Budgets, Cigarettes, and MRP

The annual budget is a bad time for smokers for more than the usual reasons. Prices of cigarettes are almost guaranteed to increase every budget session and it has done so like clockwork for the past many years. It’s part of the government’s sin tax policy. However, most smokers by now anticipate this and are prepared for a price hike every year.

What is annoying to the smokers though is the period before the budget. In the second half of February, there is always a sudden shortage in the supply of cigarettes. The reason for this is straight-forward: suppliers anticipate the price hike, just like the consumers do, and would want to sell the existing stock at the higher price in the future. There is actually a spike in demand from the suppliers, who buy large quantities at the present lower price and hoard it until the budget numbers are announced. Even if they do sell it, the retailers hoard it to maximise their gain.

This causes a great deal of anguish for the smokers who cannot get their required nicotine dosage. Some retailers do sell it to their ‘loyal’ customers, but at a premium. Most people, however, struggle to get their preferred brand of cigarettes, even though they are willing to pay a higher amount than the printed Maximum Retail Price.

Closer to the budget date, the shortage intensifies and the price of cigarettes usually spikes to a much higher level than what the budget increase would cause. Regular supply at the higher price usually returns within minutes of the budgetary announcement.

Even though most smokers accept the price increase as inevitable, the shortages in the pre-budget period can be highly frustrating. The shortages boils down to the bizarre and unique law in India, where products cannot be sold at a price higher than the printed Maximum Retail Price (inclusive of all taxes). The offence is punishable by law. If there was no MRP, both suppliers and retailers would increase the price in anticipation of the budget and ensure normal supply. The demand will not really dip because of the increased price, as most consumers have a resigned acceptance of it. At higher prices, supply would naturally increase and every one would be happy.

Twitter Handle: @anupammanur

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