PM on price spiral

Addressing cheques distribution ceremony of Kamyab Jawan Programme among the youth, Prime Minister Imran Khan has blamed the unprecedented high price spiral in the history of the country on hoarders and profiteers. He shared with audience the feelings of extreme worry of his cabinet ministers about the price situation that is dinting the image of the government among the masses. The Prime Minister warned that strong action shall be taken against the elements, who in his view, re responsible for the shortages of food commodities and other essential consumers’ goods in the market to mint money.

It is no longer a secret that influential politicians in the fold of ruling and opposition parties and business tycoons with strong political connections have larger stakes in the cartels of food commodities but the worst type of cartelization of the economy is not the only factor responsible for 12.5 inflation rate. It is the carry over phenomenon created by the previous two governments with their policies of generating downturn of the economy which has been accelerated by the stabalisation programme of the present government and its failure to announce comprehensive policies for boosting agricultural and industrial production notwithstanding completing one and half year of its tenure. The government has not made any visible forward movement on the Prime Minister’s vision of the economy which was outlined by him in his first speech after taking oath of office in 2018. Likewise, no policy intervention has come to break the powers of cartels which emerged in the last PPP government and gained tremendous strength in the succeeding PML-N government. There is no much optimism about any strong action against the well-entrenched cartels which are owned by the political and business elite.

The current surge in inflation rate has not whipped by the artificial shortages in the retail market that are attributed to hoarders and which the government is trying to contain with the tools of monetary policy of abnormally raising bank interest rate and open market operations of selling treasury bills and other credit instruments. The cost push and structural factors have largely contributed to the galloping inflation. High energy inputs tariffs, currency depreciation of over 50 percent, and regressive fiscal measures have generated cost push inflation. The structural adjustments included fiscal measures of economy’s stabalisation programme which have jacked it up further. As result, production in the manufacturing and agriculture declined and the economy shrank.

The vested interest group in the corridors of power calls shots in the decision making, putting the economy on wrong direction. The point of view of business community is not given consideration to correct the direction of the economy. The latest gallop survey reveals that 60 percent of businessmen feel that economy is on the wrong direction. In a meeting with business community at Governor’s House in Karachi on Monday, the Prime Minister urged them to assist the government in turning around the faltering economy. How can they help out the government when there is no consistency in the fiscal policy of the government? The withdrawal of committed subsidy in electricity tariff of 7.5 cents per unit from back dates and reversal of tax credit that had been offered earlier for investment in plant and machinery with retrospective effect are the recent examples.

The Prime Minister hinted at lowering interest rate in future. But the easy money alone will not improve the economic environment when fiscal policy is regressive, electricity and gas tariffs are high, imported industrial raw material is expensive and industrial base is stuck in second generation technology. The monetary and fiscal measures that had been taken by President Musharraf government in 2000-02 provide the required guidelines for initiating fiscal and monetary measures to achieve turnaround of the economy. However, these measures were not aimed at long term solution of attaining sustained level of economic growth. The solution lies in the implementation long term industrial and agricultural policies. The federal government is aware of expected decline in the production of wheat crop because of unfavourable weather condition, disease developed by the standing crop, insects and pests attack on it. But there are bold indications that Ministry of Food Security will remain confined to issue an alert to the provincial governments. Long term policy formulation for agriculture and industry is the prerogative of the federal government.