Of prices, people and policies

This article was published in the New Indian Express sometime back. Thought it worth sharing here. M G Warrier

Of Prices, People and Policies

The Nano experiment by Tata, among other things helped in opening up one thought process in the industrial circle world over. That is about the need to relate cost to prices. Till Nano days, prices were driven by market conditions and cost did have a very insignificant role in deciding prices.
When Ratan Tata pegged the price of his dream car at rupees one lakh and asked his team to work backwards and make it possible, various market players reacted to the idea in diverse ways. People in the manufacturing field viewed the idea with scepticism and pessimism and consumers worried about the quality of the product getting affected with attempts at cost reduction.
A conscious effort to understand the real components of price we pay for goods and services in daily life will give startling results. The eye opener for me to think on these lines was the purchase of a small quantity of sand which was needed for fixing some rough tiles on the outside steps leading to the terrace which used to become breeding ground for fungi during monsoons and using them was a risky affair as it became very slippery. I was asked to pay three thousand rupees for a small truck-load of sand.
When I was still wondering why the price for this commodity has gone up ten times during a period during which the prices of most comparable inputs for construction and related work has gone up only three to four times, I happened to overhear a conversation between the truck-driver (who happened to be the supplier of sand) and a worker who had come to help me in fixing tiles.
It transpired that moving sand from the place where it was available to the workplace carried heavy financial risks. Even if one is able to procure all permissions and is prepared to pay taxes and other dues complying with all the requirements in this regard, still the agents of the regulatory authorities would invariably catch some of the trucks transporting sand alleging some violation or the other.
Last week I met a successful businessman in my neighborhood who was not very brilliant in his college days and had by compulsion made a small beginning in self-employment through business in late seventies. He started with fabricating television antennas and selling them from a small shop. He had told me in the past about the embarrassment he faced while selling antennas at a price higher than Rs400 which really cost him less than eighty rupees those days. The reason for pricing at higher levels was that the consumer had a habit of relating price to quality.
Most of the theories do not work out when it comes to farm products. Not only the perishable nature of the commodities, but the decentralized market at both production and consumer ends contribute to the much more volatile and uneconomic price situation when it comes to farm produce. Whether it is wheat in the Unite States or flowers in Holland, governments and organized markets struggle to make production financially viable.
The situation in India, where there are less organized markets and government has other more prioritized immediate concerns, is anybody’s guess. Uneconomic prices end up in a clamour for subsidies and loan waivers that finally result in half-hearted approach to agricultural production as a livelihood/business proposition. The vicious circle continues.
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