Sub: RAI Representation in respect of Legal Metrology Notification dated 7 th September 2016

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1 Shri Hem Kumar Pande, Hon ble Secretary, Ministry of Consumer Affairs, Government of India. Sub: RAI Representation in respect of Legal Metrology Notification dated 7 th September 2016 Hon ble Secretary, Greetings from Retailers Association of India (RAI)! It is my pleasure to write to you on behalf of RAI. RAI is the unified voice of Indian retailers, working with all the stakeholders for creating the right environment for the growth of the modern retail industry in India. RAI is the body that encourages, develops, facilitates and supports retailers to become modern and adopt best practices that will delight customers. RAI is the representative body of Retailers in India, having over 1,000 member establishments including large and small retailers in the country and represents over 4,00,000 stores in India. RAI has a three charter aim of Retail Development, Facilitation and Propagation. We are writing this letter with respect to the recent amendment in the Legal Metrology (Packaged Commodities) (Amendment) Rules, 2016 dated 7 th September 2016 by virtue of which, when the competent authority under the Essential Commodities Act, 1955 (Act) fixes any price under the provisions of the said Act, such price shall be the price (MRP) that requires to be declared under Rule 6 of the Legal Metrology (Packaged Commodities) Rules, We, at RAI, do appreciate that this move of government is intended to control inflation and hoarding. However we as a representing body of retailers believe that this amendment will create unnecessary differentiation in retailers itself in terms of pricing. India moving towards 15 th September 2016

2 transformation and modern retailers are providing vital support in terms of making consumer shopping experience better in terms of healthy food. This includes rigorous investment in storage, maintenance of quality, shelf life timely transportation for its availability, preservation and protection against the elements and against adulteration. This all involves cost and retailers are bearing this cost to provide wholesome goods for Consumers. This amendment is pertaining to essential commodities i.e. commodities which are necessary in the daily list of food and grocery by any consumer in India. Retailers are following the rules and regulations of the government as a responsible citizen to ultimately serve consumer with good quality of food and grocery. The fixation of price by Government for these commodities (packaged/loose) is therefore unnecessary and will create un avoidable perplexity in the market without solving the issue and not serving the intended purpose of the government. We request you to reconsider the said amendment in view of below mentioned reasons: Putting one price for various quality/grade of a particular essential commodity is untenable a) One of the most important factors on which products are differentiated is the value addition. There are various types of value addition and every single type of value addition differentiates a product with all others. For example Value Addition includes sourcing of good quality material, processing it through automation/ semi automation sorting and grading mechanism which cleans and grades the produce. The product is also taken through fumigation process where insects and its eggs are killed and then it is taken through metal detectors to search metals, product is passed through magnet to remove metals.

3 Finally the products are analysed in labs for specification compliance. There is also effort taken in ensuring the Food Safety Management System during products maintenance and building its quality and integrity to the consumers. Thus the value Addition process takes lots of resources, time and energy as to offer the consumer good quality products. Each vendor Retailer may have different process of value addition depending upon Consumers requirement. Hence to treat all products of one generic class and all variants of one generic class having to bear the same price will not work well in the market and totally unfair and ultimately it will lead to provide one variant of products as it has been happening in the Fair Price Shop. i For example in the case of Milk there are various grades of milk based on the fat content such as full cream or skimmed, uht treated and packaged in tetra packs, organic milk, flavoured milk, fortified milk etc, to treat all these various types of milk and prescribe one price and that too benchmarked to the price of un- pasteurised milk sold in loose form is, to say the least, a complete negation of industry as a whole. ii Similarly there are many qualities /variants of one particular pulses (Dal) are available in the market. Tuar dal which was recently an issue for its availability itself has various types and tastes across country due to varied nature of consumers in various states. Not only tastes but storage is also different with different States of the country. For Eg in Gujrat Tuar dal stored soaked with edible oil. b) Therefore, to provide by legislation that if a particular price is fixed for a loose Dal, the same price would have to be printed

4 on all packaged dal having different qualities and having different value addition is unfair and retrograde and unlawful. c) It is equally important to note that the very act of packaging itself without any declarations add a distinctive value to the product that is packed. Packaging as already described is critical part for transportation, preservation, quality, shelf life, protection against the elements and against adulteration etc. For example, there cannot be any comparison between milk that is sold in a tetra pack and milk that is sold in loose form at the local dairy. Packaged oil and loose oil, packaged Dal/ loose dal cannot be compared for the same reason. Therefore, to enforce a control price of packaged and loose commodities is untenable. It was in the interest of consumers that to the extent possible loose food products are not sold to minimise adulteration and if the MRP is fixed by Govt. the very purpose of providing safe food to consumers will be at risk. There is no scope for hoarding in case of packaged commodities : a) The ECA was enacted in 1955, a socialist era with an intent to control production, supply, distribution etc of certain essential commodities for maintaining equitable distribution and availability at fair prices. This was to protect the larger consumer interest. In essence it was an anti-hoarding legislation to control the prices of certain essential commodities. b) However over a period of time, with the advancement in Food Processing Sector and packaging innovation, there have been shift from sale of loose commodities to packaged commodities which has led to enactment of law governing packaged commodities i.e. the Standards of Weights and Measures Act, 1975 and rules made thereunder (the said Act has now been

