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Nothing to stop manufacturer from overpricing goods: panel

Nothing to stop manufacturer from overpricing goods: panel
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First Published: Fri, Nov 07 2008. 12 31 AM IST

Marked up: Packaged goods on display at a Subhiksha store in New Delhi. There is no system in place to ensure that a manufacturer does not exaggerate the MRP, an expert committee has said in its repor
Marked up: Packaged goods on display at a Subhiksha store in New Delhi. There is no system in place to ensure that a manufacturer does not exaggerate the MRP, an expert committee has said in its repor
Updated: Fri, Nov 07 2008. 12 31 AM IST
Kochi: There is some bad news for consumers. An expert committee says there’s nothing to prevent a manufacturer of packaged commodities from inflating the costs and margins in the printed maximum retail price, or MRP, and over-charging consumers.
It is illegal to charge a customer more than the MRP printed on a packaged product, although customers have the option of bargaining for a lower price. But there’s no system in place to ensure that a manufacturer hasn’t exaggerated the MRP itself, the committee said in its report.
“Often to the uneducated consumers, the MRP may actually be misinterpreted as the regular sale price and the mechanism can, in fact, serve as a tool to earn abnormal profits,” said the report. “It will, therefore, be erroneous to assume that a mere requirement of declaration of MRP will protect the interest of the consumers.”
Marked up: Packaged goods on display at a Subhiksha store in New Delhi. There is no system in place to ensure that a manufacturer does not exaggerate the MRP, an expert committee has said in its report. Harikrishna Katragadda / Mint
The 13-member committee, which submitted its report to the government last month, was formed in August 2007 by the Department of Consumer Affairs and headed by M. Govinda Rao, director of the New Delhi-based National Institute of Public Finance and Policy. It was set up to review and suggest the best method of declaring the retail sale price of packaged commodities following a January 2007 directive from the Kerala high court.
“If the MRP is allowed to be inflated, then why do we need MRP? Let it be the rule of jungle,” said Arun Saxena, president of the International Consumer Rights Protection Council. “MRP was introduced for safety of consumers (to prevent them) from being cheated by companies charging higher price. But when there is no upper ceiling for MRP it’s useless.”
The panel said only the market’s evolution could provide a lasting solution to the problem. “Measures should be taken to prevent cartelization and ensure broader and deeper penetration of the markets,” the report said. “This would involve creation and strengthening of the regulatory system for market development, supervision and mentoring.”
Significant variations in market conditions, patterns of trade, transportation costs and taxes on various commodities and in different regions, would make a single “normative price” for the entire country impracticable, the committee also said.
Still, the amended Central Excise Act of 1997 provides that in respect of certain notified commodities, the excise duty is charged based on the MRP declared. This provides an automatic disincentive to declare a high price.
The introduction of value-added tax, or VAT, has harmonized the tax rates of different states and this also obviates the need to increase the declared MRP on the basis of the highest tax rate. The proposed Goods and Services Tax in 2010 will significantly reduce the reason for inter-state variation in the tax rates and then it may be necessary to review the practice of printing the MRP altogether, the report notes.
The review committee was set up following a petition filed by N.L. George, president of the Kochi-based National Foundation for Consumer Awareness and Studies, challenging the system of arriving at the MRP.
The petition argued that the procedure was different for the same commodity manufactured by different people and companies, and also asked the court to mandate printing of the ex-factory price of the product on the packages, in addition to the MRP.
In most market economies, the retail price is displayed by the retailer more as a competitive market practice rather than as a matter of regulation. In advanced economies, competition bureaus promote competitive markets. Excessive profiteering through cartelization by the producers or sellers invites severe penalties, the report said.
“As in developed market economies, the Competition Commission is the appropriate institution to undertake this task and the commission should be empowered not only to provide the necessary incentives, but also to penalize errant behaviour to ensure that the interests of the consumers are adequately protected,” the report said. “This, however, may happen only in the long run.”
In 1993, representations were made by different consumer organizations claiming the MRP declared by manufacturers on packaged goods were often on the higher side and that the provision was used for profiteering instead of protecting the consumer’s interests.
The following year, a committee was formed to resolve the issue, but it failed to reach a consensus and left it to the government to decide. The government, however, retained the practice of declaring the retail sale price in the form of MRP inclusive of all taxes.
A significant proportion of the goods consumed by the majority of residents of India is not subject to any price regulation. Foodgrains, pulses, vegetables and fruits are by and large not packaged, except in large stores where competition forces the seller to declare the retail price, the report said.
Vijaya Rathore contributed to this story.
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First Published: Fri, Nov 07 2008. 12 31 AM IST