Consumer Protection Is Needed In The Non-Financial Sector, Too

Consumer Protection Is Needed In The Non-Financial Sector, Too

The middle class, which can be broadened to be called consumers, is one which gets affected on all fronts but does not find an utterance

Madan SabnavisUpdated: Saturday, June 22, 2024, 03:18 AM IST
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There are several lobby groups for industry which continuously indulge in advocacy for this large constituency. The government on its own initiative addresses, or tries to resolve, issues when it comes to the lower income groups under the umbrella of ‘inclusive growth’. But what about the middle class?

The middle class, which can be broadened to be called consumers, is one which gets affected on all fronts but does not find an utterance. Let us see how this shapes up. First, this class gets little respite from taxation and all changes in the tax structure end up increasing the burden or reducing the benefits. While it is hard to define this class, it is the one that pays the highest amount of taxes to the government. This happens in terms of both direct taxes as well as GST. As one moves up the income echelon there is a tendency to consume higher value products which immediately results in payment of higher tax rates. This can be consumer goods or services.

There is no protection like what is provided to farmers for instance where there are price support programmes. Further, this is the class which saves the most in financial instruments but pays the regular tax rates on the earnings on them. There are preferences in taxation to equity over debt which increases the tax incidence for these savings.

The second area where the consumers get affected are in the overt charges levied on several services that are used. The first thing which comes to mind is the convenience charge that is levied by airlines or the railways. It is never clear as to what these charges are for. In a world where the government is pushing digitisation it would be an anomaly to pay for using the digital mode of payment. Further, notwithstanding the opposition made to the levy of a service charge by the hospitality sector, it continues to be included in the final billing. This becomes cumulative as the GST is imposed on the sum total. Another area where consumers are at the receiving end is when they are perforce made to reserve tickets for entertainment purposes through a couple of platforms which are virtual monopolies. The charges could at times be as high as 10-20% of the face value of the tickets. Given that the entertainment industry is growing at a rapid pace, these costs get subsumed and rarely are objections raised on this issue.

The third is the very distinct monopolistic or oligopolistic structures that have evolved in various segments of the services industry. The Railways, which is run by the government, is the largest monopoly where there are no cheaper alternatives. This concept of the lowest cost service provider gives the railways the power to price the fares differentially. While Tatkal was a service that began the process of differential pricing, the fares are now variable through the calendar and resembles the airlines.

The airlines industry on its part was supposed to have competition when the skies were opened up in the nineties. This led to several entrepreneurs coming in with variable success. The present situation today can be best described as being an oligopoly if not duopoly. While some airlines like to still call themselves a low-cost airlines, the difference in prices tends to be marginal as they tend to converge. In fact, often the prime-time flights have no such distinction.

Closer to home the suppliers of power or natural gas are absolute monopolies and consumers have little choice given that these parts of infrastructure are bulky and cannot by definition have too many players. This leads to distributors having the pricing power which can be misaligned from costs with rarely any authority exercising control over pricing. The sector is confusing because at one end of the spectrum the state electricity boards make losses as the governments are loathe to increase tariffs. Where the private sector is involved, the prices tend to be higher though admittedly the supply is better.

The story stretches to other infrastructure facilities like highways and telecommunication services. The Mumbai Pune Expressway started in 2002, there was reason for one to pay for use. However, over time the parallel old highway also became a toll road with the rates being lower. The justification given here is that there are no free lunches for anyone and everyone has to pay user charges. This is the economic rationale. But then the larger question is whether there is any control over the pricing. While it can be justified that all infra projects have to be self-sustaining, a cost-benefit analysis is necessary because the same is not permitted in say the agriculture markets where the government comes down heavily on so called profiteering when there are shortfalls in supplies of onions or potatoes in the market.

Further, the government had tried to open up the telecom space with private players coming in after the state monopolies fell behind. After a rather enthusiastic start with several companies providing services, the country is back to just three major players. A reason for players exiting is the high spectrum fees that are charged at every stage that cannot be recouped. Here is the conundrum because pricing once again seems to be converging after the initial teaser rates and facilities provided by the newest entrant.

All these examples show that the consumers are not really protected when it comes to pricing of services. This is mainly due to the absence of regulators; or often the case of the government department being a part of the system. In the financial markets the regulators ensure that consumer protection is of paramount importance. This is still maintained in the agricultural markets where there is substantial intervention in all forms to find a balance between the consumer and producer. However when it comes to services in particular which are ‘necessities’, there is no such umbrella provided.

A suggestion here is that the Ministry of Consumer Affairs should take on this larger role with probably a separate department overseeing these markets and ensuring fair play.

The author is Chief Economist, Bank of Baroda and author of ‘Corporate Quirks: The Darker Side of the Sun’. Views are personal

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