Archives: Publication

The ‘discount’ games online sellers play

Offering discounts on inflated MRP to lure consumers should be construed as an act of price manipulation.

Online marketing or e-marketing has captured the landscape of shopping experience in the country. The ease of online browsing has meant consumers have a variety of choices, get convenient delivery services, return and exchange facilities and not to miss the attractive discounts being offered from time to time. But there have been umpteen number of instances when unsuspecting consumers were not given a fair deal. The manner in which MRPs are listed and discounts are being offered is one such example.

When a lay consumer browses an online marketplace, his understanding is that the MRP that is reflected on these online platform is the MRP of the product fixed by the manufacturer, and discount on the said MRP is being offered by the online sellers. But there are instances when there are more than one “listed” MRPs/prices quoted by sellers of an identical pre-packaged product sold online. Online sellers would then offer several discounts on these “listed” MRPs.

The seller offering the highest discount would be given preference in the listing on these online shopping platforms to attract the attention of the prospective consumers, albeit the “listed MRP” of the said seller could be the highest amongst the “listed MRP”. There are also instances where the MRP of the same identical product in a retail shop is lower that the “listed MRP” on these online shopping platforms. Different MRPs of the same identical product are also sometimes being listed across several online platforms.

The Legal Metrology (Packaged Commodities) Rules (amended in 2017 and made effective from January 1, 2018) defines retail sale price to mean “the maximum price at which the commodity in packaged form may be sold to the consumer inclusive of all taxes”. MRP includes the cost of production, transportation, trade margins and all applicable taxes. Shops or retailers can offer discounts on the MRP to acquire and attract customers. This is allowed as per law.

The amended LM Rules 18(2A), further mandates that “… no manufacturer or packer or importer shall declare different maximum retail prices on an identical pre-packaged commodity by adopting restrictive trade practices or unfair trade practices as defined under clause (c) of sub-section (1) of section 2 of the Consumer Protection Act, 1986 (68 of 1986).”

The amended Rules (2018) were made applicable to both off-line and online sale of products. It effectively implied that an identically pre-packaged product cannot have more than one MRP.

Consumer Protection Act
The Consumer Protection Act (CPA), 2019 defines “restrictive trade practice” to mean “a trade practice which tends to bring about manipulation of price or its conditions of delivery or to affect flow of supplies in the market relating to goods or services in such a manner as to impose on the consumers unjustified costs or restrictions …” It defines “unfair trade practices” to mean an act that “materially misleads the public concerning the price at which a product or like products or goods or services, have been or are, ordinarily sold or provided, and, for this purpose, a representation as to price shall be deemed to refer to the price at which the product or goods or services has or have been sold by sellers or provided by suppliers generally in the relevant market …” Hence, unfair trade practices have a broad definition under the consumer protection law.

With the introduction of LM Rule 18(2A), it prohibits manufacturers, packers or importers from declaring different prices on identical products. When an online seller(s) and the platform(s) through which products are sold performs an act to list an MRP or several and varying MRPs at variance with the MRP fixed by the manufacturer and then offering discounts on “inflated MRP” to attract and lure the consumers into buying the products, it is as an act of price manipulation. It should also be construed as “misleading advertisement” under the Consumer Protection Act and a concealment of the actual MRP of the product which constitute unfair trade practice.

In cases of such violations, there is a need for the government to take suo-moto actions against defaulting online sellers and online marketing platforms. It should not be left solely on the shoulders of a few pro-active consumers to apply for legal remedy. Supervisory checks, vigilance and monitoring such violations should be strengthened. Consumers should not be allowed to be taken for a ride by online shopping platforms in the guise of heavy discounts and ease of shopping experience. Hence, consumers’ awareness should also be enhanced to thwart any attempt to mislead them.

Baruah is Associate Fellow at NCAER, and Wankhar is a retired Government of India officer. Views are personal

India’s Debt Dilemma

India was an outlier on fiscal outcomes pre-pandemic, before drifting further in the high debt direction during COVID. High levels of debt limit the resources available for other priorities such as health, education and climate change abatement. At the same time, there is no immediate crisis of debt sustainability: institutional factors limit rollover risk, and interest rates have not risen with additional debt issuance. But financial stability and sustainability risks may arise in the future, and lack of resources to meet pressing needs is a drag on growth. Consolidation would require lower primary deficits achieved through tax revenue generation and privatization, all while protecting and prospectively increasing capital spending. Contingent liabilities pose risks to the public finances of the States and should be minimized by fiscal-management reforms. As their debt manager, the RBI should allow States to face the market interest rates warranted by current and projected debt levels.  Financial Commissions should be strengthened so as to provide stronger incentives for prudence.

