Guru: learning economics from the movie

The film 'Guru' is based on life and times of Dhirubhai Ambani. The highlight of the movie is the epic battle between Dhirubhai and Ramnath Goenka, head of the Indian Express. The Indian Express unearthed violations of certain economic laws by Reliance Industries. These appeared in a series of articles in the Indian Express which were authored by S. Gurumurthy (played by Madhavan in the film) and research carried out by Arun Shourie, who were reporters in the IE .
Arun Shourie in an interview given to Knowledge@Wharton states his opinion about the matter and I quote -

"My colleague S. Gurumurthy had written a series of articles on Reliance Industries. Their main point was that its founder, Dhirubhai Ambani, had circumvented the conditions under which licenses were given. I later said -- and I was criticized a lot for this remark, including by my friend Gurumurthy -- that we had put Mr. Ambani to great difficulties. But in retrospect, should the violation of those regulations have been condemned? After all, the licensing raj was bad; my own doctoral work had shown that. Now we were criticizing somebody for violating rules that should not have been there in the first place. If you give me a capacity of 100 yards and I produce 120, is it a good or a bad thing? But it was a violation of the law as it stood then. I took the view that such violations, in the end, help prepare the ground for the change of the law itself.

We had extortionate tax rates in the 1950s. More than 100% of our income went into wealth tax, expenditure tax, income tax, and so on. That led to honest people becoming dishonest. In the end, that huge blackmarket became one of the arguments for lowering tax rates."

Austrian economist Freidrich von Hayek, the proponent of capitalism, had said: "…by exceeding the limits in which those restrictions sought to impound them, they help create the case for scrapping those regulations".

There are interesting scenes in the movie which tells us about the kind of economic policies prevalent in India which has resulted in India being a 'Third World' poor country. One of them is if someone wants to import anything (raw material or finished goods) then he has to show that he has also exported something. This is to save 'valuable foreign exchange' ! The result was Indian manufacturers could not import intermediate goods or machinery from abroad.

P.S. This post has 2 tags: film and law. It could have been film & economics. Very rare for a Hindi film!

MRP related article in Times of India

In relation to my earlier post 'Law..Is it for real' here's a related article.
The Times of India dated December 6, 2006, Pune Edition published this report on Maximum Retail Price violations. Here is the text of the report.( For those who wish to read it on the website, check out the epaper edition at http://epaper.timesofindia.com/ )

One product, an MRP too many

A Bottle Of Water Can Cost Rs 10, Rs 12 Or Rs 20, Depends Where You Buy

TIMES NEWS NETWORK Pune:

Here’s news for consumers — MRP now seems to stand for ‘Multiple Retail Pricing’ instead of Maximum Retail Price!
While the Standards of weights and measures (packaged commodity) rules of 1977 prohibit a retailer from charging anything extra than the maximum retail price (MRP) printed on a packaged product, some manufacturers are selling the same product at different MRPs in different locations. Many consumers are thus feeling cheated while paying higher price for the same product in different parts of the city. While a one litre water bottle of Aquafina purchased by TOI from the Comesum restaurant at Pune railway station carried an MRP of Rs 10, another one litre Aquafina bottle purchased from the VXL ice cream parlour, outside George restaurant in Camp, had an MRP of Rs 12 printed on it. An Aquafina bottle of a lesser quantity (750ml) was being sold at an exorbitant MRP of Rs 20 at some malls and multiplexes in Pune. For example, at E-Square multiplex and Yo! China outlet at Kakade Magnum, the water bottle was being sold at an MRP of Rs 20.
Jai Dehadrai, a law student, was taken aback when he was charged Rs 20 for a bottle at the E-Square multiplex snack counter. He was surprised that the same product was being sold at an MRP of Rs 10 outside the multiplex. Driven by a deep sense of being cheated, Jai and his three friends, who had gone to the multiplex to watch a movie, had a prolonged argument with the multiplex management.
When the Yo! China salesperson was asked why a 750 ml bottle was being sold at an MRP much higher than the one litre bottle of the same brand at other places, he explained that the 750 ml product was specifically meant for places like malls and multiplexes. “There isn’t much of a difference in the quality of water sold through We barely get Rs 2 or Rs 3 per bottle sold at Rs 20 MRP,” he said.
When asked for an explanation on multiple retail pricing, Akim Bootwala, assistant manager (sales development), Pepsico India (Pune), said the company was following two different policies of applying MRP of Rs 10 per bottle for the Indian Railways and Rs 12 for open market. However, Akim was unable to explain the inconsistency in three different MRPs for the same product — Rs 20 for a 750 ml bottle sold at E-Square as against Rs 10 and Rs 12 for the one litre product of the same brand. Pepsico manager (sales) in Pune, Tanuj Chadha, was not co-operative when asked to explain the company’s multiple pricing policy and said that the company’s policy restricted him from talking to the media. the 750 ml or one litre bottle. However, there is hardly any margin for us if we are to sell these bottles at Rs 10 or Rs 12 MRP, considering that we also have to pay for the maintenance of this mall.


