ITS HIGH TIME THAT INDIA SHOULD DO AWAY WITH MRP

 

India is the only country in the world presently that follows Maximum Retail Price (MRP).  Standing out of the crowd does have its advantage in certain aspects, but this should not come at the cost of economic growth and development. Following the practice of MRP is one such uniqueness that India should do away with it quickly.

The Origin Of MRP

Maximum Retail Price (MRP) was introduced in India in 1990 by the Ministry of Civil Supplies, Department of Legal Metrology through an amendment to the Standards of Weights and Measures (Packaged Commodities Rules) Act 1976.  Before introducing MRP, if Retail Prices were printed on the goods, the retailer could charge more than the locally applicable taxes. Retailers could also hoard the commodities to reduce the supply and increase the price of the goods. To stop these unfair practices to generate more profits, Maximum Retail Price was introduced.

The Problems with MRP

When it was introduced, MRP was of great help in protecting the consumer's rights and ensuring that an appropriate amount was charged for the good. However, it must be noted that MRP is only applicable to packaged goods only. If in case the packaged item is opened and sold, any amount could be charged for that, e.g., a bottle was water is sold for Rs.20, but when it is opened, and a glass of water filled by that bottle, the glass could be sold at any price.  Services, Non- packaged essential items, and packaged items in cinemas, hotels, airports, flights and tourist locations are often sold for more than MRP. Hence, MRP is not followed religiously everywhere in the country, and there are loopholes or flaws in the system.

The major drawback for MRP is that it does not consider the value-adding service or the convenience the retailer provides. The retailer gives cooling services on beverages and milk products or adds comfort by providing goods near to homes, but no extra price could be charged for these services. Like for a chilled bottle of water whose MRP is Rs 20, it cannot charge Rs 25, Rs.5 extra for the cooling services.

In India, where there are very remote areas with poor connectivity and accessibility, the retailer does not get any advantage of providing goods in these far-off locations. This results in reduced profits and discourages the retailers. The only exception to this case is the Andaman Islands, where everything must be airlifted from the Indian mainland, and hence commodities are sold for more than the MRP. Thus at least the retailers cover their transportation cost and get rewarded for their convenience.

MRP is also fundamentally against the concept of a Free Market and Capitalist Economy as it limits the price at which the commodity could be sold. India, which wants to grow and develop as a Capitalist Nation, is going against the fundamentals by controlling the price through MRP. Commenting on MRP and India's stance on it, Kunal Shah, the Founder, and CEO of Cred, in one of his interviews, said that "India is playing the game of Capitalism, with the blood of Socialism." He said the on one side, India wants capitalists to invest and grow in the country. On another side, the socialist approach of the policymakers hampers the playing field for the capitalists. The MRP hinders the process of profit-making. The point is wealthy enough and does not mind paying extra for the convenience or the additional service provided should be charged more. There will be options for the poor or the budgeted class to buy commodities at a lesser price. Just as our taxes are more for the richer, the prices should also be more for the richer. Even foreign multinationals doubt the efficacy of MRP. Companies like Decathlon, H&M, Adidas, Nike, etc., are exempted from printing MRP on every product. These companies enjoy the advantage, but the MSMEs and multi-brand retailers still are subject to the law.

MRP is also not consistent. As soon as the packaged food is opened and its contents are sold openly, any price could be charged for that. The MRP becomes irrelevant. Also, in 2017, an amendment was passed in the law. Hotels, Restaurants, Cinema Halls, Flights, Airports, and even Tourists Spots have the privilege of selling items more than MRP in the name of service or convenience offered. That itself implements MRP, a debatable topic.

In cases like fire-crackers and automotive parts, the manufacturers set extraordinarily high MRPs than their costs. After that, these items are sold at huge discounts, in some cases even at 90% off on MRP. This discount varies from place to place and time to time, and hence the concept of MRP is lost.

Market without MRP

Without MRP, many of the complications mentioned above would be solved. The people favoring the MRP system are always concerned that if MRP is removed, retailers could charge as much price as they want, and low-income groups will have to bear the brunt. This will not be the case as the manufacturers, instead of Maximum Retail Price (MRP), can print a Suggested Retail Price (SRP) or Recommended Retail Price (RRP), which will be inclusive of the cost taxes, and his profits. This will not be the final selling price, and the retailer could charge more for the service or convenience offered. Also, the retailers would not be able to capture extraordinarily as the forces of demand and supply and surrounding competition would make the prices competitive. The laws of economics will start functioning, and things would be available at many prices according to the incomes and the convenience of the buyers.

Removing MRP will also help improve the Ease of Doing Business Index of the country, as many companies have listed it as one of the hurdles when they plan to start operations in India.

Also, people who oppose the removal of MRP say that the government would have to invest more in infrastructure or mechanisms that would inform the buyers about the correct prices. The counter-argument for this is that nowadays, Internet and Digital Platforms are more than sufficient to educate the consumers. Buyers can check the different prices for the item they want and make an informed decision.

India is the only country left to do away with the practice of MRP. It can learn from developed countries how to remove it and make a smooth transition. It no longer benefits India in continuing with MRP. Doing away with it will help get more capital investments from abroad and domestic investors, especially in the retail sector.

 About the Writer

Ashwik Sharma                                                                        Pursuing PGDM at IMT Hyderabad.

An Automobile enthusiast and Cricket fanatic, intending to make a career in Finance explain the reasons why MRP should be done away with.