Bar code: Will MRP rules curb inflated label prices?

Mint

16 hours ago

The Centre is looking to make pricing of retail goods more transparent and consumer-friendly through a potential overhaul of the maximum retail price (MRP) system, five people aware of the matter said.
The Union consumer affairs department has sounded out industry associations, consumer bodies and tax officials about the plan on 16 May, the people cited above said on the condition of anonymity. While the intention is to prevent manufacturers marking up retail prices steeply, some believe the proposal may erode pricing freedom.
Retail outlets are currently free to charge any amount up to the maximum printed on the label, and manufacturers do not need to justify how the MRP is arrived at. According to one of the five people mentioned above, the consumer affairs department is looking into whether there should be guidelines on linking MRP to the cost of making and marketing items including essential commodities, packaged goods, and daily use consumer products.
To be sure, the proposal is still in its early stage, and the date for the follow-up meeting is yet to be decided.
Price-setting
Under the Legal Metrology Act, 2009, the department of consumer affairs has the mandate to regulate weights, measures, and labels on packaged goods to ensure accuracy, transparency, and consumer protection. However, the Act does not empower the department to prescribe a pricing formula.
Responding to a question about setting MRP under the new regime, a second person said, 'The standard cost will be decided in consultation with all stakeholders. Industry and consumer groups have been asked to give their suggestions to fix the MRP in a way that is not deceptive. The proposal is meant for most of the consumer goods."
A ministry communication titled 'Hybrid meeting to discuss the declaration of exaggerated MRP on packaged commodities" said consumer affairs secretary Nidhi Khare would chair the meeting on 16 May.
The meeting discussed irrational pricing, and industry executives and consumer groups were urged to come up with suggestions to make the pricing mechanism more consumer-friendly and "aligned with the current taxation system," said the third person.
'Such anomalies, including that of differential pricing, are expected to be addressed through amendments or stricter enforcement under the Legal Metrology Act, 2009, which empowers the ministry of consumer affairs to act against unfair pricing and deceptive practices," the third person added.
MRP meeting
Representatives of industry organizations such as FICCI, Assocham, Confederation of Indian Industry, PHD Chamber of Commerce and Industry, and the Retailers Association of India, as well as officials from the Goods and Services Tax Council and legal metrology controllers from all states and union territories attended the meeting, said the third person, who attended the meeting. Queries emailed to all of the above remained unanswered.
The meeting also discussed so-called differential pricing, when the same product carries different MRPs depending on the location or sales channel.
Most developed countries don't have a concept of MRP, and let market forces set prices. While some nations, like India, mandate MRP declaration, the actual price is determined by the manufacturer, with exceptions for essential goods where governments might regulate pricing.
'Not price control'
'The idea behind the proposal is to check unfair trade practices," the second person said. "For instance, if a product has an MRP of ₹5,000 but is sold at ₹2,500 after a 50% discount, the question arises—why was such a high price printed on the tag in the first place? If the retailer is earning a profit by selling it at ₹2,500, the original MRP appears inflated. Does that mean the 50% discount was merely a tactic to attract consumers? We are exploring all such cases in consultation with the industry, especially since the retailer is legally allowed to sell the product at its declared MRP."
According to a fourth person, the objective is not to control prices as such, but to ensure that pricing is based on reasonable cost-plus margins. Cost-plus pricing is when the sale price is determined by adding a fixed percentage (markup) to its total cost of production and distribution.
"A formula is likely to be worked out to keep MRPs within a fair range that ensures both consumer affordability and manufacturer profitability," the person added.
Market efficiency
Industry representatives did not see any need for changing the current system.
'It is widely acknowledged that market-driven pricing serves consumers better and supports economic and market efficiency. We have long embraced a free-market approach and the government has judiciously limited price regulation to certain essential commodities like pharmaceuticals. Experience shows that a controlled economy does not serve the interests of the consumer," said Piruz Khambatta, chairman of Rasna Group, who earlier headed a CII committee on food processing.
Another industry executive said on the condition of anonymity that the term MRP indicates the maximum price at which a product can be sold and it enables dealers in certain markets to give customers a discount. The person said that linking retail price to costs will prompt some businesses to discontinue certain products, which will affect their availability to the consumer, defeating the very purpose of price regulation. This trend was seen in the pharmaceutical industry wherein a cost-plus pricing mechanism existed in the past.
Guardrails in place
Some believe there are already mechanisms available to check any malpractice.
'There's a need to be very clear about what the government is trying to address here, and what the actual market failure is. If input costs are low but consumer prices remain high, it suggests that certain intermediaries may be making super-normal profits. There are already mechanisms in place to deal with this such as the Competition Commission of India, or GST enforcement, to check collusion or lack of competition," said Amol Kulkarni, director of research at CUTS International, a non-governmental organisation.
'Instead of regulating MRP or delving into manufacturing-level pricing, which may have unintended consequences; we should strengthen these existing tools. Such interventions could create implementation challenges and confusion among consumers, especially in a price-sensitive country like India. It might also reduce pricing flexibility for companies, affect market access, and limit product choices," Kulkarni added.
Tax links
Also, any significant change to the MRP mechanism will require coordination with the ministry of finance, particularly to realign the Goods and Services Tax (GST) structure. At present, GST is levied on the transaction value, which may not always be the MRP.
'Since the introduction of GST in 2017, we can't say that MRPs are necessarily high or arbitrary or vary for different places—because there's no legal binding on manufacturers to explain or justify pricing, unless the Central Consumer Protection Authority (CCPA) intervenes," said Ashim Sanyal, CEO of Consumer Voice, a consumer rights organization.
'In the pre-GST era, taxes were levied on the MRP itself—both central and local. This made companies cautious about increasing MRPs, as higher prices directly meant higher tax outgo. It acted as a natural deterrent to inflating prices. With the current system, where GST is applied at the transaction level, manufacturers have greater pricing freedom. In effect, consumers today are at the mercy of companies putting any amount as MRP—which remains legal under existing norms," Sanyal said.
'Linking GST to MRP, rather than transactional value, may appear consumer-friendly on the surface, but it's fraught with complications. It risks distorting pricing freedom and adding unnecessary compliance burdens," said Utkarsh Sinha, managing director of Bexley Advisors, a boutique investment banking firm.
Gireesh Chandra Prasad contributed to the story.