Understanding market forces and their implications


In the real world of commerce and industry, we do come across many terms. One of these is the phrase "market forces". One has to understand what this concept means and how its implications affect the common man. This article is an attempt in this direction.

Introduction

In the real world, the phrase "market forces" simply means the pricing of several products and services that are determined by the dynamic inter-play of several forces that impact the price in a particular market or several markets. That is, the price is not controlled by the Government but determined by the forces of demand and supply in any given situation. In this article, an attempt is made to discuss the concept of "market forces" with specific reference to a) vegetables and fruits market b) groceries market c) real estate market d) the FMCG market and e) textiles market.

Vegetables and fruits market

This is a market that is totally unregulated by the Government. These are agricultural commodities. These are produced in several places and transported to several parts of the country. It is always seen that the prices are somewhat cheaper in the places where the marketing costs are zero. That is, the rule of "market forces" dictates that what is produced and sold locally, is somewhat cheap when compared to the goods that are transported to huge distances.

To give a simple but effective example, the onions and potatoes in huge quantities, one is told, come all the way from Maharashtra by lorries to the huge wholesale market called the Koyembedu market, in Chennai. This huge wholesale market, in turn, supplies these vegetables to hundreds of wholesalers like industrial canteens for their own use, or to other wholesalers who buy them everyday, but sell it at much higher prices in their own kirana shops.This is exactly why the prices of vegetables in the various kirana shops in the metro cities like Bangalore and Hyderabad are so high. The same is also true of big supermarkets like Reliance Fresh. Since the vegetables and fruits come under the "agriculture" category, they are not taxed at all. The "market forces" get played out through the simple mechanisms of demand and supply.

The customer is benefited a big deal when the prices crash. For example, there is an excess production of tomatoes in the month of April and May. This often happens in Andhra Pradesh. The farmers are not able to get good prices, as the excess supply leads to very low prices quoted by the wholesale dealers. Unable to find good prices for their produce, many farmers get frustrated and simply dump huge quantities of tomato on the roadsides.

The huge supply finds its way to retail markets. In the city of Salem, one can find a kilogram of tomato selling for less than five rupees. Hundreds of thousands of customers buy this and make all sorts of dishes and jams and side dishes and what have you. However, once the rains start in October, the yields become so less, the supply becomes very tight and the same tomato is sold for even Rs.60 per kg. In Bangalore, one is told, the so-called "Bangalore tomato"(this has a totally different taste from what is called the "nattu" tomato sold in most parts of Tamil Nadu), shoots up to Rs.100 per kg. Prices in the supermarkets in Bangalore, even on normal days, is around 120 percent more than what is sold in the smaller towns of Tamil Nadu, and at least 40 percent more than what it is in the wholesale markets of Chennai. However, the rich IT crowd does not bother about these high prices. The poor cannot just afford such high prices.

Groceries market

The market forces determine the prices of groceries. Since the demand is so high and the supply is not huge, the prices always keep on raising and simply shoot up when the supply is reduced to a trickle. The demand is very huge, as the Indian families do use a variety of dals in various dishes and these are hugely required for weddings. This is a huge market and when the supply is less, the prices tend to shoot up. The Government does not come into the picture at all. However, when the supply becomes so bad, like for example, when there is a drought in the country, the Government goes in for imports of the particular grocery item, to control prices. However, this is not so common at all, in Indian conditions, as we do produce groceries in huge quantities.

Real estate market

This is once again, a hugely "market forces" driven market. For example, when selling plots for residential purposes, the Government does come into the picture in terms of the local town planning authority's approval or the Metropolitan Development Authority's approval in the metro cities. Once this approval is given, there is another statutory approval called the RERA approval, that has come into the picture, very recently.

However, the sale price of a flat or apartment is left to "market prices". Unless there is customer resistance, the seller keeps on quoting huge prices. For example, in several posh localities of Chennai city, the going rates are around Rs.16000 per square foot which translates into more than Rs.1.6 crores. This is now quite common and the prices are even higher in places near the prestigious Mount Road. The same situation is now common in most metro cities.

In fact, the prices reach a peak and then there is a slowdown of sorts. When this happens, the reduction in prices starts. Some freebies like free woodwork in the kitchen are also thrown in. Even sellers of the unsold apartments quietly quote lower prices on an individual basis. The customers take into consideration, several considerations. For example, prices crash when there is a big slum nearby a gated community. Customers often think that the environment is not conducive. This perception leads to lower prices.

The FMCG market

The Fast Moving Consumer Goods (FMCG) industry is largely unregulated and it is also left to "market forces". For example, the manufacturers of soaps and detergents is so huge. There are so many products also in the lower market segment. For example there are so many "bar soaps" available in the rural areas and the small towns. These products are always very cheap and they are sub-standard. Yet the poor people buy these products. Even this is left to "market forces".

In hundreds of thousands of bakeries, there are cakes and breads (both branded and as unbranded), sweets, jams and what have you and all these are also subject to what is called "market forces". The branded items are always costlier than the unbranded ones. The merry-go-round of lower prices is often seen when there is a slowdown. The customers are intelligent too. For example, housewives buy a single sachet packet of "Ariel" that comes from the prestigious Procter and Gamble company and soak the clothes in it. For the actual washing, they settle for a lesser known brand, that is just about okay.

Housewives are experts at dealing with high prices in each of the FMCG products. Even the smaller brands rise their prices, but the price increase is far less than the multinational brands, that factor in the GST and other applicable overheads and charge high prices. It is another story that the same MNC companies have to resort to "30% percent extra" gimmicks in most of their products when there is a slowdown in the economy. This has already happened in the past four years, since the contractual employment has played havoc with the lives of hundreds of thousands of diploma holders in engineering and the graduate engineers as well. Their reduced spending does affect the big FMCG brands too. in the years to come, when the contractual employment also comes into IT, there will a huge downturn in the economy. The advent of robots is another big problem. The jobs get displaced.

In FMCG products, customers have huge choices. The Tiger brand that retails for Rs.3 for a small packet is a huge hit in the rural areas, as the cash flow is less and the product is eminently affordable. The FMCG industry is a superb example of "market forces" where the demand and supply variables can be very easily observed.

The textiles market

In the rural areas, people still feel it a prestige to buy the cloth and get it stitched by the friendly neighborhood tailor who has now set up his job in almost every big village, often within a radius of just four kilometers. The demand for his services or her services ( for blouses worn by ladies) is huge. The supply of textiles is so huge, that retailers announce huge discounts. The reason is that they are able to procure ready-made garments, for example, from Surat, at very low prices and sell them for profits, one is told, is in the region of 12 to 15%. In Chennai, there is a very famous retailer. Come Diwali time and the advertisements scream with an actress on television who invites you with "buy one, get two free" for ready made shirts and pants. The saris are also sold in this fashion. The footfalls are so huge that the crowd cannot be managed. Every single guy who comes in, purchases something.

The volumes are so huge. The supply of garments with the above offer is so good. So is the demand. The "market forces"take over. The customers cannot buy anything cheaper. Even the other shop fellows have more or less similar offers. For the same quality. Hence, there is an informal cartel working and the customers do not complain either.

Conclusion

In India, we do have the aforesaid "market forces" markets. It is not that the list is exhaustive. It is just illustrative. However, the task of owning a house, for most lower and middle class people, for example, is so difficult in the cities, with the slow increases in income at the entry levels and for those with no professional qualifications. The "market forces" will continue to play so well in so many markets in India. It is sheer demand and supply at work. It is sheer common sense that everyone can easily understand.


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