Firoz.T.Totanawala The Bangalore Metro Reporter THE BLASTED MRP! 90% DISCOUNTS, CRACKERS HAVE A ROCKETING MRP

                             

Firoz.T.Totanawala

The Bangalore Metro Reporter

15th November 2011 issue-

                                        

THE BLASTED MRP!

90% DISCOUNTS, CRACKERS HAVE A ROCKETING MRP

Another Deepavali has come and gone. Thousands made a beeline to Hosur in Tamil Nadu to buy the crackers where the prices are 50 to 60% less than in Bangalore. The cracker merchants of Hosur offer heavy discounts which are sometimes up to 90% and nobody bothers to understand this. Interestingly, they make crores of profit in the season. They offer 70 to 90% discount on MRP or 50% discount on the wholesale price, also known as dealer price.

The cracker business in Tamil Nadu is not restricted. One fire extinguisher and a No smoking board is suffice for anyone to get license there. Earlier Shivakasi was the sole Cracker business centre which houses hundreds of small, medium and big cracker factories. People used to go to Shivakasi and book their requirements well before the season. Over the years, the Shivakasi crackers manufacturers started housing their outlets in Hosur, 48 kms from Bangalore as Bangalore was and still is the biggest market.

But the game is all about the MRP. It all started when the crackers business in old Mysore area was monopolised by ‘Pataki Chits’. The agents of these chits would collect a certain amount monthly for three months beginning after the Deepavali and invest it in other businesses for eight months. During the festival they would give gift articles, sometimes gold, silver or utensils depending upon the chit amount and as a bonus also give crackers worth the chit amount.

These agents would visit and place orders with Shivakasi manufacturers and make them print whatever MRP, they desired, on their consignments. For example, if an agent wants to give crackers worth Rs.1000 to a chit customer (along with gift worth equal amount), he would make the manufacturer print Rs.3000 MRP on gift boxes and make the customers happy as he gets crackers worth 3000 for free despite the fact that it were not worth even Rs.200!

The Shivakasi manufacturers then started this practice by themselves. They exaggerated the MRP and enticed the customers with huge discounts. In the last decade, the Pataki Chit business almost finished with the soaring prices of gold, silver and steel. Since then, it is individual purchase and people go to Hosur to buy crackers getting cheated and the state losing heavily in taxes.

Arguably, the cracker business is restricted in our state. Aftermath the cracker tragedy in KR Market, 15 years ago, the shop keepers are banned from stocking and selling crackers. The police issue the license just few days before Deepavali and the merchants have to apply to the police commissioner for the same. Again, the licensees must put up a temporary shed at the fixed and allotted play ground and sell crackers there. All these mean spending money and they also have to invest in buying crackers from Shivakasi and now Hosur.

As the license is valid for few days, the traders, to empty the stock attract the customers by giving 40 to 60% discount. As usual, the MRP printed on the crackers are highly exaggerated. But, as people are aware they prefer Hosur to save through additional discounts and choice of companies. Unfortunately, neither the state nor TN government has any control over the cracker production, its pricing etc.

Earlier there was no sales tax on crackers in TN and a nominal tax was levied later. And this year, the tax is on advalorium basis. If this hike is enforced in TN, the manufactures should have abandoned the exaggerated MRP printing. For example, if a pack of five Flower pots are priced at Rs.500, the tax at 10% would amount to Rs.50. But the selling price of the Flower pots will actually come to Rs.50 after the discounts. Does this mean that the cracker manufacturers are selling their products free of cost, albeit collecting Sales Tax (now VAT)? The MRP includes the costs of raw materials, production, labour, commission to the wholesalers and dealers and the VAT. Then offering 90% discount beats any known standards of reason or logic. Apparently it implies that the TN government too is involved in the fraud?

The truth is that the entire business borders on fraud MRP. The companies print MRPs in multiples of the product’s cost. For example, if a pack of Flower pots costs Rs.20, the MRP is printed as Rs.300 to 400 and the VAT is not paid on the MRP but on the cost price. Assuming that the companies declare Rs.20 as the cost price and pays Rs. 2 as VAT, the total cost would be 22. And the MRP printed will be Rs.400. Even after 90% discount, the cost will come to Rs.40, and that means a profit of 100%!

However, if Karnataka State desires and makes sincere efforts, it can easily curb this MRP fraud. The TN border with the state starts at Attibele and there is a commercial tax check post there. When people bring crackers from Hosur, it should be checked and taxed at the check post on the MRP according to our state’s tax slab. This will ensure the crackers manufacturers not indulge in the excess MRP fraud.

If this exercise is undertaken, people will not go to Hosur or Shivakasi to buy crackers. One can even expect crackers manufacturing units coming up in the state also. In that event, the Shivakasi manufactures will see the reason and will be forced to opt for fair business practices. Till then, one has to live with the excess MRP Fraud of the cracker manufacturers. 

And that is all.