Wednesday October 20, 2021

Groping in the dark

September 17, 2021

LAHORE: This government keeps the public and experts guessing on its economic policies. It claims to bring down prices of essential goods within weeks when rupee is declining, and diesel and petrol rates have been increased.

With rupee already trading at its lowest value, an increase of Rs5 per litre in petrol rates, despite the Oil and Gas Regulatory Authority (OGRA) recommendation of Re1 increase, is unfathomable. Most decisions are taken on whims, as many times this government kept the rates unchanged even when the regulator recommended hefty increases.

OGRA recommended an increase of Rs10 per litre in diesel rates, but the government decided to limit it to Rs5 per litre.

The role of the regulator has been reduced to an advisor only.

Increase in oil prices was on the cards because it is an imported commodity, and depends on dollar parity. However, economic planners were relying on foreign exchange reserves as a stabiliser for keeping the dollar in check.

They failed to realise that the market was aware of the quality of the reserves, which are mostly based on borrowed money.

Inconsistent policies have inflicted a lot more damage on the economy.

At first, this government strangulated growth by putting massive curbs on imports. It claimed that this would stabilise the economy. Then all of a sudden, these curbs were removed and the pent-up demand after three years of recession triggered huge imports.

Now everything has gotten out of hand. Inflation is rising, and rupee is on a rollercoaster decline.

In a similar vein, the much talked about construction bonanza failed to provide houses to the poor. Instead, the housing deficit has widened during the past three years instead of reducing.

Richer segments of the society faced a lower housing deficit three years back, but now even that deficit has been covered, while for the poorer segments it went up.

These poorer segments are also facing higher inflation.

Increase in petroleum rates would have a multiplier impact on inflation. More so because the transport cost for goods and passengers would increase.

The government would probably claim that it did not increase the rates of diesel by Rs10 as advised by OGRA to reduce the burden on public transport and agriculture, but it compensated it by passing on that increase unfairly on petrol.

Intra City transportation of essential goods is carried out on petrol run vehicles. Motorcyclists, who mostly belong to poor or lower segments of society, would have to bear the higher rates for petrol.

This government has no control on the economy. It has no clue how to stabilise prices.

The finance minister laments that retailers earn 400 percent profit.

This is all the more reason to document them and increase income tax.

However, the change in prices in the entire chain from agriculture producers or manufacturers to main distributors, wholesalers and retailers is not more that 250 percent and that too in case of agricultural commodities. In the manufacturing products it is not more than 60 percent divided between the entire distribution chain.

Prices of essential food items has been climbing continuously.

The release price of wheat has been increased from Rs1,450 per maund to Rs1,950 per maund, as the government withdrew the subsidy it was providing to the millers. Yet the government claims that the rates of atta (wheat flour) would come down.

Rates of edible oil are increasing regularly, and with rupee in free fall there is no chance of these rates coming down any time soon.

Sugar tycoons are the protected breed and some important players are sitting in the government.

They have defeated all efforts to reduce sugar prices.

Government would not be able to stop the increase in transport fares after the increase in diesel and petrol rates.

The intention to provide subsidies only to the poor is good, but its implementation would be challenging. It would take few years to make it work, but then after making the poor addicted to subsidies it would be impossible to withdraw it.

Such schemes need a lot of planning and homework and should not be introduced in a hurry. Moreover, we cannot expect a government in mess to introduce a flawless scheme. Though it does have some excellent executioners like Sania Nishter of Federal Ehsaas programme and Dr Yasmin Rashid in Punjab Health sector.