INDIA’S MRP (maximum retail price) PROBLEM: Why will it never be solved?

Hi, I am Gunjan and in this article, we will discuss the Maximum Retail Price or MRP in India. We will focus on deciphering the misuse/abuse of MRP by the value chain entities which includes, manufacturers, retailers, distributors and E-commerce players. We will talk about why India needs a better framework and what can be the key elements that can safeguard consumer interest.

Below is the simple image to understand why MRP is the final price and No Tax or any other expenses to be paid on MRP.

Maximum Retail Price or MRP explaination

Major Problems with Maximum Retail Price (MRP):

1. Loose items such as fruits, milk, flour, grain, pulses, etc. have no MRP. 

   1. In India, 70% of the population lives in rural geographies and mostly they buy unpackaged goods with no MRP.  

   2. These prices fluctuate every day and it is difficult to track them effectively.

   3. In urban geographies, due to high competition at play, the prices get corrected as per fair value. 

   4. In rural or remote areas where the market dynamics are not open and competition is limited, cartelization of traders may lead to the exploitation of the masses. Government & administration have a big role to play here by ensuring correct pricing. 

      
      

2. Overcharging on MRP. 

   1. Overcharging can be unapologetically blunt by a retailer. They may simply say, that’s the price I charge. Take it or leave it.

   2. While there are a few glib traders who overcharge by including service charges or taxes. Many times while buying multiple things, we forget to add MRPs and that’s how it works. 

   3. As a consumer, we need to become enlightened & empowered. 

      
      

3. Legally Inflated MRP by the manufacturer to enable profiteering. 

   1. Inflated MRP is seen either in special channels (e.g. price of Pepsi in Domino’s, goods at the Airport, etc.) or for less familiar commodities where market competition is low (e.g. replacement parts of a car or speciality chemicals for waterproofing). 

   2. In a legally inflated MRP, companies or channel partners make massive profits by monopolising a channel or product. 

   3. Currently, the end-user of this exploitation is the middle class, hence government is least concerned about intervening. Also, higher prices mean higher taxes which is beneficial for the exchequer of the country. 

      
      

4. Artificial discounting on MRP. 

   1. This phenomenon started mostly for promotional purposes by e-commerce and modern trade giants.

   2. Here a product of 100 Rs. (fair market price) has an MRP of 200 Rs. which is being sold at a 40% discount, at 120 Rs. So a customer who has actually paid 20% higher feels lucky that he/she got the goods at a 40% discount. 

   3. An average Joe/Jane doesn’t understand nor does he/she have a way to know if he/she is being exploited. 

   4. One of the positive things in India is how major players in the consumer product category maintained competitive pricing. Hence always compare pricing with an industry-standard product. E.g. If you are buying Milk, just check the difference between Amul’s product and the brand you are buying.    

   5. Government should ensure fake promotions and artificial discounting are contained and not to be utilized for fooling consumers. 

      
      

5. Service-based work has no pricing structure. 

   1. From fixing a water tap to connecting an LED light to advocating a court case, there is absolutely no benchmark of price. 

   2. Most customers have zero idea about the cost of such services and there are high chances of getting duped in such a scenario.

   3. Just like a rate card for taxis, the government should publish a fair-service rate card for professional jobs. Although service is a personal thing and involves a lot more than a transaction, such rates cannot be enforced but fair-rate visibility will empower the consumers to make an informed decision.  

Why do tighter measurements won’t work?

1. Death to Capitalism:

   1. Tighter price control leads to an anti-capitalist mindset and will lead to businesses not investing. It will adversely impact businesses which are operating at low margins due to high cost of marketing or other expenses which a standard price may not be able to put in perspective. 

   2. Also, it will impact FDI in the country and overall economic and manufacturing growth. 

1. Corruption:

   1. Increasing control on pricing leads to corruption and decreases the level playing field for smaller players in the market due to harassment by the administration.    

   2. It may bring back the license Raj sentiment among the business community and adversely impact the economy of the country.

1. Black money:

   1. By expanding the fair-price regime to the service sector, under-reporting of consultancy fees will proliferate which is already at a high level right now. By controlling it more, a parallel economy will flourish. 

Things that can be done with no major impact on the economy:

1. Increasing the standard of products (BIS/FSSAI) in major consumer categories will ensure consumers are not being served sub-standard products. 

2. Deep discounting by E-comm and Modern Trade is to be controlled by discussion with the industry players. Also, the profligation of private labels (by ecomms & MT channel) to be controlled and ensure the marketplace model remains competitive for SMEs. 

3. Create a marketplace for gig workers and professionals which will ensure improved service cost communication to the masses. 

4. Improve awareness of consumers and, access to consumer protection forums to be made easy and fast. The current state of consumer protection is under capacity with poor infrastructure facilities. Modernization of the reporting platform will empower consumers.  

Let me know what you think about India’s MRP conundrum. Also, put your suggestions in the comments.

Author: Gunjan Solanki 

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