1. Price regulation: Why mandating MRP for one product across country will hurt all concerned

Price regulation: Why mandating MRP for one product across country will hurt all concerned

Mandating one MRP for one product across the country will hurt both retailers and the consumers.

By: | Published: July 1, 2017 8:21 AM
But what the government seems to have ignored with this is that some retail outlets incur higher costs than others even though they could be selling the same product.

The government seems to have developed a taste for price regulation. Hardly had the controversy over the price capping in pharma/medical devices died down that it announced that across many product classes, the MRP of a product can’t vary—no matter where the product is being retailed, whether in a mall or an airport or in a kirana store. The directive will come into effect from January 1, 2018, after relevant changes are made to the Packaged Commodities Rules, 2011. It is all very fine to want that consumers be subject to the same price for the same good across retail outlets.

But what the government seems to have ignored with this is that some retail outlets incur higher costs than others even though they could be selling the same product. For instance, to sell a soft drink at the mall—where the rent is higher than for a kirana shop which, in turn, would have higher establishment costs than a refreshments-cart—at the same price as in a standalone store would mean that the retailer incurs much higher costs.

Factor in, say, the difference in electricity tariffs or the logistics cost between different geographies, and the reason why MRPs should be allowed to vary is clear. Further, most daily-use commodities like grains, fruit and vegetables are retailed without packaging or are available for both packaged and non-packaged retail. Why have the packaged version be subject to price-caps while there is no such cap for the “loose” sales?

Besides, with different establishments being regulated under different laws, the order is likely to create more confusion than ease. As per a report in The Economic Times, restaurant-owners under the aegis of National Restaurant Association of India have already claimed that since they are regulated under rules for service suppliers, should not be subject to this. Unlike India, most nations don’t follow an MRP system. And it is not just the retailer end that is likely to be impacted by the order. Consumers will also suffer—given higher logistics and establishments costs in remote areas, it is likely retailers will not stock goods whose stocking costs are higher than the MRP.

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