India’s debt dilemma

In the fifth and final article in the Ideas@IPF2023 series, Eichengreen, Gupta and Ahmed reveal how high levels of debt in India limit the resources available for other priorities. At the same time, they predict that there is no immediate crisis of debt sustainability, as institutional factors limit rollover risk, and interest rates have not risen with additional debt issuance. However, financial stability and sustainability risks may arise in the future, and fiscal consolidation would require lower primary deficits achieved through tax revenue generation and privatisation.

India’s public finances paint a mixed picture: its fiscal deficits and public debts were among the highest in the developing world, and its interest payment-to-GDP ratio and primary deficits were large even before the pandemic. The pandemic reinforced these trends – at their peak in FY2020-21, the debt and deficit stood at 89 and 13% of GDP respectively (Figure 1). Contingent liabilities are estimated at an additional 5% of GDP.

Figure 1. General government debt and fiscal indicators, as a percentage of GDP

Notes: i) Total public debt in India includes debt issued and other liabilities in the Public Account consisting of National Small Saving Fund (NSSF), Provident Fund, Deposit and Reserve funds, securities issued to finance subsidies on oil, food and fertilisers, etc. ii) Dashed horizontal lines are decadal averages from 1980-81 to 1989-90, 1990-91 to 1999-2000, 2000-01 to 2009-10, and 2010-11 to 2019-20, respectively.
Source: CEIC (compiled from Reserve Bank of India).

With the recovery of nominal GDP, the country’s debt and deficit ratios have fallen from these multi-decade highs. But at 84 and 9% they are still high relative to other emerging market and middle-income countries, where they average 60 and 5% respectively. While India’s debt ratio is comparable or lower than that of the advanced economies, this provides little comfort. Advanced-country governments enjoy lower interest rates and consequently have lower interest payment-to-GDP ratios. Debt-to-GDP ratios of advanced economies averaged 112% in 2022, whereas interest payments averaged 1.5% of GDP. In contrast, India pays as much as 5% of GDP in interest on debt.

India’s deficit is thus more a problem of low revenues than one of high expenditure. The revenue-to-GDP ratio in India is below that of most other emerging markets and has seen the slowest rates of increase over the last 20 years. In contrast, the public expenditure-to-GDP ratio is not atypical and, if anything, has increased even more slowly (Figure 2). This gap has resulted in a perennially large – and growing – budget deficit compared to other emerging markets (Figure 3).

Figure 2. General government revenue and expenditure

Note: Dashed horizontal lines are decadal averages from 1980-81 to 1989-90, 1990-91 to 1999-2000, 2000-01 to 2009-10, and 2010-11 to 2019-20, respectively.
Source: CEIC (compiled from Reserve Bank of India).

Figure 3. Comparing India’s fiscal indicators with emerging market (EM) averages


Notes: i) The figures in the top row show median and interquartile range of 83 emerging market and middle-income economies (83 countries) and India. ii) The figures in the middle and bottom row compare India’s fiscal indicators with those of select emerging markets. iii) Data for India is for fiscal years.

Above, we have presented the key features of Indian public debt and expenditure vis-à-vis other emerging economies. In the article ahead, we assess the pressures on the sustainability of India’s public finances, with a focus on the next five years.

Understanding criteria for debt sustainability

A first criterion for sustainability is whether there is significant rollover risk. We find that the institutional factors, such as a captive market for public debt among state banks, private banks, insurance companies and provident funds, together with household savings, have enabled the government to fund its deficits without undue pressure on borrowing costs. In addition, the currency composition and maturity of the debt limit the rollover risk. Nearly 90% of general government debt is long-term. There has been a concerted effort to reduce rollover risk by issuing long-tenor securities. As a result, the weighted average maturity periods for both central and state government loans have been increasing. While the average maturity of public debt has risen, yields have declined, if only slightly: the general government weighted average coupon fell from 8% in FY2011-12 to 7.3% in FY2022-23.

A second criterion for sustainability is whether the debt ratio will remain stable. Our projections confirm that, under reasonable assumptions, the debt ratio will remain broadly stable (Table 1). This stability rests on the assumption of a largely unchanged primary budget deficit and a favourable growth rate-interest rate differential, the latter reflecting India’s positive growth prospects and also institutional factors limiting upward pressure on interest rates. The institutional factors in question include a captive market for public debt among state banks, private banks, insurance companies and provident funds. Together with household savings, these have enabled the government to fund its deficits without undue pressure on borrowing costs.

