India News and Features Alliance (INFA) - The MRP Scandal:CONSUMERS TAKEN FOR A RIDE, by Dr.Vinod Mehta,20 September 2007

There are certain things which the Government starts in good faith, at a certain point of time depending upon a given situation but does not know what to do with it when it has outlived its utility. One such thing is the “maximum retail price” requirement or MRP in short.

During the seventies when there were severe shortages of essential commodities and prices were skyrocketing, a notification was issued that all the packaged goods would carry the MRP tag so that the skyrocketing prices could be arrested. Apart from essential commodities like edible oil, sugar etc., all other not-so-essential items like soap bars, hair oils, shampoos, biscuits, chocolates, shoes, shirts, jeans, music systems etc. were also covered by this notification.

For quite a number of years it served the purpose well. But one thing, which everybody missed, was that the MRP was always set higher than what was warranted; and it continues to be so even today.

However, in the past 15 years the supply position of many non-farm goods has completely changed for the better. The end of license raj has enabled the country to create adequate production capacities for a large number of goods, both fast moving consumer goods like soaps and shampoos and durable consumer goods like TVs, refrigerators, cameras etc.

Moreover, the liberal import policies have helped bring in many consumer goods to India, which in turn has improved the availability of a large number of consumer goods. In fact, the competition for selling goods has become so intense as also the pressure for prices to move downwards which has made the MRP requirement redundant for a number of goods.

Take for instance a packet of potato wafers with a MRP of Rs.20. An individual store will sell it for Rs.20 only. But our supermarkets are full of advertisements saying, “buy one get one free.” It means that one can buy two packets of potato wafers for Rs.20 or at Rs.10 each. It also means that by selling a packet of potato wafers for an effective price of Rs.10 the seller is still making profit. Questionably, why then should the MRP be Rs. 20 when the effective market price is Rs.10? On which the seller is still making a profit?

This is true of a large number of products like shirts, trousers, shampoos, biscuits and so on. If a seller sells a shirt for Rs.800 and is willing to give one free then why force the consumer to buy two shirts under the garb of “buy one get one free” when the effective price of one shirt is Rs.400 only?

Under the MRP garb sellers are resorting to many other gimmicks. Camera sellers are happy to sell you a digital camera at a MRP of Rs.10,000 with a free gift of a pen drive worth Rs. 2,000. The question is why not sell the camera for Rs.8,000 which appears to be the effective market price? Similarly, if you buy a colour TV you get a DVD player free; why not sell the TV and DVD players as separate items at effective market prices?

The ridiculous part of the whole thing is that even goods like shoes, jeans, watches etc. carrying foreign brand names and bought generally by rich people are also supposed to carry the MRP tag. If a person can buy a pair of foreign branded shoes for Rs.2,500 he can very well pay Rs.5,000 or even Rs.10,000 for a similar pair. What does a MRP mean to that person? What kind of a person are we protecting from the price rise?

The point is that there is a downward pressure on the prices of a large number of manufactured products but this MRP tag, which has a large built-in profit margin is keeping the prices at unsustainable higher levels. The intense competition and large production capacities will ensure low and competitive prices without the MRP tag. In fact, the prices will find their market level which will be more realistic than the one indicated by the MRP tag. Clearly, the MRP is no more relevant now.

Look at it from another angle. Have you ever come across a MRP for farm produce? One can never have a MRP for farm produce; it fluctuates from region to region and from season to season depending upon the demand and supply situation. The Government can intervene in the market by way of a minimum support price or subsidies to make available grain to poor people at reasonable prices which is not the same thing as a MRP.

A large number of products like mithai which sells loose and by weight by individual shops never carries a MRP tag but their prices at these shops are more or less the same. The reason is competition. It puts the pressure on the shop owners to keep their prices competitive otherwise similar products with higher prices will not sell. There are a large number of other products like biscuits, detergent powder, pickles etc, which are sold loose and by weight and they never carry a MRP tag and yet the prices have remained relatively stable and below the MRP tag over the years.

Therefore, except for a few sensitive essential packaged products like cooking oil, sugar, pulses etc, the MRP requirement can be done away with without any fear of price rise. We have entered the era of price wars where the sellers are willing to increase their profits by selling large volumes rather than selling less at a very high profit as was the case in the seventies. In the current scenario producers who are not willing to sell volumes at relatively low margins will not survive in the competitive environment.

To begin with the manufactured products, instead of a MRP, may carry the ex-factory price tag plus the excise duty paid on it to give a fair idea of the price charged by the seller. This tag can also be discarded after two to three years. Similarly, the imported manufactured goods must carry the landed price of the good plus the customs duty paid on it which will provide a fair idea to the consumer about the final price charged by the seller in India. The other requirements like date of manufacture and expiry date on packaged food items produced in the country as well as imported must continue.

In most countries there is no requirement of a MRP for packaged manufactured products yet the prices are stable. The individual shops/supermarkets display their own price labels, which may vary from shop to shop by small margins. These shops/supermarkets also resort to “buy one get one free” gimmicks but for those products which they have either not been able to sell or where the expiry date has come close. However, the clearance is not on an artificially fixed higher price but on the already labelled price which is known to the consumer.

In short, one can say that the time has come to do away with the MRP requirement as it is only serving the purpose of keeping prices high at a time and in a situation where there is a downward pressure on prices of manufactured products. The price wars will keep the prices under check. The only thing is to keep a watchful eye on price cartels, which will be the task of the Competition Commission of India. ----INFA