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Political Play
CA Dr Sunil Gupta
Inflated prices and the absurdity of middleman 29 April, 2014
Surely, we have been effective so far in guaranteeing the perfectness of our market. Restricting monopolistic forces to the minimum, we have delivered an environment wherein consumers have wide choices with possibility to select the product that suits the pocket.

Post the economic crisis of the 90's, liberalization was the most talked about subject matter. Participants augmented with the minimization of entry barriers, which on one hand lifted the pace of economic growth, while on the other helped entrepreneurs exploit their vision. What, however, was the key intention of eliminating monopoly and flooding the market with abundant multiplicities? With the upsurge in the number of producers, it is expected that the consumer would be delivered with reasonably priced goods.

Have we in real sense accomplished this goal? Let us consider a few real instances. Schools have been demanding colossal hike of fee on the grounds that modern infrastructure, which includes smart classes, upgraded faculty and enriched study environment, calls for additional charges. The irony, however, is the work opportunity with a smart class manufacturer wherein the marketing personnel have to ensure concentrated sales of company's product.

Medicines, which are a key constituent of our expenditure budget, call for extensive promotion by medical representatives, which in turn inflates cost for the end-user. Adding to the curse is the commission extended to doctors for prescribing medicines of a particular producer. You must have comprehended my purpose of writing now.

Products/ services prior to being delivered to the end-user pass distinctive channels of production. From procurement of raw materials to winning the customer, several value adding phases make a product what it should be. However, the value addition ends at the instance when finished goods are ready for being retailed.

Post this stage comes the most challenging phase- Earning customers and adding revenue. The task is handled through distinct marketing channels that include advertisements, in-person visits, cold calling, and online promotion. The necessity of these channels is inevitable because of the fact that competitors are many; however users of a specific product/ service are limited.

Though the old rule of economics suggests that the price of any commodity in a perfectly competitive market depends on the demand and supply variance, this however comes into the picture post the cost is already inflated due to marketing expenses. Rather than talking endlessly on the topic of inflated prices due to elevated outlays on marketing, which is often the cause of extraordinary rates for medicines, school books, clothing items and almost every second purchase we make in a day, I will talk of some measures that can curb the curse and can ensure that the end-user pays what truly is justifiable.

Marketing expenditures can be measured as a percentage of the rate charged to the consumers. To ensure that this fraction does not exceed a tolerable level, the ratio, in consensus with the specific industry embracing units producing similar kind of product, should be pre-defined. The upper limit can be determined by analyzing the needs for promotional activities in every distinct industry. Thus, separate industries producing dissimilar products can have unlike statutory percentage beyond which the outlays on marketing shall be forbidden.

Within the ambit of statutory audit of financial statements, adherence with marketing expenditure norms shall be certified for curbing any upward deviations and for guarding the well-being of the consumers. Non-allowance of the portion of expenditure incurred above the pre-defined limit as deduction under the IT Act and stringent disciplinary actions can add to the impact. The measure would serve two purposes simultaneously, one, this would restrict the inflating of prices for the end-user, plus, business units with limited resources (small and medium sector enterprises) would not be outshined by giant market players.

Along with, wide-ranging utilization of the online platform can be of enormous help. For every product type, each and every producer's particulars shall mandatorily be available in a columnar and comparable arrangement through a webpage run and monitored by the government. From the quality standards followed to the durability of the product, this comprehensive data shall be accessible to all with a view to facilitating easy and educated purchases. Non-participating producers with respect to adding produce details to the database shall be penalized.

With a reduction in the price of commodities, these measures would also restrict corporate corruption linked with procuring resources from known agents in lieu of illicit personal paybacks.


Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of merinews.com. In case you have a opposing view, please click here to share the same in the comments section.
About The Author
A Chartered Accountant by profession and Director on the board of Punjab National Bank (PNB), General Insurance Corporation of India (GIC) and Rural Electrification Corporation Limited (REC). Dr. Sunil Gupta is working flawlessly for the economic and social prosperity of India.
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