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November 24, 2019

The tomato controversy

Opinion

November 24, 2019

A few weeks back the finance adviser made the startling revelation that the price of tomatoes was Rs17 per kilo. The finance adviser probably thought everyone present at the press conferemce where he made the statement would start praising the efforts of him and his team. Little did he know that he would be at sea in answering questions.

Government ministers, not just in this government but every government, always quote prices much lower than the actual market prices. But when the actual price is around Rs250 and the adviser maintains its only Rs17, there is a very serious problem.

The problem is not just in terms of the huge gap between what the adviser said and the actual market price, but how far from reality government ministers really are. It also reflects the immense gulf that separates the present rulers from common Pakistanis, and raises fundamental questions on how food inflation is being calculated and how the data is being collected.

The more important question is whether the finance adviser was aware (or not) of the various prices of essential items. For the information of the readers, the inflation figure is discussed in detail at least once a month in the Economic Coordination Committee of the cabinet. Prices of essential items are presented from various markets around the country. I am not sure how much focus it gets from members of the present ECC but prices of essential items need to be discussed in depth – especially the increases in food items since it affects common Pakistanis.

This is not the first time that the finance adviser has been so off the mark. For example, within 20 days after the budget presentation, the nation came to know that the budget document understated the expenditure by Rs800 billion - a staggering amount which could not have been missed or overlooked when the budget was presented on June 10. We have never been explained the reasons for such a huge gap. Again, the fiscal deficit was targeted to close at 7.3 percent. That was June 10. By June end, the deficit figure had gone up to 8.9 percent – the highest deficit in the last 35 years or so. More important than the 8.9 percent deficit, it reflects a serious lack of understanding of the fiscal numbers.

There is no denying the fact that the present government has completely failed to control inflation – an indicator more important in terms of its impact than any other macro-economic indicator. The price of every essential item has significantly gone up in the last year. Tomatoes were priced around Rs30 per kilo but have now gone to around Rs250 just in one year. The country has never seen this kind of price escalation in the last decade. Apart from the phenomenal price increase in tomatoes, consider the price increases for some other items. The price of onions has increased by a whopping 125 percent over the last year. Similarly, the price of daal moong has increased 47 percent, fresh vegetables by 36 percent and sugar by 35 percent. Overall food inflation has gone up 15.03 percent just over last year making life miserable for the people.

To be sure, the present situation is a result of cost-push inflation rather than demand pull. The significant increases in prices of electricity/ gas, massive devaluation in a short period, doubling of discount rate, unprecedented increase in taxes etc: these are the main contributors towards double-digit inflation. As a result of these and other actions of the present government, billions of rupees have gone from the pocket of the people of Pakistan to the government. All these price hikes have taken place while incomes have either remained stagnant or have actually gone down. The bottom line for the people – far less disposable income and therefore less demand for products and services. This situation leads to reduced production in factories resulting in job losses and dismal economic activity. This dangerous vicious cycle is continuing since Aug 2019.

The government has tried to justify the massive price increases by making irrelevant comparisons, like saying that inflation in the first year of the PML-N’s tenure was far more than in the first year under the PTI government. Comparisons are always done year-on-year or period to period. For example, in the last year of the PML-N government, inflation was less than 4 percent. That’s where the PTI government took over and the inflation went up to 8 percent at the end of its first year. On the other hand, when the PML-N took over in 2013, the inflation rate was 7 percent and we ended the first year slightly lower than 9 percent – an insignificant increase despite the IMF programme. Thereafter inflation continued to remain below 5 percent in the remaining four years of the PML-N.

The comparison of absolute numbers in various years is quite absurd. Again, to illustrate, inflation at the end of the current government’s second year will be compared to the rate at the end of its first year – not with the inflation rate in the second year of the PML-N government.

The government has also changed the base year and weightage of various items for determination of inflation rate. Had these changes not been made, the inflation rate would have been even higher than presently reported. The inflation rate remains in double digits which is not a good sign going forward.

The government seems to be indifferent to the impact the food price hikes have on the daily lives of people. This issue cannot be ignored or deflected by inventing new methods of comparison or by quoting inaccurate prices. Hopefully the finance adviser and his team will ensure that they issue credible statements and their projections are as accurate as possible. It is important to fix various deficits but more important for the present government is to fix the trust deficit.

The writer is former governor Sindh and former minister for privatisation.