While its intentions were once essential in safeguarding consumer interests in a controlled economy, this rigid regulation now imposes limitations that hinder free-market competition and innovation. Today, as India embraces economic modernisation, it’s imperative to re-evaluate this decades-old framework to better serve consumers in an open, competitive marketplace.
Presently, the Legal Metrology Act, 2009, is the governing comprehensive legislation in India that regulates trade and commerce in weights, measures, and other goods sold by weight, measure, or number. The Act aims to ensure uniform standards of weights and measures across the country, thereby protecting consumer interests and enhancing transparency in transactions. It establishes legal definitions and standards for various units of measurement and prescribes the mandatory use of standardised equipment for trade purposes.
Additionally, the Act enforces labelling requirements, ensuring that packaged commodities display essential information, such as the quantity, price, and manufacturer details. The Legal Metrology Act, 2009, is enforced by the Department of Consumer Affairs and empowers authorities to conduct inspections and impose penalties for non-compliance, thus maintaining the integrity and fairness of trade practices.
The Legal Metrology (Packaged Commodities) Rules, 2011, framed under the Legal Metrology Act, set forth comprehensive regulations regarding the sale and distribution of packaged goods in India, including the requirement for displaying the MRP. Under these rules, all packaged commodities must clearly indicate the MRP on the label, which is the highest price that can be charged to the consumer, inclusive of all taxes. This regulation aims to protect consumers by ensuring price transparency and preventing retailers from overcharging.
However, while the rules stipulate the declaration of MRP, they do not provide a formula or mechanism to determine or regulate the fairness of this price, leaving room for arbitrary pricing by manufacturers. The Legal Metrology (Packaged Commodities) Rules, 2011, thus serve as a tool for consumer protection by mandating the display of MRP but fall short in addressing broader issues of pricing fairness.
While well-intentioned, the MRP system is now an outdated policy that limits consumer choice and restricts free-market dynamics.
The MRP regime was born out of a need to protect consumers from unscrupulous retailers who, prior to 1990, could print prices excluding local taxes and then overcharge by adding excessive taxes at the point of sale. By compelling manufacturers to print an all-inclusive maximum price, the Government aimed to standardise costs and protect consumers from arbitrary pricing.
However, the MRP system merely mandates the declaration of a price—it does not ensure that this price reflects production and distribution costs or that it is fair to both consumers and retailers. This system, therefore, fails to address the modern complexities of market dynamics. It also lacks a normative formula for determining MRP, often leading to arbitrary, inflated pricing by manufacturers without any real basis in cost or market conditions.
In practice, the MRP regime effectively sets a floor price, particularly in areas with limited competition such as rural or hilly regions. Here, retailers often sell goods at the MRP, using it as a minimum benchmark rather than a maximum cap. This scenario inhibits consumer choice, directly contradicting the principles of a free market where prices should be determined by supply and demand.
Additionally, by mandating that manufacturers set the MRP, the law inadvertently allows manufacturers to dictate the profit margins for distributors and retailers. This stifles price discovery through market forces. In a genuinely competitive market, retailers should be free to set their own prices based on factors like location, transportation costs, and local demand.
India’s retail landscape has dramatically transformed over the past few decades, shifting towards organised retailing and the rapid growth of e-commerce. The internet and technology have empowered consumers with access to information about prices, quality, and availability, significantly reducing information asymmetry. Consumers are increasingly savvy, with many using apps to compare prices across different retailers, thus making the MRP regime redundant.
Moreover, the introduction of uniform tax systems such as GST has further reduced price variations across states, eliminating one of the original justifications for the MRP system. These taxes have harmonised rates and decreased the necessity for state-based price adjustments. The market has also evolved with better infrastructure and technology, providing an environment where the MRP system is no longer necessary to protect consumers.
The argument for revisiting the MRP regime is compelling. Repealing this outdated regulation would align with India’s ongoing economic reforms aimed at enhancing market efficiency. Without the MRP mandate, retailers would be able to set prices based on actual costs, local demand, and competitive pressures, fostering a more dynamic market environment.
Moreover, eliminating the MRP regime would benefit both consumers and retailers. Consumers would gain access to a broader range of prices, allowing them to make more informed choices. Retailers, particularly those in remote areas with higher transportation costs, would be able to adjust prices to reflect their actual costs, leading to increased product availability and improved consumer access to goods.
The time has come to reconsider the necessity of the MRP regime in a liberalised and increasingly digital Indian economy. Instead of persisting with this outdated system, the government should adopt forward-thinking policies that promote market efficiency, consumer welfare, and competitive dynamics.
Replacing the MRP mandate with a dynamic pricing model would empower retailers to price goods based on actual costs and local market conditions, fostering a more vibrant and competitive environment. The government should also focus on fostering transparency by leveraging digital technology to provide consumers with real-time access to market prices. Initiatives like QR codes for price comparisons, targeted interventions in under-served regions, and voluntary price certifications could replace rigid price controls with tools that enhance consumer choice and trust.
By dismantling the archaic MRP framework and adopting these innovative approaches, India can fully embrace a market-oriented model that drives economic growth, empowers consumers, and aligns with global best practices, ultimately paving the way for a more dynamic and resilient retail landscape.
—The author, Dr Sushila, is a Professor at the Department of Law, University of Delhi. The views expressed are personal.
