The Author, Aayush Panwar is a 1st Year student of Gujarat National Law University. He is Campus Ambassador of LatestLaws.com.
Recently there are developments in the field of Consumer Laws in India with the enactment of Consumer Protection Act, 2019, repealing the Consumer Protection Act, 1986. But it is time to think rational whether these laws are really helpful to the country with the economic perspective.
Let us discuss a bit about what the consumer protection laws really means. In a layman’s language these are just the laws to protect the interest of consumers against the malpractices of the producers or sellers. These include some of the basic rights like Right to be Informed, Right to Protection, Right to be Heard, Right to Safety, Right to Choose, Right to Seek Redressal and Right to Consumer Education.
But analyzing it from the point of view of an economics student is a bit different. Anything in economics is decided on the basis of Cost Benefit Analysis which means how much cost an activity brings with it and the amount of benefit it gives. It is also known as the Cost Benefit Trade Off, one of the basic principles in an economy. An economic activity should only be undertaken if the benefit derived is more than the cost it accumulates.
Starting with the simple concept of market equilibrium, any change in the aggregate demand or aggregate supply in the market always lead to a change in the equilibrium price and equilibrium quantity. Looking at it with Consumer Laws more deeply, when the laws protecting the interests of the consumers becomes more stringent or which are more consumer centric, the demand made by the consumers increases as the trust among the sellers and their accountability increases and thereby shifting the demand curve to its right (Increase in Demand). A negative effect can be seen on the supply curve. As the laws become harsh from the view of producers and sellers, as they are with the enactment of Consumer Protection Law, 2019, they tend to reduce the quantity of the goods they supply and thereby shifting the supply curve leftwards (Decrease in Supply). And this shift is much more than the shift in the demand curve and thus results in the increase in the equilibrium price and decrease in the equilibrium quantity. The increase in the price of goods will slowly lead to inflation and the vicious cycle inflation and unemployment will go on. Decrease in the equilibrium quantity will lead to economic slowdown paving the way for the rate of unemployment to increase further.
Seeing the other way round, increase in the consumer protection laws increases the competition among the sellers in the market. And it also true that a competitive market is always sows a seed for invention. With the invention of new methods of production or technology, the cost of producing the goods decreases and the seller is willing to sell goods at lower price in order to transfer the benefit of low cost of production to consumers and thereby shifting the supply curve to its right (Increase in supply). But this shift is minimal and can only be seen in the long run production.
Another important aspect that comes into picture is that of Economics of Information (EOI). The Act grants many rights to the consumer in which the most important is that of the Right to be Informed regarding the quality of goods available in the market, the technology used and the government policies regarding the production and distribution of such goods. EOI means understanding how an individual makes decision, how he will allocate his limited resources on different goods and services and what will be the impact of this on the economy as whole. For a consumer with his limited resources would always try to allocate his income to such goods and services which are safer for him to consume. This will only be possible when the so called Right to be Informed comes to the ground level, especially in terms of services because the information regarding the services is not so much in public domain, then only the consumer will get correct information about the products in the market and the effects of them. In a country where 60% of the GDP is from service sector, regulation of this is a necessity. For a producer, he will produce the goods which gives him maximum profits even it is hazardous to society. He will stop producing them when he will come to know about the laws that prohibit them and the penalties thereof. This will only be possible if the information is spread to both the consumers as well as the producers regarding the rights of consumers and the laws governing the production of hazardous goods. Seeing the world of fake news and the current Consumer Protection Act, achieving this level of mass consumer and especially producer education appears to be a big task in the economy.
A new concept that comes into picture with the enactment of Consumer Protection Act, 2019 is that of Product Liability, which means that the manufacturer or the producer will be responsible for any damage caused due to any defective product. Section 84 of the Act states that the manufacturer will be liable for any defect in manufacturing or design, or there is deviation from manufacturing specification even no negligence or fraud is proved on the part of the producer. Seeing it from the point of view of economics, it gives us many different conceptions. The first one is that in case of imported products what would be the criteria to evaluate the normal standard and the deviation, the standard of the exporting country or our country since both the countries might have different standards according to level of Economic growth in respective countries. Further in a world of e-commerce evaluating a liability of E-Commerce giants is a big task. Second is that increase in scope of product liability may decrease the supply of goods in the market and discourage the producers for any new type of technological innovation and development. A totally different view may also exist that the producers will be now prone to higher liability cost which may stop them from producing hazardous goods which will in turn increase the productivity of people but that will only be possible in long run production.
Coming towards the conclusion, the government should only enact and implement such laws after taking into account its short term and long term impact on the economy. The balance between the cost and the benefit should be made in advance to derive the economic benefit in addition to the Political and Social benefit. To achieve better economic outcomes in short run, the government has to ensure see that the decrease in supply due to loosing of faith in government policies by producer is compensated by giving some incentives to the producer like subsidy. This need to be done only in the short run because due to technical developments in the long run, the cost of production is doing to be decreased and the subsidies can be taken off. Another aspect that should be taken into consideration is that of mass education. In today’s world, information is like oxygen without which no one can exist. In the long run, the government by its policies has to ensure that the technological development takes place so that the increase in the cost of production can be covered. So at last government need to ensure that the effect of shift in the supply curve due to harsh laws on producers and increased product liability on manufacturers is always less than the cumulative effect of technological development and the economics of information otherwise enacting such laws would have an adverse impact on the economic growth.
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