In FY2000-01, about 13.5% percent of central government debt was issued externally. Since then, there has since been a steady decline in the share of external debt, which stood at just 3.7% in FY2021-22. The remainder is long-term instruments, concessional, and owed to multilateral and bilateral investors (amounting to 3% of the total debt). Holdings of foreign institutional investors are just 1% of the total debt. Foreign banks hold negligible quantities of Indian government debt. Debt denominated in foreign currency dropped from about 10% of the total in FY2002-03 to 4.3% in FY2020-21. Consequently, the debt portfolio is largely insulated from currency risk.

Table 1. Evolution of general government debt-to-GDP ratio

Source: For FY2022-23, estimates of the level of debt are from the Economic Survey. Projections start from FY2023-24.

In sum, India’s general government debt-to-GDP ratio, which is high by emerging market standards, is unlikely to decline significantly in the next five years. In the best-case scenario, it might fall from its current level of some 90% of GDP to 80% of GDP, but even under optimistic assumptions, the debt-to-GDP ratio will remain high relative to comparator countries. Less rosy scenarios are also possible. Smaller primary budget deficits will be difficult to achieve, given pressure for social and infrastructure spending and the difficulty of boosting tax revenues. Faster growth rates or lower interest rates would also be difficult to achieve.

Costs and risks associated with India’s high debt and deficits

First, interest payments absorb resources, and limiting their availability for other economic and social purposes. In India, interest payments exceed 25% of general government revenues. At 5% of GDP, this is roughly twice the emerging market and developing-country average

Second, available fiscal resources leave no room for meeting emerging priorities, notably climate change abatement and adaptation, and the green transition.

Third, debt dynamics leave little room for responding to shocks, such as declining rates of domestic and global growth. India was not strongly constrained in responding to Covid-19; it reacted with a fiscal stimulus of Rs. 20 trillion, or roughly 9% of GDP. But at some point, responding to shocks in this way will begin to show up in interest rates, especially as regulations that encourage investments in bonds issued by insurance companies, provident funds and banks are progressively relaxed. Eventually, this will throw debt sustainability into doubt. Conversely, maintaining debt sustainability in the face of such shocks will leave the government countercyclically constrained, amplifying cycles.

Fourth, high government debt creates the potential for financial stability risks. For the moment, such risks remain limited. Banks are required to hold government securities in order to satisfy their Statutory Liquidity Ratios (SLR). Risks to their balance sheets can therefore develop with the repricing of these assets when interest rates rise. For the moment, India may be able to place most of its debt with ‘patient’ domestic investors. But if this becomes less true going forward, run risk – and therefore volatility – will rise.

Path ahead for debt consolidation, in theory and reality

In purely mathematical terms, India could bring down its debt to 70% of GDP through a combination of lower primary deficits, higher inflation, and faster GDP growth. A percentage point increase each in growth and inflation and a percentage point reduction in the primary deficit would achieve this in five years. The requisite changes could be achieved through an amalgam of the following factors:

i) Raising additional revenue through higher tax, non-tax, and privatisation receipts: Along with better tax administration and digitalisation, recent tax reforms (notably the introduction of a uniform Goods and Services Tax (GST) in 2017) have succeeded in modestly boosting revenue growth. Yet in a fast-growing economy, where nominal GDP has been growing on average at 11-12%, the rate of tax-revenue growth still has not exceeded that of GDP growth (in contrast to other fast-growing emerging markets). More could be done along these lines, both through additional digitisation and administrative streamlining, and through the adoption and better administration of new taxes, such as a tax on property at the state or central government level (though the political economy of the latter is obviously challenging).

ii) Continuing to re-orient spending toward capacity- and infrastructure-enhancing investment that promises to further boost GDP and revenues.

iii) Limiting contingent liabilities, which have been a chronic problem at the state level.

But imagining sharp changes along these lines borders on wishful thinking. Economic and social development will require additional spending on health and education. The government will have to contribute significantly to the country’s decarbonisation and climate-change-adaptation investments, which are large by international standards. Eventually, interest rates will adjust upward in response to inflation, eliminating any favourable debt-consolidation effects. As a result of these factors, India will almost certainly be living with high public debt for years to come.

This is a summary of a preliminary draft paper prepared for the NCAER India Policy Forum 2023.

India Policy Forum 2022

The 19th India Policy Forum 2022 Volume comprises papers and brief details of the proceedings of the IPF Conference held during 12-13 July, 2022. Apart from presentation of five papers, the IPF Conference also included two lectures, the 4th T.N. Srinivasan Memorial Lecture, titled, “Innovation, Experimentation, and Economics”, delivered by Professor Michael R. Kremer, University of Chicago, and the Annual IPF Lecture, titled, “Trade Policy for the Twenty-First Century”, delivered by Professor Anne O. Krueger, Johns Hopkins University. In addition, the 2022 IPF featured one Roundtable focusing on “Accelerating Formal Jobs, Higher Wages and Larger Firms”.

