MRP Fraud: Legalised Loot

 

“All your essential medicines, delivered with personalized care…. Enjoy up to 35% off on all your medicine orders” advertises one of the online e-pharma companies. This means, substantial discount is given on the printed price, which is called as maximum retail price ((MRP).  The e-pharma firm is able to extend such a hefty discount, as the firm would still make a substantial profit. More and more e-pharma firms are making their entry into this segment, as this segment is an ever growing cash cow.

 Maximum retail price (MRP) is a manufacturer calculated price that is the highest price that can be charged for a product sold in India and Bangladesh. However, retailers may choose to sell products for less than the MRP. MRP differs from systems using a recommended retail price because in those systems the price calculated by the manufacturer is only a recommendation, not enforceable by law.

 Maximum Retail Price = Product’s actual Cost + Profit Margin + CnF margin + Distributor Margin + Retailer Margin + GST + Transportation + other expenses etc.

The Ministry of Civil Supplies, Department of Legal Metrology, introduced the maximum retail price (MRP) that is printed on all packaged commodities that consumers purchase in 1990 by amending the Standards of Weights and Measures Act (Packaged Commodities' Rules) (1976). Its goal was to prevent tax evasion and safeguard consumers from store profiteering.

Presently, the prices of the consumer goods sold on the open market are usually set arbitrarily by the manufacturers. This freedom allows the manufacturers to benefit immensely as in most of the cases the manufacturing cost is quite low. Consumers are forced to buy items at exorbitantly high prices as the manufacturers unilaterally set the price. MRP was introduced in the pre-liberalized India to prevent tax evasion and to protect the consumers from profiteering by retailers. Before the amendment, manufacturers were allowed to print either the maximum retail price (inclusive of all taxes) or the retail price (local taxes extra). When the manufacturers opted for the latter provision, it was found that retailers often overcharged than the locally applicable taxes. Hence, the amendment was made to introduce the compulsory printing of MRP on all packaged commodities.

MRP is baseless, unfair and hurts badly the very consumers whom it is expected to protect. There are several anomalies in the MRP system. MRP applies only to packaged commodities and not to services. As many essential commodities are not packaged, they do not fall under MRP. Movie-theatres, high-end restaurants, airports, tourist locations etc, usually charge a unreasonable high price for the packaged items.

Consumers may be aware of the difference between the maximum retail price and the actual price of items. The maximum retail price includes all taxes, and a retailer is allowed to offer at a lower price than the MRP. MRP is not a real measure of the value of the product. Some informed consumers, who are aware of the MRP pricing and the actual price of the items, will search out for those outlets who sell below MRP (most often the super markets and online outlets) as the retailer can easily cut the margin built in to the MRP pricing model. The discrepancy between the selling price and the MRP can be as large as 30- 50% depending on the printed MRP.

To pass on the loot to the supply chain partners, manufacturers often print a MRP so ridiculously high, that the channel partners can make a substantial profit even if the product is sold up to 70% discounted price, thereby making mockery of the printed MRP. Now, the question is- MRP is legalized but is it legitimate?

MRP fraud and the legalized loot are going on in India for too long now. It is time the consumers, social activists and other spirited citizen groups take up the issue vigorously and bring an end to this archaic and arbitrary price fixing mechanism.

 

Dr. C K Sreedharan

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www.sreedharanck.com