Administered Price Mechanism

The concept of Administered Price was first introduced by famous British Economist, John Maynard  Keynes for the prices charged by a monopolist. A monopolist can be a price maker and he consciously administered the price of his product irrespective of the cost of production. Competitive prices are determined by the interplay of forces of demand and supply in the market whereas administered prices according to Keynes were associated with monopolists’ decision regarding price fixation irrespective of the market forces of demand and supply.

However, in India the meaning of Administered Price has been quite different. In India, Administered Prices refer to prices which are fixed and enforced by the Government. They acquire a statutory nature. They are the outcome of the price policy of the Government. The Government interferes in the price mechanism and fixes minimum and maximum prices of various commodities in the agricultural and non- agricultural sectors.

Following are the reasons for the Government interference in price regulation:

  1. To prevent exploitation of consumers by certain producers who charge high prices just to maximize their profits.
  2. Administered prices aim at providing stable and assured income to the farmers especially under the unfavorable climatic conditions. Administered prices also aim at protecting the interest of weaker sections of society.
  3. The Government resorts to administered pricing for discouraging or encouraging the consumption of certain commodities. By raising the prices of certain commodities the purpose of the Government may be to put a check on their consumption. Similarly to encourage consumption of certain commodities their prices may be lowered for certain section of the people.
  4. Administered prices are introduced for encountering inflationary pressures. The administered prices ensure that the free play of market forces does not lead to mal-allocation of resources.

In fact, Administered Prices are the result of the policy of the Price Control resorted to by the Government for an efficient management of the economy.

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