Economy
 
Fiscal deficit, not retailers, behind price hike
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August 05, 2011
The district administrations across Punjab have launched crackdown against profiteers. The provincial government has announced holding cheap bazaars during Ramadan in a view to keep prices of essentials in the reach of the people. A noble job indeed!The solution lies somewhere else, however.

The magistracy system, revived after the undoing of the district governments, is at work. The magistrates have resumed the duty to execute the price lists worked out by the price control committees which are working under the supervision of the DCOs.

The traders who are being subjected to raids and arrests for selling goods not according to ‘official’ rates say the colonial era is back while the magistrates are on strike in markets. “When you can’t take action against hoarders and wholesalers how you can tell the retailers to behave,” asks an outraged trader.

Cheapbazaars have become another story. There is nothing cheap like that selling in the market. If the prices are low there is no check on the quality of products. And what are the criteria to allot shops in these bazaars? Talk to any representative of traders’ associations they will tell you sometelling stories.

An interesting situation arose in Rawalpindi recently when the district administration tried to force the butchers to sell meat at the rates Rs. 80-100 lower than the market. They went on strike saying that instead of stopping smuggling of meat to Afghanistan and Arab countries, the government was forcing the butcher to run their business in loss.

The previous regime had controlled price hike through allowing imports of essential items from the neighboring market. But the practice has been stopped due to the reason that the government is pressed hard to keep the foreign exchange reserves in bulks and it duly claims that it has set records in this regard.

Energy import bill stands the highest with the present regime. Transportation of goods from farm to market has become costly. Railways could alleviate the woes of the people but, thanks to the mismanagement of this cheap means of transportation, there seems to be no immediate solution of price hike.

One possible way to keep commodity prices low is to open to the regional economies. We have in our neighborhood India that can help out. But there is a problem: we have to fight the menace of fiscal deficit that stands as high as 4.5%.


Given the low tax-to-GDP ratio (below 10%), the gap is filled with printing rupees without sovereign guarantees causing its depreciation. But the government transforms this challenge into opportunity by allowing essential goods (which become cheap due to depreciation of our currency) to the foreign markets.

Now the situation is that Pakistan is exporting its essential goods that otherwise would have been not if rupee had not depreciated and these goods have not become cheaper for the foreign consumers. We can’t import such things from nearby markets, for the currency exchange rates are not favorable to us.

After meeting the demand of neighboring and far off markets, whatever essential items (read it pulses, meat etc.) are left with us, they are not enough to cater to our needs. When we compete on resources short in supply, the highest bidders (rich and well off) are favored. Statistics show that the twin cities (Islamabad and Rawalpindi) are slaughtering animals 30% less than the last year, for the prices are high and some sections of the city are using this commodity less than before.

The real culprit behind the price hike is, of course, the fiscal deficit. That the rich contribute less to the national kitty and the government is not serious in taking austerity measures, the purchasing power of the lower and middle income groups is on decline. More people are getting down the poverty line. Regional trade can help but absence of good governance will prevent to reap its benefits.

Poor DCOs and their assistants still have to do their jobs. They have to use the centuries-old methods (which they are known to) of bringing down the prices of essential items though the same are short in supply knowing not that the market is not closed and there is democracy, not dictatorship, in place.

Howthe outrageous retailers and frustrated consumers will react on polling day? This is, actually, a million dollar question. The reason is that politics in Pakistan is seen through the prism of ethnicity and racialism. Democracy only succeeds in a free society, which we are not. If we claim that it is working in Pakistan, the credit goes only to the ill-informed consumers.

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