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October 28, 2020

Knowing the inflation-corruption nexus

Business

October 28, 2020

LAHORE: Corruption, in a way, is directly proportional to inflation as slumping as well as stagnating incomes coupled with rising prices covert more and more public officials to it, while the corrupt also jack the rates of rents to adjust to the higher cost of living, a luxury not available to other workers.

The increase in price must be borne by even the poor that might be asked by an official to serve him free tea per day as the cost of a cup of tea increases. An official allowing a vendor to operate at a specific location for a certain amount will ask the vendor to increase it.

These are petty corruptions that impact the poor. But as you go up the ladder the increase in corruption rate is corresponding to the increase in cost of living.

This is the reason that high inflation or increase in prices acts as a double-edged sword for those that have no other means of increasing their incomes except monthly salary. With the cost of living increasing, they buy less from the fixed monthly salary, and if they must grease the palms of officials for their operations (street vendors) the amount also increases.

There is a concept of minimum wage in most developing economies based on the amount that would be sufficient for a bread earner to afford necessities of life for the family. This is even though in developed societies all adult men and women work. In Pakistan usually the men are the sole bread earners in the family.

The minimum wage is fixed by the state keeping this fact. Still the minimum wage has never been enough that could enable the bread earner’s family to live in some comfort.

The minimum wage is fixed at the time of the announcement of the budget (it was not increased in the current budget). It does not cover the high inflation that may prevail throughout the year.

Moreover, due to rampant corruption even this insufficient minimum wage is not applied to the majority of workers. This forces families to even send their children to work at people’s houses, shops, workshops, and unregistered industries. This deprives the children of education and childhood. However, even though two to three family members work more than eight hours a day the cumulative income is either equivalent to the minimum wage or a little higher.

The number of ’working poor’ in Pakistan is on the rise as the steep increase in prices during the past two years has thrown even those families into poverty that enjoy the luxury of getting minimum wage fixed by the state. The worst hit are the daily wage workers that used to get engaged for 25 days a month in 2017-18 but now feel lucky if they get work for even 10 days a week.

The increase in unemployment rate has also impacted their daily wage as employers have the choice to engage those that ask for less. The minimum wage worker cannot survive in the present scenario and afford the barest food and shelter needs of the family.

Wheat is the staple food of the country. The average price of wheat flour is Rs70/kg. One person needs 10 kg of wheat per month though the intake is much higher for the poor. A family of 6.5 would need 65 kg of wheat per month which at average rate of Rs70/kg would cost Rs4450 per month. Thus, the staple food alone would account for over 25 percent of the minimum wage.

The minimum edible oil rate is Rs245/kg. An average family requires at least three kilograms of edible oil or ghee per month. This would add another Rs735 in the expenses. Even the vegetables have gone out of reach of the poor.

The vegetables that are daily used in making curry are onions, ginger, garlic, and tomato. These vegetables would cost minimum Rs50/day or Rs1500 per month. The rates of pulses range from Rs125-250/kg. If the family reduces its pulse consumption to 250 grams per day, it will need 7.5 kg of pulses in a month. The expenses on pulses would reach to Rs937/month, even if the family consumes the cheapest pulse.

Utilities that include electricity, water and gas/LPG or any other kitchen fuel would cost minimum Rs2,000 for a family of 6.5 persons. The spices, salt, match box, washing and toilet soaps etc would add a minimum of Rs500 in monthly expenses.

Most of the poor do not have assets like a house. They live in rented slums in the most unhygienic areas without proper sanitation but even then the minimum rent is Rs2,000 per month.

Assuming, that a worker walks most of the way and spends only Rs25 on fare on public transport to and from his/her place of work he/she would need Rs625/month for 25 working days a month.

Out of 70 million active workers 30 percent or 21 million are daily wagers. All of them are working poor.