Maggi lessons for India

For economists, L’affaire Maggi, which has destroyed the reputation of one of India’s favourite fast foods, is an unusual case of market failure and government failure happening all at once. When that happens, the big loser is the individual consumer, stripped of all reasonable safeguards. Maggi is hardly likely to be the only consumer product not adhering to stated norms. India’s market economy is still evolving and regulation is either non-existent or weak. But Maggi is the one that, by a stroke of chance, got caught for too much lead and too much Monosodium glutamate in its noodles.

It should not have happened. Maggi is manufactured by a big multinational corporation, Nestle, whose foods are consumed by populations across the globe. The company operates in competitive markets — Maggi has several competitors in the instant noodles market — and the only reason it sells so widely is because its goods are associated with a certain high standard and quality. The moment it loses that reputation, the brand is dead and people will switch to other alternatives. That’s probably what will happen to Maggi (if not to Nestle) in India. It will be now be killed by consumers who will no longer buy it in the marketplace no matter what Nestle says or does. The logic of a competitive market dictates that a company like Nestle would do everything to avoid that scenario just to stay in business but, at least in India, Nestle slipped up.

Or did it? Could it be that the company simply didn’t bother to set stringent enough standards in the first place because regulation by the Indian government is so lax?  Was the food safety regulator, the impressively-acronymed FSSAI, ever testing any product before giving it stamp of approval? If it was doing regular tests, Nestle and other companies would surely have been more careful.  Clearly, the regulators at the government-controlled FSSAI failed to do their job.

A lot of consumer angst has been focussed on the many celebrities who have endorsed Maggi. It should instead be focussed on the FSSAI. Perhaps celebrities ought not to have promoted Maggi as a ‘health’ food, but there is absolutely no way they could have known about the excess lead or MSG. They would take the FSSAI’s word (or, should one say, stamp of approval) for it.

And here’s why all of us should have been worried about the FSSAI much before L’affaire Maggi. Regulators function best when they operate at arm’s length from the government. The FSSAI reports to the Ministry of Health and Family Welfare, which has not exactly been a beacon of efficiency under any government. Ideally, a body like the FSSAI, whose work is technical, should be headed by a specialist, a scientist perhaps. Instead, it is almost always headed by a retired Indian Administrative Service officer, someone usually associated with the Ministry of Health and who has been rewarded with a post-retirement sinecure. 

There is also reason to be concerned about the focus of the agency. The last time it was in the news some months ago, it had held up large consignments of imported goods (probably certified by superior food regulators) for want of ‘proper’ labelling.

The FSSAI’s actions stank of an old-style inspector Raj. Should they not have been concentrating on detecting problems in foods made in India instead? The gross failure of the food safety regulator on something as widely consumed as Maggi should scare India. It should serve as a call to press for more fundamental reforms of the administrative and regulatory structures that are meant to protect consumer interests. There is no other option because the market can and does sometimes fail. In that case, government failure is an unacceptable and dangerous follow up.

The only regulators who have had some success in India are the ones who are genuinely independent, staffed by people of reasonable expertise, and backed by new legislation which is up to date with global standards. The Securities and Exchange Board of India and Competition Commission of India have done a reasonably good job because they have satisfied those standards. Others bodies such as the Forwards Market Commission and the Petroleum and Natural Gas Regulatory Board have not done so well because they have not met those exacting standards.  

It is time food safety was accorded as high a priority as stock markets, competition, telecom and civil aviation. While consumers need protection across the board in any market economy, food is particularly vital because it is a matter of health, life and death. Let something positive come out of Maggi’s fall — a new law and a new independent, specialist regulator for food safety.

(Dhiraj Nayyar is an economist and columnist.)

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Printable version | Jan 25, 2021 3:23:49 AM |

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