Doomed decisions

LAHORE: It is not possible for resource starved governments to continue with public appeasing measures, when they do resource constraints force them to recognise the reality that looks harsh to the electorate.

Take for instance the case of petroleum product prices. For months the government kept the rates stable against the advice of the regulator. Their spokesmen trumpeted that petroleum rates in Pakistan were the lowest in the region. They also claimed the increase in petroleum product rates has been absorbed by the federal government (as if they are sitting on goldmines to absorb the impact).

When they keep the petroleum products rates stable it earns no kudos from the common man. The day the prices are increased there is hue and cry all over. The traders, industrialists, and the man on the street, all declare the price hike as unjust, warning of steep price increase in all products.

The expectations of people from the government have been developed to unreasonable limits by our rulers. The Oil and Gas Regulatory Authority (OGRA) being the regulator of the petroleum sector determines the prices fortnightly based on the rates of crude oil in the global market in the previous two weeks. The government is just required to issue a notification in this regard. But almost every month the government spokesmen praise the Prime Minister for rejecting the advice of OGRA and keeping prices unchanged or increasing them by a fraction of what is recommended by the regulator.

Even in the latest steep increase of Rs5.40 in the price of petrol, the government spokesman said the recommended increase was diluted by the Prime Minister to provide relief to the consumers. This time the action has been

condemned by every segment of society. People were not prepared for this hefty increase in petrol rates.

Abrupt and high increases in rates of petrol or any other commodity are extremely difficult for households and consumers to absorb.

Prices increase irrespective of the finances of the households. When the price increase is small the households try to make adjustments in their spending by cutting expenses in different areas like reducing travel, cutting down on entertainment, and postponing repairs and so on.

However, adjustments are extremely painful if the increase is steep as was in case of electricity rates in the past, the impact of massive devaluation of rupee or current increase in petrol rates. An individual using a motorcycle on earning of Rs20,000 per month would have to bear an additional burden of Rs160 per month (on one litre daily consumption).

A small car owner would need additional Rs700 per month on minimum petrol consumption of 5 litres per day.

The petrol consumers would have adjusted to Rs1-2 per litre increase per month had the government heeded to the advice of OGRA all along. This hefty increase has earned the government a bad name.

The state provides subsidies on edible and other essential items through the 5000 utility stores. The ownership of 5,000 big retail outlets places the government in a very strong position to procure food and essential items at the most discounted rates.

The purchases are centralised. Any edible oil mill would love to dispose of all its production at the highest discount because it would save distribution commission and sales workforce expenses. There would be no need to subsidize edible oil if the corporation enters into contract with one or two mills b. Just imagine the sale of five kg of edible oil at each outlet means supply of 2.5 ton of edible oil daily or 75 ton in a month.

The actual sales would be many times higher. Flour mills would gladly part with their production at discounted prices. All other items could also be procured at 10-15 percent discount than the retail prices. The only requirement in this regard is appointment on pure merit and full transparency in purchases accompanied by accountability on supply of substandard products.

The state instead provides subsidies on different items. The capacity to provide subsidies in this regard is limited. If the market prices of certain items increase the government has to curtail the purchase of items on subsidy or increase the rates of those items to the extent of subsidy it could provide.

It was probably under this concept that the state announced an increase in the rates of edible oil, sugar and wheat flour at all utility stores outlets.

Again this was not taken well by the consumers. There is a lack of planning in the government that has no clue about the actual subsidy that would be needed for a particular purpose.

When the government defaults on promised subsidies it earns a bad name. It wins no laurels on subsidies as well because they are considered inadequate by the beneficiaries.

Why not do away with subsidies and concentrate on improving the economy?