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What were the Objectives and Achievements of Administered Price Mechanism?

What were the Objectives and Achievements of Administered Price Mechanism?


1 Answer

Administered price, refers to the price which is set by a single decision-making body. The term administered price often refers to the government determined price. It is not an equilibrium price means the price is fixed at a particular level, hence fluctuations in demand and supply do not cause any price fluctuation.

The three major objectives of administered price are:

  1. Certain products are provided at concessional rates to favored groups such as Government, Public sector units and the poor people.
  2. To encourage production of items such as fertilizer, subsidies are provided through price mechanism.
  3. To control inflation, by limiting price increases that might have arisen as a result of shortages of items such as steel application of principles varied from industry to industry resulted as : (i) A uniform price for all plants for a given
    product (e.g. steel). (ii) Different prices for different plants for same product depending on the age of plant. (e.g. fertilizer). (iii)Different prices for the same product from a given plant (e.g. levy and non-levy cement).

In India, government administered the price of some key commodities and services like coal, steel, aluminum fertilizers etc. Whose prices were administered, account for about one-fifth of the total weight in the wholesale price index. Thus, in the past the administered price was an important factor affecting the general price level in India. At one time over to percent of the goods and services sold by the public sector enterprises were subject to administered prices. This indicates the importance of administered price in the Indian economy.

The principal aim of the administered price system is the protection of interests of both the producers and consumers. But in India, in many instances this system has failed to safeguard the interests of the producers as well as consumers. Price controls retarded the growth of the concerned industries and increased market imperfections which results in commodity shortages and flourishing black markets.

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July 10, 2019