The Drugs and Cosmetics Act, 1940 (Act) is a Central Act and is applicable to the whole of India. This Act alongwith the other associated Acts and the rules made thereunder regulate the manufacture, sale, import, export and clinical research of drugs and cosmetics in India. While the parameters of control are devised by the Central Government, these are required to be actually implemented by the State Government. Dereliction occurs in the implementation of regulatory parameters especially in the areas of licensing, approval, monitoring, prosecution, inspection and recall of substandard/spurious drugs. This performance audit of implementation of Drugs and Cosmetics Act, 1940 in Punjab, for the period 1998-99 to 2002-03 revealed that the Act has not been implemented effectively in the state. The provisions of the Act regarding inspection of units, drawing/testing/reporting of samples, speedy and effective action against those manufacturing and marketing sub-standard/spurious drugs were not implemented strictly and meticulously. There was shortfall in conducting inspections of manufacturing units and action against drug offenders was inadequate. There was no co-ordination with other States/State Vigilance Authorities for tracking down the activities of drug offenders.