2022, Volume 19, Papers

The complete set of IPF Volumes, can be viewed and downloaded here.

Demographic transition and change in women’s lives

Women’s childhood, adulthood, and old age have all been transformed in India’s demographic journey.

The passage of World Population Day (July 11) is also a time to look at how India’s demographic journey has changed the lives of its citizens, particularly its women. India’s population grew from about 340 million at Independence to 1.4 billion. This growth was fuelled by the gift of life that receding starvation, improved public health, and medical miracles brought to India. In 1941, male life expectancy was about 56 years; only 50% of boys survived to age 28. Today, life expectancy for men is 69 years, and nearly 50% live to see the ripe old age of 75. This rapid decline in mortality took parents by surprise, who no longer needed to have four children to ensure that at least two would survive, causing population growth until fertility decline caught up with the mortality decline, and the Total Fertility Rate fell from 5.7 in 1950 to 2.1 in 2019.

These statistics mask the tectonic shift in the lives of people as they learn to adjust to a longer lifespan and fewer children. Nowhere is this more apparent than in the lives of Indian women. Women’s childhood, adulthood, and old age have been transformed over the course of demographic transition, sometimes positively, sometimes negatively.

Change for Indian women
As families began having fewer children, ensuring at least one son became more difficult. With four children, the chance of not having a son was barely 6%, but with two children, it grew to 25%. Social norms and patrilocal kinship patterns combined with lack of financial security reinforce a preference for sons. The India Human Development Survey (IHDS) found that 85% of women respondents expected to rely on their sons for old age support, while only 11% expected support from their daughters. Hence, parents who want to ensure that they have at least one son among their one or two child family, resorted to sex- selective abortion, and, in some cases, the neglect of sick daughters. Consequently, the number of girls per 100 boys, ages under five dropped from 96 to 91 between 1950 and 2019.

With a fertility decline, active mothering occupies a smaller proportion of women’s lives, creating space for education and employment. Good data on this only goes back 30 years, but my research with Sojin Yu, based on the National Family Health Survey, finds that the number of years women spend caring for children under five declined from 14 years in 1992-93 to eight in 2018-20; the years spent caring for children ages six to 15 dropped from 20 to 14 years. These changes are only partly accompanied by changes in the life course of women. While women’s educational attainment increased, with over 70% of girls enrolling documents, the average age at first birth has hardly budged about 20 for women born in the 1940s and still remains well below 22 years for those born in the 1980s.

Early motherhood, perhaps, explains why lower fertility does not translate into higher labour force participation for women. Women need to establish secure connections to the labour market and gain work experience if they are to get skilled jobs. By the time peak childcare demands end, they have missed the window for occupations that require specific skills; only unskilled work is open to them.
Demographic shifts also affect women’s lives at older ages. With rising life expectancy, the proportion of the female population aged 65 and above increased from 5% to 11% between 1950 and 2022, and is projected to reach 21% by 2050. While the proportion of older men will also increase, aging for women has unique implications. Women generally marry men who are older and are more likely to outlive their husbands. The 2011 Census shows that while only 18% of men above age 65 are widowed, about 55% of the women are widowed. For widowed women, the lack of access to savings and property results in dependence on children, mainly sons, bringing the vicious cycle of son preference to full circle.

Harnessing gender dividend
Changing patriarchal norms may take a long time. Meanwhile, enhancing women’s access to employment and assets will reduce their reliance on sons and could break the vicious cycle of gendered disadvantage, stretching from childhood to old age. However, unlike East Asian nations where demographic transformation has led to delayed and often foregone marriage and childbearing, early marriage and childbearing remain central to Indian women’s lives. Hence, any efforts at improving women’s labour force participation must be accompanied by access to safe and affordable childcare.

A World Bank evaluation based on a randomised controlled trial in Madhya Pradesh found that the expansion of Anganwadis to include a crèche led to an increase in the work participation of mothers. Arguably, the most striking example of the importance of childcare is documented in a study based in urban China by Du and Dong; it found that as state support for childcare declined, employment rates for mothers fell from 88% to 66%.

National Rural Employment Guarantee Scheme (NREGS). At present, NREGS is being used to build physical infrastructure but there is no reason it cannot be used to develop social infrastructure where NREGS workers can help staff crèches. The burgeoning self-help group movement can be harnessed to set up neighbourhood child-care centres in urban and rural areas. Obtaining the much hoped for demographic dividend cannot be done without fully harnessing the gender dividend. Improving access to childcare is an important component of achieving this.

Sonalde Desai is Professor and Centre Director, National Data Innovation Centre at the National Council of Applied Economic Research (NCAER), and Distinguished University Professor, University of Maryland, U.S. The views expressed are personal.

    Get updates from NCAER