(This was written in August 2015 but as usual not published by any media.
So, presented for the benefit of larger public )
The other day, I was in a shopping mall to
purchase my monthly groceries. Almost every item viz., cooking oil, rice, wheat
flour, biscuits, toiletries, etc., was
available on a discount ranging from 5 per cent to 30 percent to the MRP
(Maximum Retail Price) printed on the
products. After finishing my purchases,
I returned home. Next day, I happened to
go to the local provision store located just opposite our house to buy a few
packets of milk. As I was waiting for my turn to get my milk packets, I saw the
owner of the grocery shop selling a packet of refined sunflower oil to a
customer who looked pretty rustic , may be a daily wage labourer. He mentioned to the customer that he was
offering a discount of Rs.15/- and so he
need to pay only Rs.110/- as against Rs.125/- MRP printed on the product. The
customer seemed very much satisfied and moved off with the product
purchased. On seeing this, I was a bit
dump-founded. Only the previous day, I
purchased the same product from the shopping mall for a discount of Rs.40/- and just paid Rs.85/- as against the
MRP of Rs.125/-[1]. Whether
the use of MRP is working against
such vulnerable customers who are unable to visit malls to buy only a few items
they need from time to time as they live
on daily cash coming in their hands and so forcibly depend on local kirana
stores or provision stores and pay more than the price paid by other sections of the society who can afford
such visits to the malls, is the question haunting my thoughts ever since this
incident. On a quick talk engaged with
the shop owner, I found that the maximum
footfalls in his shop was from such customers who come on cash and carry
terms. So, I became more confused. Whether MRP is rather helping the kirana
stores/ local provision stores to enjoy much higher margin on various products
which they earn from such resource poor customers than the shopping
malls which depend on high volume and cross subsidization of various products
being bought by a large number of
customers is the second question that crossed my thoughts. I think I may not be the only guy who had
undergone such experiences to share with.
So,
I googled to get a bit more on MRP. Here are some thoughts presented by experts and committees in the
form of recommendations and observations on MRP.
The
MRP is the outcome of the extant provision of the Standards of
Weights and Measures (Packaged Commodities) Rules, 1977 that provides that
every package intended for retail sale is required to have certain mandatory
declarations, namely i) the name and address of manufacturer/packer/importer,
ii) name of the commodity, iii) the net quantity , iv) the month and year of
manufacture / packing / import and v) the retail sale price in the form
“Maximum Retail Price Rs.. inclusive of
all taxes” and vi) Consumer care cell details. Perhaps the then policy makers would have
mandated printing of MRP on all packaged
products with a very noble intention of helping a resource poor consumer
who was unable to discover the price of the product he/ she would be buying due
to market imperfections and information asymmetry between the consumer and the seller. To some
extent, the aspect of price discovery of a product was addressed by corporate
like ITC in India through their innovative business models of e-choupals. But,
such measures are limited to a few products in which the company has large
business stake.
In
2007, the Government of India had set up an Expert Committee[2] to
review and suggest best method of declaration of retail sale price on pre-packed commodities. It
observed that In 1993, representations were made by different consumer
organizations to the effect that quite often the maximum retail prices (MRP)
declared by manufacturers on packaged goods
were on a higher side and that the provision was used for profiteering
instead of protecting the interests of the consumer. They represented that there was a need to
prevent this and that the measure should not provide an opportunity for the
wholesalers and retailers to exploit the consumer and make abnormal profits. It also observed that, ‘as regards international
practices, only Sri Lanka besides India
has mandated the declaration of MRP. The
requirement is not found in any other country. In Pakistan Malaysia
Among
various suggestions made by the Committee, one was declaring what is called a
‘normative price’ in addition to the MRP by the manufacturers of packed
products. Another suggestion was to indicate the ‘First
Point Price (FPP)’. The FPP is defined as the first sale price at which the
manufacturer/importer sells a commodity. Both
the suggestions were found to be
unfeasible for implementation and so not considered by the Expert Committee. It analysed the effect of Value Added
Tax (VAT) on reducing the rigour of MRP and observed that it will be an additional indirect check to ensure
that the MRP is not unduly inflated and it
would help sales tax authorities to undertake a detailed scrutiny of cases
where the final retail sale price is vastly different from the MRP. It also
looked at the effect of Goods and Services Tax (GST) which is still under consideration of the Parliament. It
opined that the issue should get substantially resolved when the GST replaces the prevailing Central and State
domestic trade taxes. As the tax becomes
fully destination based and the invoices are issued, it will be easy to find
the price on which the tax is paid and a higher invoice price will attract a
higher tax. At that stage, it may be
necessary to review the practice of printing the MRP altogether; instead, the
seller will have to print not the maximum
but the actual retail price,
though the transacted value may even be lower than this when a commodity or a
service is sold at a discount. It
concluded that the competition in the market should ensure protection to the consumer and greater consumer awareness about their
rights would help in empowering them.
