Reforms 2.0

Abolish the MRP

Reform Idea

Abolish the Maximum Retail Price.

What was the intention behind the MRP?

MRP was initially introduced by the Ministry of Civil Supplies, Department of Legal Metrology in 1990 in order to protect the consumers from profiteering from retailers. Before this system was introduced, manufacturers could print either the maximum retail price (inclusive of all taxes) or the retail price (local taxes extra). However, when presented with this option, it was found that retailers often charged higher than the local taxes.

What are the unintended consequences?

MRP creates a reference point for retailers, which is converted into a de facto uniform price. Few retailers have the incentive to deviate below the MRP, which affects price competition in any given area. Thus, consumers might actually end up paying more than they otherwise would if there was free competition.

What will this reform achieve?

1. In the absence of MRP, retailers will compete against each other to lower the prices at which they sell to the consumer. It will give the retailers the economic freedom to price their products according to their unique costs they face and larger consumer strategy.

Retail density in India is high enough to justify allowing genuine competition among retailers, which will result in lower prices for consumers.

2. Allowing retailers the freedom to price products will create incentives for them to stock a larger variety of goods. Retailers are presently disincentivised from selling products in remote geographical areas, as they cannot compensate for the higher transportation and logistics costs by charging a higher price.

Without the MRP, accessibility in remote areas to many goods increases.

What is needed to carry it out?

Legally, the move to remove MRP is quite simple, as it requires only a notification.

The Ministry of Consumer Affairs can, via notification, amend the Legal Metrology (Packaged Commodities) Rules, 2011 to remove retail sale price as part of the declarations required under Section 18 and Section 36 of the aforementioned Act.

What are the obstacles to this reform?

Abolition of the MRP would face stiff opposition not only from political groups, but mainly from the edifices of a protectionist mindset. The prevailing attitude is that a large section of Indian society is illiterate and thus, would require a reference point for prices.

How can we counter this?

It should be pointed out that the poor and illiterate sections of society face a much lower price elasticity of demand, and are quite adept at comparing prices from different retailers.

They do this perfectly well in the case of unpackaged commodities, and it would be presumptuous to believe that they are incapable of doing this for packaged commodities.

Also check out…

Time to Abolish the MRP – Anupam Manur, The Hindu, 23 July 2015.

Recommendation of the Expert Committee Constituted by the Department of Consumer Affairs to review and suggest best method of declaration of retail sale price on packaged commodities, chaired by Dr M Govinda Rao, 2008.

The Seen and the Unseen, Episode 7, MRP – podcast by Amit Varma featuring Prithwiraj Mukherjee.

About the author

Anupam Manur

Anupam Manur is a Research Fellow at the Takshashila Institution. He was previously working as a Research Associate at the Indian Institute of Management – Bangalore. His policy research areas are at the intersection of economics, technology, and public policy. He is currently working on digital payments, blockchain and bitcoins, urban transport, and unaccounted income in India.