CHAPTER 3

LEGAL AND POLITICAL ENVIRONMENT

PRICE CONTROL

MEANING:
Sometimes, government restricts the price that can be charged for goods and services in a market. Such
types of restrictions are known as price control.

Example: Government controls the price of sugar, petrol, medicines, chemicals etc.
There are two types of price control,
- price ceiling: the maximum price that can be charged for any product. For example, government
fixes maximum price for certain products like diesel. This maximum price that can be charged by
manufacturers is called price ceiling.
- price floor: the minimum price that can be charged for any product. For example, government
fixes minimum price for certain products like agricultural products. This minimum price is to
make sure that farmers should get atleast some income for their efforts in agriculture.

OBJECTIVES OF PRICE CONTROL:

Price controls are governmental restrictions on the prices that can be charged for goods and services in
a market. The objectives behind implementing such controls are as follows;

1. To make products affordable: sometimes government controls the price of the goods and
services in the market in order to make the product or service affordable for the customer. The
role of the government is to think about the welfare of its people. Hence government tries to
make the product cheaper so that the objective of social welfare is fulfilled. For example,
government reduces the prices of medicines so that every patient can afford it.

2. To prevent price increase during shortages: sometimes government controls the price of the
product because during shortage of any product, the price can rise very high. Hence, government
controls the price of such products to stop the rise of prices during shortages.

3. To slow inflation: Government often controls the price of products and services in order to slow
the rate of inflation in the market. If prices are not controlled then inflation can rise and if it is
controlled then inflation can come down.

4. To insure income for manufacturers: Sometimes government fixes higher price for certain
goods so that the manufacturers can get certain minimum price for their products.

5. Minimum wages for workers: Government has also created minimum wages act. The objective
of this act is that the workers should get atleast a certain level of salary for their work. This is
also a part of price control.

PUBLIC DISTRIBUTION SYSTEM (PDS)

Meaning:
- Public Distribution System (PDS) is food security system in India. It is established by the Government
of India under Ministry of Consumer Affairs, Food, and Public Distribution and it is managed jointly
with state governments in India.
- It distributes subsidized food and non-food items to poor people in India. Major commodities that are
distributed through PDS are staple food grains, such as wheat, rice, sugar, and kerosene.
- PDS operates through a network of Public distribution shops, also known as Ration shops established
in several states across the country.
- Food Corporation of India, a Government-owned corporation, procures and maintains the Public
Distribution System.
- It was started in the year 1939 to help the poor people who were affected by drought and famine.

Features of the PDS: The important features of the PDS can be summarised as follows:

1) It is a system of distribution of some essential goods through the fair price shops (commonly known
as ration shops' or co-operatives (owned by the government) which are operated by private dealers under
the government's control and direction.

2) Rice, wheat and sugar are important commodities supplied through PDS. The other important items
are kerosene, edible oil etc.

3) Consumers are left free either to purchase through Fair Price Shops or from the open market.

4) Government first buys the food grains from the farmers and then supplies it at lower price through
ration shops. Government fixes the price of the commodity as well as the quantity to be distributed per
family.

5) The aim of PDS is to provide atleast a minimum quantity of essential products at reasonable prices
specially to the poor people of this country. The prices charged are usually lower than open market
prices.

Advantages of PDS: Following are some of the advantages of PDS in India

1. It has helped in stabilising food prices and making food available to consumers at affordable prices.
2. It has helped in avoiding hunger and famine by supplying food from surplus regions of the country to
deficient regions.
3. The system of minimum price has contributed to increase in foodgrain production in India. This is
because government gives a fix minimum price for their agricultural products in India.
4. Poor people can get the foodgrains and other necessary commodities at a low price.

Disadvantages of PDS: The following are the disadvantages of the public distribution system;
1. Even if PDS is operating in India, still there is very high level of hunger and poverty in India.
2. There is a lot of corruption at the ration shops. The ration shop owners sell the products in the
open market at higher price and hence poor people do not get that food grains and other products.
3. This system is very inefficient because governmental implementation is not very strict.
4. High level of buffer stocks often leads to wastage of foodgrains and decrease in quality. Buffer
stock means the inventory that government keeps for supply. This foodgrain gets spoiled if
government does not supply such foodgrain immediately.
5. The storage of foodgrains have a very high carrying costs on the government.
6. Farmers produce only those foodgrains for which government gives higher price. Other
foodgrains are not produced by them. Hence there can be shortage of some types of foodgrains.