MRP – The Meaning And The Myth

Shopping for house supplies has never been such a ‘surprising experience’ before as it is in current times. Some super markets sell sunflower oil at half the amount of MRP and some celebrate ‘our price’ of 49.99 for a detergent packet worth Rs.50! The irony is that most of us, when at the local kirana shop or a street vendor shop, also will not mind if the shopkeeper asks for an extra rupee or two on MRP. ‘Poor fellow,’ we think.

Maximum Retail Price is by no means an unfamiliar term; even to a consumer who is just about average in awareness. But does that mean that all consumers understand what those words mean?

Of course, it is the maximum amount that a retailer should charge us for a packaged commodity. What most of us do not know is that we almost always pay much more than the cost of the product and a respectable margin put together, even when paying just the MRP.

So where is the glitch? From a layman’s point of view, it is because the manufacturer has the right to decide the price of his/her product. Government does not interfere in this process, and it is up to the consumer whether to buy a product at a particular price. This is why the fancy ‘Hang Out’ packs of Lays available mostly in theatres and malls cost Rs.15, but gives you almost the same quantity as a Rs.10 pack. Manufacturers simply customise the packaging for malls and put a higher price tag.

However, Prof. Vamsi Vakulabharanam from Department of Economics at University Hyderabad says: “As long as there is a competitive structure and private enterprising, it is alright if manufacturers set the price. It is actually the market which is mediating between the consumers and them. The market acts as a disciplining institution whereby prices are brought down to a minimum and hence there is no need for government intervention.”

May be, we should rewind a little bit to understand how this fancy price tag brouhaha came about. Until December 1990, Indian manufacturers had two options while printing prices on packaged commodities: Retail Price (local taxes extra) and Maximum Retail Price (inclusive of all taxes). However, when consumers flooded courts with complaints alleging that retailers were going haywire in charging the ‘local taxes,’ the Ministry of Civil Supplies and its executive wing - Department of Legal Metrology - decided to pull the plug. They amended the Standards of Weights and Measures Act 1976 making it mandatory for manufacturers to print the MRP that is inclusive of all taxes. If you still see packages with ‘Local Taxes Extra’ printed, they are indeed illegal.

Unfortunately, things are still not hunky dory. Local charges still vary from place to place. Since the manufacturer cannot mark the price of a commodity differentially, they build in the highest required margin into their products. This means that retailers, in places where local taxes are less, can either choose to make consumers pay the printed price or work with a lower profit margin and pass the benefit of lower local taxes by selling at prices lower than the printed price. This is one of the reasons why a lot of commodities are sold at prices less than MRP. Another, of course, is that the manufacturers themselves mark up the MRP considerably and ‘do consumers a favour’ by selling it at sometimes even half the price! This is a very common trend with many oil brands these days.

Interestingly, there are some opinions on the Internet that dig out the loopholes in the law that governs MRP. According to S K Ananda Thirtha, a member of the Mysore Grahakara Parishat, there are several Supreme Court orders which say that ‘Rules’ cannot extend the boundaries of the ‘Act’ under which they have been made (eg. Bharathidasan University v/s All India Council for Technical Education, (2001) 8 SCC 767). As of now, the Standards of Weights and Measures Act 1976 only mandates that MRP be printed on the package. However, the ‘Rules’ part of this Act (Standards of Weights and Measures – Packaged Commodities - Rules 1977) crosses the boundaries of the Act by stipulating that price charged cannot exceed the printed MRP. According to Thirtha, therefore, this part of the Rules is invalid making not printing MRP punishable, but not selling above MRP.

Then, is MRP just a fiction? Well, may be not. It appears that most consumer courts, probably unaware of the Supreme Court decisions, keep rewarding compensation against merchants who sell packaged commodities in excess of MRP. Thirtha believes that this is a case of a badly drafted law and its incorrect interpretation providing justice. In short, two wrongs making a right! Of course, the right way is to rectify the law.

However, even the Legal Metrology Bill 2008 which replaced the Standards of Weights and Measures Act 1976 does not contain any provision prohibiting of charging a price higher than the printed price.

So are restaurateurs using this loophole while charging more than MRP on bottled water and cool drinks? No! Another Supreme Court order (State of Himachal Pradesh v/s Associated Hotels of India, AIR 1972 SC 1131), which clarified that MRP is applicable only to retail sales (goods sold in shops), is the ‘culprit’ of food lovers. It is permissible to charge extra in hotels, restaurants and aeroplanes because what they are offering is a service. The ambience and the cooling level at which the drink is offered become part of that service and justifies the prerogative to charge what they want.

On the other hand, home delivery service cannot be interpreted on the same lines. In a case filed by Ankit Jain, who was charged Rs.35 for a 500ml Coke bottle (MRP Rs.15) that he had bought with burgers from Nirula’s in New Delhi, the apex consumer court held that home delivery service cannot be construed as a sale in restaurant where added services are offered.

So the next time you get you pizza delivered, check what you have been charged for the accompanying drink. While India’s law fraternity takes its time to rectify its Acts and Rules and what not, we should bask in the glory of their ignorance and demand for MRP, at least!