Given the possibility of vendors charging more for certain items, especially in the guise of different local taxes—or when customers don’t know what the applicable tax rate is—it is understandable that the government came up with the concept of Maximum-Retail-Price (MRP)-based sales, so consumers know whether they are indeed paying the price the producer wants them to pay. The companies then take into account various taxes in different jurisdictions and print the MRP on the label—of course, there is a problem that, in places that are difficult to reach or are very far away, high transport costs could be a disincentive to stocking since a uniform MRP may not capture this. By and large, though, a MRP is a good idea, but the MRP cannot be mixed with the idea of government-imposed price caps, which is what seems to be happening.
Last week, the consumer affairs ministry issued a notification which said “if the Competent Authority under the Essential Commodities Act, 1955 (10 of 1955) fixed and notified the standard quantity of any essential commodity, the standard quantity of such essential commodities as fixed and notified shall prevail.” In other words, the government will decide what the pack size will be. According to a report in The Times of India, if any seller is caught selling loose items in violation of this, apart from a fine of R5,000, the entire stock of goods can be detained. Apart from the fact that policing of lakhs of retailers across the country is impossible, imagine the opportunity this throws up for harassment as retailers can be booked for selling loose tea or sugar—more important, what happens to millions of poorer customers who can only afford to buy products in very small quantities?
The notification goes on to say “if the retail sale price of any essential commodity is fixed and notified by the Competent Authority under the Essential Commodities Act, 1955 the same shall apply”. Based on this, the Times points out, various states are trying to fix the retail prices of pulses and other agriculture commodities. Given how prices rise and fall dramatically depending upon availability of such commodities—with two successive years of drought, pulses inflation started to climb to double-digits in February 2015 and rose to as much as 46.1% by November—it simply makes no sense to be fixing retail prices of farm produce. If, instead, the government focused on working towards augmenting production—this includes a more market-oriented policy including freeing up agricultural exports and developing a vibrant futures market—the impact on moderating inflation would be far greater.