Time for ‘seller beware’

Asian Age, February 12, 2015

By Pradeep S Mehta

The Budget must introduce a shift in the manner consumers are dealt with in the country. A change from the hitherto sectoral perspective to deal with consumer issues to a principles-based approach on issues of consumer saving, investment and expenditure is required.

Matang Sinh joins a galaxy of alleged swindlers of small consumer savings, preceded by Sudipta Sen of the Saradha Group and a clutch of Trinamul Congress politicians in newspaper headlines. This is not to forget Subrata Roy of Sahara, who is still trying to extricate himself from the mess, working behind bars in Tihar Jail. There are many more such scandals in our history. But our government, be it in the states or at the Centre, have been negligent in protecting gullible consumers who get attracted to investment schemes offering the sky. The need is to have an omnibus financial consumer law, which can deal with not only protecting investors, but enable the consumer to deal with all types of complex financial services where s/he is never in a bargaining position.

Consumer savings and investments act as capital for producers of goods and services, and consumer expenditure comprises their revenue. High economic growth cannot be achieved without increase in consumers’ savings, investment and its safety and expenditure.

The share of households in India’s gross savings has gradually declined from around 67 per cent in 2012 to around 59 per cent within two years. Similarly, private consumption, an indicator of consumer expenditure, barely recorded an increase during this period, having remained constant at around 60 per cent of the gross domestic product.

The reasons are not hard to guess. While being the most important class, consumers have not got their share of attention from the government. During its annual Budget, the government often tinkers with tax rates and investment slabs and alters duties, resulting in changes in prices of some items. However, a comprehensive strategy to cater to consumers’ interests is missing.

Consumer expenditure and savings:

Let’s take some examples, beginning with consumer expenditure. Expenditure on food and petroleum constitutes significant part of consumer spending. In the interim Budget presented in July 2014, the government had announced creation of the price stabilisation fund (PSF) to manage price of edible commodities. After around eight months, the government has merely issued draft operational guidelines in this regard. It would be some time before the guidelines are finalised and the PSF becomes operational. The interim Budget had also promised to increase competition and integrate markets across the country to serve farmers’ and consumers’ interest. Unfortunately, this has not been followed up by any concrete action.

International crude oil prices have been constantly dropping and the government has not let the entire benefit reach the consumers. No reasons have been provided for this. One hopes the government uses such windfall gains productively and does not lose them. A lack of long-term strategy in the public domain raises concerns about transparency and accountability.

Moving on to consumers’ savings and investment, which is significantly dependent on services provided by banks and financial institutions. It is appalling to note that during last financial year, around 70 per cent of complaints received at the banking ombudsman were relating to sub-optimal ATM services and money loss, debit/credit card frauds and non-observance of fair practices code by service providers. While the government is keen to tap consumer savings through schemes like Jan Dhan Yojana and establishment of payment and small banks, strict compliance with consumer protection principles would be needed to ensure its success.

The memory of the illegal money raising and ponzi entities siphoning off consumers’ investments has not faded yet . While sector regulators such as Securities and Exchange Board of India and Insurance Regulatory and Development Authority operate with limited resources in their respective jurisdictions, lack of proactive role by the government and absence of a comprehensive consumer protection strategy is adversely affecting consumers’ interests. Tectonic shifts in consumer markets, with the introduction of technology and advent of online shopping and e-commerce, have also raised concerns regarding the protection of consumer funds and delivery of promised products. The existing Consumer Protection Act is inadequate to deal with these issues.

Need for a comprehensive rethink:

Previous governments have neglected financial consumers at their own peril. One has high hopes from this government, thus, the forthcoming Budget needs to be consumer centric. It must introduce a shift in the manner consumers are dealt with in the country. A change from the hitherto sectoral perspective to deal with consumer issues to a principles-based approach on issues of consumer saving, investment and expenditure is required. The principles must facilitate systematic transition from “buyer beware” to “seller beware” and ensure evidence-based development and review of regulations. Timely and effective grievance redressal must be ensured through independent, adequately capacitated, expert quasi-judicial bodies. The principles must be applicable consistently across sectors and must not vary with technological and market innovations and should be available in the form of a strategy document in the public domain.

Finance minister Arun Jaitley must, therefore, resolve to introduce an omnibus financial consumer protection legislation to regulate the financial sector on the basis of the above principles. Such legislation must address the behavioural issues in financial sector, and the problems of incentive misalignment, which lead to governance failures, ultimately harming consumers. It should establish a new, national, single financial consumer protection regulator, having state level units, thus covering the entire country. This has also been recommended by the Financial Sector Legislative Reforms Commission. Such law must take into account successful and not-so-successful practices implemented by various states and comparable jurisdictions.

Such a move will surely endear the government to the common man.

The author is is secretary-general of CUTS International. Co-authored with Amol Kulkarni of CUTS.

This article can also be viewed at: