Is Selling Products Above MRP Legal In India?

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You might have come across shopkeepers charging more than the quoted Maximum Retail Prices (MRPs) in the past. If it’s in the city, the shopkeepers usually try to justify the act of overcharging by citing poor margins and high rental prices of their establishments. In remote locations, you’d see shopkeepers blaming the high costs of logistics and low footfall. Whatever the case, there are thousands (and perhaps millions?) of us that feel sorry for plight of these vendors and agree to pay over-quoted prices. It’s good to have a heart, but is this practice ethical and legal in the first place?

Is It Ethical?

Let me start by saying that the MRP is set for a reason. It is the Maximum Retail Price of a particular product that is supposed to be inclusive of all taxes. This essentially means that the manufacturer has already paid for the margins of distributors, retailers, wholesalers, transporters and the taxes owed to the government, and this is all in addition to the company’s own marketing, manufacturing, branding and logistics-related costs. So the MRP is an all inclusive price that pays for all parties involved in sale of a product.

Yet, some shopkeepers choose to exploit consumers by presenting their sorry state forward. If you oblige them and pay the over-quoted price, then you aren’t really helping the shopkeepers, but instead become a part of the ongoing exploitation.

See, manufacturing companies spend a lot of time and resources in determining the most suitable MRPs for their products. They conduct exhaustive surveys, take feedback from channel partners, run comprehensive competitive comparison scenarios to ensure their product reaches out to the mass market at the correct price without putting a financial strain on any of its channel partners. To ensure this, pan-India manufacturing firms tend to have separate pricing structures from state to state.

This is evident in many industries. For starters, a daily Times of India newspaper costs Rs. 4.5 in Delhi but it is priced at Rs. 5 in some other states. A Royal Enfield Classic 350 motorcycle sports an ex-showroom price (before taxes and insurance) of ₹ 1.31 Lakhs in Delhi whereas the same costs ₹ 1.33 Lakhs in Bangalore. You might notice these location-based pricing variations in other products as well, such as books, petrol and alcohol.

If shopkeepers in a particular region have a genuine problem, then they have legal and ethical recourses at their disposal, such as:

  • Form a union of shopkeepers, retailers and vendors,
  • Approach channel partners or manufacturing companies and ask them to provide better logistical support,
  • They could also try to negotiate better margins, or ask the company to increase the MRP in their region, to offset the low consumer footfall.

Companies tend to take feedbacks from trader unions very seriously as it’s one of the most transparent and tangible report cards of their sales appeal. These trader or vendor unions are practically their business/channel partners so they can’t be ignored easily. But even if traders’ negations with the manufacturing company relating to their margin expansion fails, retailers still have the choice of:

  • Selling similar products of other brands, or
  • Simply shuffling their product mix to ensure better margins, or
  • Change their line of business.

But if they simply ignore the recourses available to them, and hike prices beyond the MRP instead, then it’s downright unethical. It only encourages more retailers to exploit more consumers. With that said, let’s take a look at the legal aspect of this story as well.

Is It Legal?

In an attempt to protect consumers from this kind of exploitation, the Indian law prohibits the act of charging more than the quoted MRP and deems this practice illegal. In fact, the Indian government has been cracking down on this malpractice of late, and awarding hefty penalties to those who still continue to overcharge and exploit consumers.

Per the notification issued by the Department of Consumer Affairs, under section 18(2) of this document:

(2) No retail dealer or other person including manufacturer, packer, importer and wholesale dealer shall make any sale of any commodity in packed form at a price exceeding the retail sale price thereof.

The issue isn’t just about consumer exploitation, but also about curbing black money. Shopkeepers that are overcharging for packaged products are unlikely to report their correct sales figures in their tax returns as doing so could get them in trouble. So this kind of income usually goes under the rug, contributing to the rampant grey economy of India.

 

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Piyush is the Editor at Business Quant. He's worked in the financial domain for several years now, with his work being featured in prominent international financial portals such as CNN Money, Yahoo Finance, Daily Finance etc. His love for financial analysis brought him to BQ.

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