Recipe of price control
In response to the resentment among the people about the recent surge in the prices of the commodities of daily consumption, the federal government has decided to test the recipe of price control through administrative measures which fall in the domain of provincial governments. A committee headed by the defense minster Pervaiz Khattak shall be constituted to devise a system for the stabalisations of prices and check profiteering, which are now entirely determined by the market forces.
Interestingly, while briefing media about this decision of the cabinet, Information Minister Fawad Chaudhry claimed that in contrast to 6.5 percent increase in inflation rate during the PML-N government, only 1.4 percent increase has been witnessed during past few months. Ignoring the day-today market situation, the minster contended that the prices of vegetables and pulses have fallen while the prices of petroleum products have been lowered.
The inflation rate reached to 7.2 percent last month due to imprudent fiscal measures like unprecedented increase in the gas tariff and that of electricity despite the steep fall in the price of imported fossil fuel, upward revision of the prices of medicine and monetary expansion in the shape of excessive government’s borrowings. The tool of enhancing bank rate and open market operation through sale of treasury bills will not contain the rise in inflation rate unless supplemented by fiscal measure of direct taxes.
This time the prices of perishable commodities like beef, tomatoes, potatoes, onions, and other vegetables have tremendously gone up. The non-perishable food items like, pulses, beans, rice, sugar and dry skimmed milk have registered an increase of 12 to 15 percent. In sharp contrast to the substantial reduction in the prices of petroleum products as recommended by Oil and Gas Regulatory Authority (OGRA) a benefit worth peanut was provided to the people as the transportation cost of consumers’ goods remained high.
The central bank governor has rightly warned the government that further downward movement of exchange rate of rupee against the US dollar and other global currencies, increase in gas and electricity tariffs and reckless government’s borrowing would offset the positive impact of increase in policy rate and fall in the international crude oil prices.
The recipe of administered prices works when the productive capacity of the economy is expanding to support the supply augmenting measures. The prevailing situation is not that favourable as the growth of agriculture and manufacturing sectors is stagnant. The sources of production and stock are controlled by the cartels owned by the political elite sitting in the corridors of power and the business houses with strong connections in political parties. That is why the Competition Commission of Pakistan (CCP) was made toothless in the previous PPP government and remained dysfunctional in the last PML-N government whereas it was fully functional in PML-Q government due to effective oversight of President Musharraf. The CCP curbs the cartelization of the economy by promoting competition in the market and ensures fair trade.
The constitution of committee headed by a person who does not know anything about economy may not achieve the desired result for evolving price stabalisations system. It needs the acumen of a team of outstanding and dedicated economists. When the economy was destroyed by Z.A Bhutto agenda of nationalisation and massive devaluation of currency, it was the package of economic reforms suggested by a technocrat finance minster Dr. Mahboobul Haq that turned around the economy in 1978-79. Increased productivity in the agriculture and industry coupled with supply augmenting measures brought down the prices of essential consumers’ goods in a period less than a year. Again when the PML-N government busted the economy in its second tenure, economists like Dr. Salman Shah assisted the then military led government for the revival of the economy and putting it back on the growth path. The policy of restraint to increase the prices of utilities boosted production and kept the prices of consumers’ goods stable during 2000-07. The doors on the emergence of cartels remained closed to discourage hoarding and profiteering. Will this government follow the path of poor people friendly economic reforms and show a strong spine to dismantle the cartels?