Price control is a regulatory mechanism used by the government to achieve the social-economic goals of the country by supplementing efforts with direct and indirect control instruments.
Price controls are simply government restrictions on prices of goods and services in the market. It is a regulatory tool that aims at controlling the prices of commodities in order to maintain availability of stable foods and prevent inflation of prices during shortages. There may be two forms of price control –
Price ceiling – It refers to fixing the maximum price that can be charged for a commodity.
Price floor – It refers to fixing the minimum price that can be charged for a commodity.
Objectives of Price Control
Equity or Distributive Justice – Price control measures aim to protect the citizens of a country by shielding them against steep inflation and abnormal price fluctuations.
For maintaining quality of goods and services
For preventing monopolistic, restrictive & unfair trade practices
To ensure that commodities are available at fair prices
To ensure smooth supply of resources
To curb black markets
To control unflation
Methods of Price Control / Price Control Measures
Indirect Control – Indirect control is implemented through macro-economic policies i.e. monetary and fiscal policies of the country. The monetary policy is formulated by the central bank of the country, RBI in India, while the fiscal policies through budgetary operation taken up by the government. In addition, Commercial policies like control on import and exports, tariffs etc. are also used.
Direct Measures – Direct measures operate through legislative and administrative measures like IRDA, essential commodities act, MRTP (now replaced by competition act), foreign trade regulation acts etc. For controlling prices the government may adopt the following schemes:
Dual Pricing – In such a scheme, few essential commodities are made available to weaker section of the society at affordable prices, while the same commodities may be sold at higher prices in the market.
Administered Price – In such a scheme, the maximum and minimum prices of certain commodities are set by the central or state government or relevant government body to eliminate unfair trade practices.
Subsidization – Under such a scheme, prices of certain commodities like food grains, fertilizers etc. are subsidized by the government through its legislative policies for the welfare of the weaker section of the society.
Price Control Mechanism/ Tools for Price control
Use of Monetary instruments like CRR, SLR, Bank rate etc.
Use of Fiscal measures like good taxation and budgeting policies
Fixation of Maximum and Minimum prices of essential commodities
Increasing Agricultural production and supply of food grains
Developing a consumer protection system
Developing a good public distribution system
Formulating essential legislative and administrative policies like MRTP, essential commodities etc.