In another related article on the same day here's what TOI reports

Metrology officials find the MRP nut hard to crack

‘We can penalise offender only if sale price exceeds printed retail price’ Pune:

State legal metrology officials, who are responsible for keeping MRP (maximum retail price) violations under check, find themselves helpless over the multiple pricing approach by packaged product manufacturers. When TOI brought the discrepancy in MRPs for the same product at different locations to their notice, the officials said they can penalise an offender only in cases where the sale price is more than the printed MRP.
“The department has no control over what MRP the manufacturer prints on a given packaged commodity,” said D.G. Parate, deputy controller of legal metrology. Often, the department penalises offenders only if a violation is brought to its notice.
Parate said that although the department had been carrying out regular inspections to check overcharging, it has never come across such inconsistencies in printing of different MRPs for the same product.
“Our prime concern is to see whether a packaged product carries the five mandatory disclosures and whether the sale is effected as per the printed MRP,” he said.
Since April 1 this year, the department has registered only 15 offences of overcharging.
Although the Standards of Weights and Measures (packaged commodity) Rules of 1977 prohibit a retailer from charging anything extra than the maximum retail price (MRP) printed on a packaged product, this law is being flouted blatantly at many outlets in the city. At the Lohegaon airport’s main terminal, the Shubham ice-cream and juice centre was found selling a one-litre Bisleri bottled water (MRP: Rs 12) for Rs 20 without issuing a receipt. Asked the salesperson to explain the Rs 20 price, he maintained that this was the selling price for airport only. He refused to give a receipt.
The Salaam Dilli Chat outlet at the Mariplex mall, which is part of the Gold Adlabs multiplex complex in Kalyaninagar, charged an extra Rs 5 over a one-litre Aquafina bottle having Rs 12 as the MRP print. The salesperson initially refused to give a bill for this purchase, but after some insistence by a TOI reporter, gave a computer-generated bill for Rs 17. Irrespective of the Rs 12 MRP on the bottle, the bill mentioned the bottle price at Rs 15 plus a Rs 1.88 value added tax (VAT). The salesperson explained the discrepancy by maintaining that the Rs 15 price was inclusive of the service charges extended by the counter staff. This was in violation of the rules that there can be no extra charge over the printed MRP, which also includes all taxes.
In yet another serious violation, a snack counter at the E-Square multiplex sold two 330 ml Pepsi Diet cans to a TOI reporter on two separate occasions, although the can did not have any MRP and carried a printed legend: “Not for retail sale”.
After the first purchase at the Cake Khazana outlet at E-Square on November 1, the multiplex operations in-charge Gavin was asked about the questionable sale of the Pepsi Diet can. Gavin said he will have to investigate the matter before making a comment. “There might be some mix-up during the commercial activity undertaken by Pepsico. I will have to get in touch with the company and find out more details,” he said. However, the same scenario was repeated on November 23 with the E-Square counter selling a Pepsi Diet can without MRP and with a clear “Not for Retail Sale” legend. Gavin said the multiplex management was not responsible for the sale effected at the counters hired by private hotels. This was despite the computer-generated slips against such purchases being issued in ESquare’s name.
Assistant controller for legal metrology Seema S. Bais confirmed that the Diet can sale without MRP was an outright illegal activity. Asked what action was taken in such cases, she said the department can only act after effecting a transaction of its own, with witnesses and due panchanama proceedings, to ensure that an apt case is put up in court. Mere reporting of such case by an individual is not enough.

Law… Is it for real?

Law touches the lives of people in so many ways they are not even aware of. Registration of birth is compulsory, so is of death. And between these two registrations there are innumerable Acts, Rules, Notifications, Guidelines, Circulars, Notices and what not which control and record so many transactions in the lives of people. All these laws are either passed by Parliament/ Legislature or are released by authorities and are published in a magazine called 'The Gazette of India'. How many of us have seen such a magazine in our lifetime?

Since the last century nations are coming together and agreeing to bring uniformity into their laws. This means that a person will encounter the same set of rules and regulations in all the countries in the world. This has brought people closer and has accelerated the process of globalization.

Let me take one example to show how one particular law touches our daily lives. We all buy different commodities in a ‘pre-packed’ format from small shops to big malls. The commodities range from eatables to dry batteries to medicines. There are certain details which are mentioned on these packages. There are a set of rules prescribed called Standard of Weights and Measures (Packaged Commodities) Rules, 1977 for almost all pre-packed commodities.

There are certain details which should be mentioned on all these packages. They are Name & address of manufacturer, Common or generic name of commodity, net quantity, Month & day of packing, Maximum Retail Price (MRP), etc. It is specified that these details should be at a very prominent location on the package.

Also remember that the Rules prohibit a retailer from charging even One Rupee more than the MRP printed on a packaged product.

Moreover for Prevention of Food Adulteration mention of Colours (e.g. ‘Contains permitted Natural/ and Synthetic Colours/ Added Flavours’) and ‘Best before Upto __ date’ is also to be mentioned on food packages. In case of foodstuff the ingredients which are used for making are also to be mentioned. In case of medicines the chemical composition of the drug needs to be mentioned.

There are very few commodities where the Month & day of packing is not mentioned (Earlier milk and milk products was one, but this has now changed). In special cases like glass bottles of softdrinks which are returnable the Month & day of packing should be mentioned on the cap.

So the next time you buy any packaged commodity, don’t forget to check for these details. These are for protection for us Consumers. And also remember the laws which made it possible to view all these details which help us to make informed choices.