I also stumbled upon a Gazette notification
No.45 of 2014[3] about
a Bill passed in the Parliament , ‘to
provide for printing of cost of production and maximum retail price of consumer
goods being sold in the market….’. Its
statement of Objects and Reasons
read as follows:
“It is generally seen that the prices of
consumer goods sold in the markets are determined arbitrarily by the manufacturers.
In this process, the manufacturers gain huge profit as the actual manufacturing
cost is very low. The consumers’ interests are compromised and they are
compelled to buy goods at much higher prices in comparison to actual
manufacturing cost of goods. Thus, consumers are subjected to economic
exploitation. For example, potato chips, drinking water, soft drinks,
automobiles, medicines, etc. are being sold at a price much higher than their
cost price. The manufacturers arbitrarily fix the price and the consumers are
compelled to purchase goods at higher costs. If it is made mandatory for the
manufacturers to print the actual cost of production of goods along with their
maximum retail price it will help to curb the greed of the manufacturers. Such
a measure will also help the consumers in making a decision regarding buying
the product. It is the duty of the Government to bring a legislation for
protecting the interests of consumers. In the wake of economic liberalisation,
it has become essential that the consumers are given the right to know the
actual manufacturing cost of the goods they are going to purchase. It is also
in the public interest to make commodities and goods available at fair prices
to consumers. The interests of consumers can be protected against the vice of
profiteering by making the goods and commodities available to them at a
reasonable price. Hence this Bill”.
But,
it appears that the above Act has not been enforced in any part of the
country. In the recent past, we
have witnessed exponential growth of online marketing/ trading business
popularly known as e-commerce. Though e-commerce
is increasing its penetration in the country, almost all business models lay their
bait in the form of discounts on
MRP to attract customers in buying the products available for purchase through
online platforms. So, there is need
for developing technology driven price
discovery mechanism for meeting the needs of all types of consumers. Of course, it is time the Government of India
also gave a serious thought to
protecting the vulnerable sections of
the consumers from the great myth called MRP.
There is some hope in passing of the GST Constitutional
Amendment Bill, 2014 by the Parliament
and enacting it at the earliest. And if it happens, consumers may stand to gain
to a large extent as arbitrary fixation of a price as MRP by manufacturers may
not be in their interest as they may end up paying more to the government by
way of taxes.
Till then,
the exploitation of vulnerable consumers would continue and the
inequality between the rich and the poor would increase.
Sometime in 1980s, the Readers’ Digest had published this
humour. At a supermarket, a lady had filled her cart in a hurry and had an
uneasy feeling that she did not have enough money to pay for all the goods. In
desperation, she emptied the cart on the floor, kneeling down, she began to add
up the prices. Just then, a young supervisor strolled over and whispered, ‘it
does not matter how much you pray, Sister, we are not reducing the prices.’
WITH exponential
growth of online marketing/trading business, undoubtedly, India has emerged as
the most sought after market for major foreign electronic goods manufacturers.
Most of the goods manufactured by such players are sold on Maximum Retail Price
(hereinafter 'MRP') basis. While importing these goods into India, additional
customs duty [counter vailing duty] is calculated and paid on the basis of MRP
so declared. This article analyses the new practice adopted by the Customs
Department wherein these goods are attempted to be assessed on transaction
value.
Source: http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=22821#cad
[1] In major cities like Hyderabad, Bengaluru etc., there is a
wholesale outlet called ‘Metro’ which offers higher discount on MRP than the
shopping malls like D-Mart, Reliance Fresh, Star Bazaar etc. However, no
individual can make purchases from ‘Metro’
as its membership is open only for a
registered organization such as a proprietorship or partnership firm
etc.
[2] https://www.google.co.in/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=Maximum+retail+price+rationale+and+government+of+India
