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Retailers Enjoyed Higher Price Margins During The First Wave: RBI
The stringency of the lockdowns and the price margins were found to be inversely proportional during both waves
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According to an article, published by the Reserve Bank of India on Wednesday, retailers enjoyed higher price margins in the first nationwide lockdown, from March 2020 to May 2020, as compared to the second lockdown. Disruptions in the supply chains and panic-buying by the customers were, primarily, responsible for driving up the mark-up prices of the commodities.
Price margin is the difference between the cost of the product and the price charged by the retailers. The retailers took the advantage of high demand due to hoarding and panic buying and charged more for the commodities. A decrease in the supply due to supply chain disruptions also led to an increase in mark-up prices.
The price margins, however, were lesser in the second lockdown implemented in May 2021. This is because of the more localised nature of these lockdowns and more mobility in the supply of essential goods. “Moreover, apart from the localised and less stringent nature of the lockdown, the second wave appears to have been better managed in terms of facilitating the movement of essential goods and services in the country”, read the article.
The toll collections data was used by the RBI to ascertain the stringency of the lockdown. The collections fell lesser in the second wave as compared to the first wave, signalling towards more mobility in the respective period.
The significant rise in the aggregate mark-ups of the goods in the first lockdown was predominantly driven by edible oils, pulses and potatoes. The impact was more pronounced at the places which were far from the centres of production. It serves as direct evidence of the impact of the supply-side bottlenecks during the first wave.
The study conducted by the RBI intended to study the impact of lockdowns across the centres and across the food items. For impact across the centres, the intensity of the lockdowns and the change in the price margins were studied. For impact across the food items, the supply chain disruptions and the change in the price margins were studied. The items which were given special permission by the government were kept in mind.
The data of 135 centres was used to conduct the study on the sample of the entire 22 commodities, used to calculate the Consumer Price Index (CPI). The data was originally collected by the Department of Consumer Affairs, Ministry of Consumer Affairs, Food and Public Distribution. Google Mobility Index was also used to ascertain the results.
The gap between the CPI and the WPI widened to unprecedented levels during the first wave. CPI remained elevated till November 2020, whereas, WPI did not show such sharp spikes. The difference, however, turned negative in March 2021. This was mainly because the unfavourable base rate increased the WPI, whereas, CPI remained more or less the same.
Interestingly, it was found that there was a great deal of heterogeneity in the impact of the lockdown on the price margins when studied across commodities. Pulses and edible oils showed a sharper impact of the lockdown as compared to cereals and milk.