5 replaced with the Legal Metrology Act, 2009 and Rules thereunder). The aforesaid legislation governing the packaged commodities prescribes for declaring the Maximum Retail Price on the packaged commodities which cannot be altered on higher side once printed. c) Thus, the packaged commodities laws ensure that once the packaged commodities are packed and out for sale, their prices are not increased irrespective of the investment in various related aspects increase such as transportation, storage, safe and secure quality maintenance. d) Moreover, the food items in packaged form also have a Best Before date. Thus hoarding of packaged food items would take them closer to Best Before date and make them unfit for sale/consumption. Since the MRP is already declared by manufacturers no trader of such packed commodities can alter the maximum retail price or any declarations whatsoever. This there is no scope of hoarding in case of packaged product. Inflation cannot be controlled with a broad based legislative action such as the present notification Taking this into consideration, If the competent authority fixes the price of an essential commodity lower than the procurement cost, by Retailers may discontinue selling these products. Similarly, if manufacturers/producers do not have enough incentive, they will reduce production. This may lead to further shortage of essential commodities in the market and ultimately leads inflation.

6 The move shall be detrimental for the welfare of the farmer community nation wide The farmers shall be directly affected by the move since they shall be restricted in terms of growing various varieties of crops. This shall subsequently affect the retailer s ability to provide choice of products to the consumers resulting in restricted consumer choice. Furthermore, the restriction shall also have a negative impact on the national economy. Defeating the intent as a good step for the health and safety of the consumers You would be agree that several commodities are available in the market both in packed form and loose form. Across several commodities such as milk, water, edible oil, honey, grains, tea, atta, sugar that are sold in loose form, the adulteration is as much as 80-90%. Even assuming there is adulteration of packaged commodities, the name of the packer/manufacturer is specified so that we can trace them and the law can be enforced, however in case of loose commodities, it is only the trader who actually sells in retail who will have to bear the brunt, perhaps unfairly and who in any case is never be brought to justice. In as much as this notification triggers the movement from packed to loose commodities, it will only put the consumer at risk in terms of their health safety and ultimately their buying habits. This will take apart from taking the markets backwards by several decades instead moving towards transformation and development in retail sector. It will create disruption/ confusion in market and bring operational challenges a) Since Esscom is a State subject, various States will decide the price of the essential commodities, there will be movement of

7 essential commodities from States with high prices compared to States with low prices. i. Retailers are also bound by the stock control regime of various Food products as implemented in almost all states, in this circumstances it will be very difficult to make balance between these two regulations which will ultimately lead to non-selling of the products making huge impact on consumers buying habit. ii. As most of the developed countries doing away MRP regime, with this implementation India who is all set for developing, will be again going back to strengthen MRP regime era, this is putting unreasonable restriction on retailers and their Right to Trade as granted under Constitution of India, thereby defeating the very essence of democracy. iii. Not only retailers but consumers also will have limited choices to select and their right to choice for the products as well quality will be evaded thereby impacting hugely on essence of Consumer Protection Act. iv. There are already fair price shops (PDS) providing loose commodities at the lower rates and very low quality. Opposite to it Retailers also selling products with very competitive pricing bearing the cost of investment in value addition of the product just for the benefit of the consumers to give them good quality and wholesome food almost creating parallel PDS in the country but proving multiple choices. v. By sticking a standard price may lead to killing that completion impacting both consumers and innovation leading to stagnancy in the economy. vi. MRP discourages competition among producers as well.

8 b) There will also be confusion with respect to affixing prices by the producing states since the products would move to non producing states and every state may potentially have different prices. c) Govt. can t change the Retail prices parallel to the Wholesale price changes, the increase of Wholesale prices will lead to stock outs at Stores (As margins will be eroded) d) One state fixes the prices of the commodities, it will cause several confusion in trade as to what is the price that needs to be declared on such packages, whether it is a price declared in the state of packaged or whether it is a price which is declared in the state where it is meant for final sale and what happens if no price is declared by the State where the commodity is packed or in a State where the commodity is meant for final sale to the consumer. e) High Fluctuations in Pulses commodity ranges from -20% to + 25% within a span of 10 days. Retailers required min 10 days from processing to Supply and it is difficult to manage MRP changes. Multiple Grades & Varieties available in market and to fix common MRP to all the grades will be a challenge. Our member retailers follow FSSAI norms, they need to Purchase and Process grains accordingly, It adds additional cost. Progressive Farmers won t be able to realise correct market rate as per their quality Produce. It will discourage Best Practices at Farm level, Processing and Packaging. The entire retail industry felt the notification was issued without any prior consultation and without due consideration of the feasibility for the implementation of the same. We, at RAI always very supportive of the government s initiatives on various public purposes. On behalf of modern retail industry we are happy to support the Government in proper enforcement of the existing Law and we believe that the false

9 and artificial inflation that may be caused by lack of enforcement on some hoarders cannot be met with a broad based legislative action such as the present notification. The action that is required is better enforcement and not additional legislation. It is also in line with such policy of the government of less government and more governance. With the above background we request you to kindly withdraw the amendment with immediate effect. We look forward to a positive response. Warm Regards, Regards, Gautam Jain, Director Finance & Advocacy, RAI Cc Shri P.V. Ramasastry, Hon ble Joint Secretary, Ministry of Consumer Affairs, Government of India.