The Maximum Retail Price (MRP) regime, a vestige from India’s pre-liberalisation era, has outlived its relevance in today’s dynamic market landscape. Initially conceived as a measure to protect consumers from unfair retail practices and to curb tax evasion, the MRP requirement mandates that a maximum selling price be prominently displayed on all packaged goods.
This rigid regulation now imposes limitations that hinder free-market competition and innovation. Today, it’s imperative to re-evaluate this decades-old framework to better serve consumers in an open, competitive marketplace.
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.
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 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. While well-intentioned, the MRP system is now an outdated policy that limits consumer choice and restricts free-market dynamics.
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, in direct contradiction to free market principles.
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.
E-comm growth
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 argument for revisiting the MRP regime is compelling.
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. Consumers would gain access to a broader range of prices, allowing them to make more informed choices.
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 writer is Associate Professor (Law), National Law University Delhi