Apr 22, 2016

If Surge Pricing is right what's wrong with Food Inflation?

I like this word Surge Pricing. I don’t know who coined it but I admire the intent behind it. After all, it requires a lot of creativity to provide a phrase that provides a neat cover for what appears to be an economic wrong. To put it simply, as The Economic Times defines it -- Surge Pricing is when consumers have to shell out higher prices at certain times of higher demand.

Obviously, most business and industry will love it. Protagonists of the market economy call it a free market practice based on demand and supply. So when Delhi Chief Minister Arvind Kejriwal came down heavily on Surge Pricing being adopted by Uber and Ola taxi operators at the start of the second phase of Odd-Even, the companies were upset. Despite the hue and cry raised by many Indian companies and also their brand of economic writers, Kejriwal declared that overcharging and blackmailing by taxi aggregators will not be allowed even after Odd-Even period is over.

This has fanned a debate, especially in the pink media, on how relevant Surge Pricing is.

The debate comes at a time when rising dal prices have drummed up the heat against Government’s failure to control food inflation. Retail prices of common man’s dal have surged by at least 25 to 35 per cent in the past two weeks necessitating the government to come out with a set of measures, including a clamp down against hoarders and black marketers, and arranging for more imports in the next few months. Already prices of popular dal has reached close to Rs 180/Kg, raising fears that as summer progresses the dal prices will beat last year’s record price of Rs 200/Kg.

The rise in prices of pulses is also related to demand and supply. You must have heard several analysts on the TV channels arguing that it is because of low domestic production that dal prices are on an upswing. Prices of dal have remained beyond the reach of the common man for the past two years and that was also attributed to low production. If you discount black-marketing, hoarding and speculative prices, business analysts invariably have the simple answer – it is all a play of demand and supply. With rising incomes, people have started to eat more of nutritious dal and therefore the prices are up.

Let’s therefore try to understand. It is often said that Dal prices are zooming because supply is unable to match the ever growing demand for pulses. In other words, knowing that the demand is growing for pulses, your local kiryana trader is actually resorting to Surge Pricing. And that makes me wonder, if Surge Pricing is actually a dynamic pricing mechanism when it comes to taxi operators, Airlines and hotels, by providing an avenue to seek competitive prices, why should there be so much of hue and cry over rising food inflation? Doesn’t food inflation also provide an opportunity for farm trade to seek competitive prices at times of shortages? Isn’t this how the principle of Surge Pricing works?

Prof Kartik Hosanagar of The Wharton School at the University of Pennsylvania, as quoted in The Economic Times, says that supply and demand are not always perfectly balanced and therefore justifies companies resorting to dynamic pricing. In other words, companies have the license to loot at times of scarcity. And if Surge Pricing is not loot, I need to know what loot actually connotes. By charging as much as 6-7 times higher price isn’t this exactly what the taxi operators are doing? Using catch phrases like dynamic pricing or surging prices cannot cover up the hideous exploitation. To say that customers always have the option to reject increased fares speaks of the heightened arrogance that comes along with the freedom to exploit.

To use the same argument, consumers too have the option not to buy pulses at higher prices. People can stop consuming dal if the prices go beyond their reach. After all, they will not die if they stop eating dal. So why are people always protesting when food inflation inches up? Why have the Governments to resort to several measures to bring down the prices? The tragedy is that those who justify Surge Pricing are invariably quiet when it comes to food inflation. And you know why.

To take this debate a little further. Just try to get an airline ticket in an hour of emergency. I know of an instance when airlines priced the one way ticket between Mumbai and New Delhi at Rs 27,000. Last week, a New Delhi journalist was trying to send a member of his family to Patna to attend a cremation, and he couldn’t get one way ticket below Rs 20,000 at the last hour. Finally, he managed to pack his family member on a long distance train and that too against a waiting ticket. If this is what is called dynamic pricing, please tell me how you define loot. In any case, when an auto rickshaw driver overcharges everyone calls it a loot. So why do we not call it loot when a taxi operator or an airline or a hotel overcharges? Or is it just because they are on the internet and use What's App that our perception of loot changes??

If Surge Pricing is right than what's wrong with Food Inflation? ABPLive.in April 21, 2016


Shekar said...

There is an important point of difference between dal (food) and (discretionary) services like Uber, etc. The latter is price elastic, food rarely is..... I understand that one could argue that if dal prices were lower many who can't afford it today would be able to consume it (and that makes it look elastic); however, as I'm sure you would agree, this is due to severe market imperfections in food pricing and inability or unwillingness of the state to provide for basic nutrition/ health in India.

mankul said...

If I recall correctly, did not Manmohan Singh suggest India cultivate lentils in a huge swath of land in Australia?