to the DPCO 1986 carried out in 1995, has specified 76 bulk drugs under the first schedule to be price-controlled. The government fixes the maximum sale prices of these 76 bulk drugs keeping in view a maximum post-tax return of 14 per cent or a return of 22 per cent on the capital employed. For products from a basic stage, these returns are 18 and 26 per cent respectively. Formulations containing at least one of these 76 bulk drugs are to be allowed a maximum of 100 per cent post-manufacturing expenses. However if single-ingredient formulations of these 76 bulk drugs are made, then they are also subject to price-control. Small scale producers are not subject to price control. A margin of 16 percent on the retail price is to be allowed to retailers by manufacturers in case of scheduled formulations (that is formulations of the 76 drugs appearing in Schedule 1 of the DPCO, 1995).

The drug policy of 1995, inasmuch as it was a only a pricing policy, in general follows the trend set by the 1994 Drug Policy of less control and removal of industrial licensing for all but five drugs reserved for the public sector. Also some life-saving drugs like that of TB, leprosy, epilepsy and angina have been decontrolled. (Although it must be added that recently, that is early 1998, there have been attempts by the newly set up National Pharmaceutical Pricing Authority, NPPA, to compel reduction of prices of the anti-TB drug, rifampicin.) This kind of move is irrational as the government itself, the major purchaser of anti-TB and leprosy drugs, will be forced to find more resources for diseases that are already underbudgeted. Or alternatively, the government will have less money to fight these major killers.

The latest policy modifications of 1995 (see adjoining table on how price control has decreased over the years) continues to give incentives for the irrational and unessential formulations, while at the same time making vital essentials more expensive by removing them from price control. By decreasing price control, the government expects free market mechanisms will come into play, but in reality, it is not so. This is because in many of these essential bulk drugs, there are a few dominant producers who appear to be deciding prices collectively. And even unessential and irrational formulations that are out of price control will also become costlier. And have already become so.

Comparative Chart Summarising Price Control Scheme under various Drug Price Control Orders (DPCO)
		DPCO-1979	DPCO-1987	DPCO-1995
1.	No. of Drugs under under price control	347	142	76
2.	No. of categories under which the above drugs were categorised	3	2	1
3.	MAPE % allowed on normative/ National exfactory costs to meet Post-manufacturing expenses and to Provide for margin to the mfrs.
	Category I	40%	75%	100%
	Category II	55%	100%	N.A.
	Category III (Single ingredient Leader products)	100%	N.A.	N.A.
	Category III (others)	60%	N.A.	N.A
4.	% of Total Domestic pharma sales covered under Price-Control (Approx)	90%	70%	50%
N.A.= Not Applicable

The ultimate aim of drug production is, or ought to be, to make drugs affordable so that people can be healthy. Drug companies seem to forget this goal in their race to maximise profits. One course is to allow only a limited range (say 250-300 drugs) essential bulk drugs to be manufactured with definite profit ceilings and allow essential generic medicines to be made as per a graded essential drug list. Nothing else seems to be a sensible public policy in the matter. Bangladesh has implemented such a drug policy and drug prices in real terms have come down over the last 16 years.

Drugs need to be used scientifically and rationally to have the intended effect of removing a disease or an ailment. Leaving it to market mechanisms, or to the whims of private producers and medical practitioners, cannot guarantee, and has not, rational production and prescription of medicines. The pharmaceutical market needs to produce strictly what the disease pattern and disease behaviour warrants. This can happen only with active State intervention and the State's political will. Health itself needs State support for people to get well.

Today, essential drugs are in short supply. Prices of essential and unessentials have shot up by more than 300 percent in the period following liberalisation of Indian industry. More and more drugs have gone out of price control even as the Government has not shown consistent political will to come down heavily on those violating price control norms. Even the restrictions on equity holding of foreign drug companies have been done away with; several MNCs have ceased manufacturing operations in India even as they have sold their companies to Indian business groups.