This is a letter-to-the-editor in response to this recent article on the Quest.
In a recent article, Anna Pauxberger argued that India’s maximum retail price (MRP) may be beneficial in the short term to avoid corruption but that it it hinders the free market and should be retired in the long term. Although I agree that MRP limits the potential of economic growth and achieving optimal price, I disagree that it should be ended soon, given the complex realities of Indian society.
However flawed it may be, the MRP prevents harmful market forces that would only end up hurting India’s large poverty-stricken population. The government crafts many of its economic policies based on the realities of its resources and the country’s vast population, particularly the worst off. Unfortunately, Western economic analysis does not sufficiently take these factors into account in its pursuit of free market ideals.
The average per capita income in India is approximately $140/month. But this is the mean of the population. The top 10% hold 80% of the GDP while the middle class owns approximately 19%.
The lower class holds less than 1% of India’s GDP BUT they account for more than 60% of the total population.
There is a huge disparity that is hidden in the averages. Unfortunately, most traditional economic theories from the West focus on needs of a normally distributed population. In India, this is not the case. The policies of a free market with no price ceilings would make it impossible for the lower class to actually afford even one meal a day. India cannot afford to let that happen.
One might argue that a business would not survive if its products are too expensive, and that businesses would naturally optimize their prices based on need and affordability, even without regulations. I would agree, but the scale of the Indian population changes these considerations. The middle class in India – 267 million people – is large enough to sustain a business that sells milk at 50 rupees ($0.77) a litre. Most businesses, under free economic policies, would target the middle class because this customer base is easy to serve and they can pay higher prices. But nobody would think about the poor. Except for NGOs and social workers, no business would target the bottom of the pyramid because they will not see profits there. The government of India cannot afford to let the market concentrate on the needs of 20-25% of the population and not focus on the larger, poverty-stricken population who cannot afford more than 10 ($0.15) rupees a litre for milk.
This is an internal complexity within India, to which 250 years of colonialism and internal conflict have strongly contributed. In the 21st century, we cannot afford to build a traditionally capitalist structure because the financial and social diversity of this country cannot sustain traditional economic policies and capitalist frameworks of marketing.
Some may argue that this poverty will naturally disappear with time. However, poverty in India requires action now. With few resources and a large population, the government needs to stimulate the private sector to uplift the country. Yes, India needs to build a more open and attractive economy, but first it must uplift a majority of its people above the poverty line before they can start thinking about growth and profits.