In olden days, noble kings would disguise themselves as commoners and go about visiting marketplaces and homes to check if the people were happy and not being cheated or persecuted in any way. This government appears keen to uphold this glorious tradition. It wants to make sure that rapacious merchants and manufacturers do not rip off consumers. Only that it’s unclear whether it’s doing people a good turn or unnecessarily doing a job that’s better left to market competition. The GST Council, the apex decision-making body on the goods and services tax, has decided to impose a hefty fine of 10% on any amount “profiteered" by manufacturers by not passing on benefits of input tax credits or lower tax rates to consumers.
Manufacturers must return the profiteered sum to customers within 30 days, or deposit the same in the Consumer Welfare Fund to avert the penalty, which was a flat ₹25,000 earlier. And how does the government plan to detect tax evasion and establish that consumers are being cheated? Tax officers will conduct mock purchases to zero in on businesses holding back benefits. In the absence of an unambiguous definition of what constitutes ‘profiteering’, the penalty can lead to arbitrary interpretations of the same and result in the harassment of businesses, hampering their operations at a time when the economy is undergoing a painful slowdown.
The very idea that private players must have their pricing subject to scrutiny goes against the principle of a free market. So long as a market has enough competition, in theory, companies should have no space to make supernormal profits by inflating prices, lest rivals take away their customers. If GST input credits are not being passed on to consumers, it suggests a failure of market competition; this would be for the Competition Commission of India (CCI) to probe.
Instead of asking the CCI to better track markets for monopolistic pricing, the government has extended the tenure of the National Anti-profiteering Authority by another two years. The stated objective is to deal with pending cases as well as new price complaints. By the sound of it, the government seems determined to put the pricing policies of private companies under its lens. If this goes on, it will amount to an admission that market forces cannot do the job. In which case, much of the country’s policy mix would have to be rethought.