Is India mulling a change to the MRP formula? Why?

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3 days ago

India is mulling overhauling the existing Maximum Retail Price (MRP) regime. The Union consumer affairs department is reportedly looking to work out a formula that ensures both consumer affordability and manufacturer profitability read more
Have you heard of that friend or family member who has fought with a storekeeper for charging more than the MRP (Maximum Retail Price) printed on it? Chances are you have; after all, most Indians have been taught to never pay a rupee more than what's printed on the pack.
But have you ever given MRP a second thought — how is it decided? Who decides it?
Now, as the government considers a major overhaul of the maximum retail price (MRP) pricing, we take a closer look at everything MRP-related.
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What is MRP?
Maximum Retail Price (MRP) was introduced in 1990 by the Ministry of Civil Supplies, Department of Legal Metrology. According to the Indian Consumer Goods Act, 2006, a MRP refers to the price at which the packed product shall be sold in the retail market, and this price shall include all taxes levied on the product.
The MRP for a product is decided by its manufacturer or seller of the product, taking into account various factors such as production costs, marketing expenses, and profit margin. As the name suggests, it is the maximum that a customer will have to pay for the product.
It is important to note that MRP is different from the Suggested Retail Price (SRP), which is a price that is recommended by the manufacturer or seller as a fair price for the product. The SRP is not necessarily the price at which the product is actually sold, and retailers may choose to sell the product at a lower or higher price depending on various factors such as competition and market demand.
MRP in India is only levied on packed commodities and not services. Moreover, many commodities in India aren't packed — take for instance, your fruits, vegetables, rice, pulses, which are sold 'loose'.
Many experts note that the purpose of introducing MRP was to prevent tax evasion and protect consumers from profiteering by retailers. Before the amendment, manufacturers could print either the maximum retail price (inclusive of all taxes) or the retail price (local taxes extra).
How is MRP calculated in India?
In India, the MRP is decided by the manufacturer or retailer. To decide upon a figure, the retailer takes various factors into consideration: product's actual cost+ profit margin+ cost and freight margin+ distributor margin+ retailer margin + GST+ transportation+ advertisement expense+ other expenses.
In some cases, MRP may be regulated by law and may be determined by the government or other regulatory bodies.
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Why is the government now looking to overhaul MRP?
A report in the Mint states that the government is now looking to re-evaluate MRP. The report states that the Union consumer affairs department held a meeting with industry associations, consumer bodies and tax officials about the plan.
But why, you ask? The move to overhaul MRP, as officials state, is to prevent manufacturers marking up retail prices steeply. The officials told Mint that 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.
An Indian woman fills her trolley with retail products as she shops at a department store in Mumbai. The law mandates that all packaged goods must have a MRP label. Representational image/Reuters
Many note that the MRP formula in India is archaic and needs an overhaul. Critics point to the fact that often times products are irrationally priced. For instance, a packet of juice costs Rs 50. But, there's another juice right next to in the store that costs Rs 150, despite the fact that the two juices weigh the same and taste the same.
Officials argue that there's no clear formula or benchmark to check if the MRP stated is reasonable.
There's also the issue of inflated pricing. There are several instances when retailers price a product at Rs 1000 so they can offer huge discounts later. As one official was quoted telling the Mint, 'If a product has an MRP of Rs 5,000 but is sold at Rs 2,500 after a 50 per cent 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 Rs 2,500, the original MRP appears inflated. Does that mean the 50 per cent 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.'
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One official told the Mint that the objective wasn't pricing control but to ensure that pricing is reasonable.
Some argue that the maximum retail price is an archaic mechanism and should be replaced with Suggested Retail Price (SRP) or Recommended Retail Price. Representational image/Pixabay
Will an MRP overhaul be possible?
But while the government has shown keenness to change MRP, not everyone is on board. Many manufacturers and retailers saw no need to change the existing system. They argued that India is a highly price-sensitive market and MRP helps people know exactly how much they should pay.
Some also argued that linking retail price to costs will prompt some businesses to discontinue certain products, which will affect their availability to the consumer.
Many also noted that rather than overhauling MRP, certain interventions needed to be made to make it more transparent and customer-friendly. In a report, Finshots noted that could switch from MRP to a Suggested Retail Price (SRP) or Recommended Retail Price (RRP) system like in the US and Europe. This way, retailers have some flexibility to adjust prices based on their own costs. So if a shop in a remote village has higher transport costs, they can charge a bit more and be upfront about it. Meanwhile, shoppers still know the baseline price set by the government, so they're not in the dark.
Overhauling MRP could also be problematic from a tax point of view. Whatever alternative is chosen would have to align with Goods and Services Tax (GST) structure.
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It's left to be seen what happens next — but for now, keep ensuring that you aren't paying more than the MRP.
With inputs from agencies