14.05.2005
The macro-economic instability and the CBR’s inability to check and control concealment of colossal profits and evasion of taxes and duties will soon take the inflation to an unmanageable point. The economist’s ineffective measures to control inflation, which is fast growing into hyperinflation, is tarnishing the image of the Government. The general public is losing its confidence in the Government’s long-term economic development programmes. The World Bank, Asian Development Bank and the IMF have also termed inflation as a serious and challenging problem, which could not only hamper growth but dilute efforts to alleviate poverty. Even the parliamentarians are debating the issue in the House. The intentions of the opposition benches to initiate heated debate in the House on inflation appears only for the sake of criticism as they have not come forward with any support or suggestions to assist the Government in controlling inflation, which has already failed to control it. The economic managers apparently have no control or solution to check the menace of the inflationary impact on the economy and are looking at it as mere helpless spectators.
Even the Prime Minister, who is seen making day and night efforts for the development of the country appears to be helpless and without any concrete solutions and measures to get the economy out of the grip of the monstrous inflation. The unprecedented inflation is ruthlessly hurting the population below the poverty line and fixed income recipients the most. They are now feeling the decline of real income along with the crunch of inflation. The others being hit are those with small savings. As the prices rise, the real value or the purchasing power of fixed income or accumulated savings is also deteriorating. On the other hand people with flexible income are able to escape inflation’s harm.
Half the solution to a problem lies in its correct identification and understanding. The type of inflation which is persistently on the rise in Pakistan has very strange features and as such cannot be classified under any economic description. If adequate measures are not taken to control it the snowball effect is going to be unmanageable, creating devastating results for the economy. The rate of inflation, measured by the consumer price index, is regularly monitored by the Government functionaries concerned. The Federal Bureau of Statistics maintains and releases the rates periodically. The Consumer Price Index (CPI) inflation represents and reflects the over all cost of living affected by the fluctuations in the retail prices of about 375 goods and services. CPI is generally considered as the main indicator of inflation. On the other hand Sensitive Price Index (SPI) reflects price fluctuations in about 53 essential items of daily use. Whereas the Whole-Sale Price Index (WPI) indicates the changes in the ex-factory or wholesale prices of about 425 items categorized as, (i) food items, (ii) raw materials, (iii) fuel, energy and lubricants, (iv) manufactured products, and (v) construction materials.
The data released by the Federal Bureau of Statistics reveals that in March 2005 CPI rose by 10.25 per cent, SPI shot up by 11.35 per cent and WPI by 6.73 per cent. However, what this jargon of indices and data means to a consumer or a poor man is a big question for determination as this indicates poverty-level. Lot of efforts go into the measurement of these indices but no meaningful efforts are being employed to control the prices which these indices can help to do. Some of the basic questions in this regard which need to be answered are (i) is the inflation due to inadequate monetary and fiscal policies? (ii) is it due to increase in the cost of inputs, raw materials and utility charges etc. or (iii) is it due to over profiteering? If it is over profiteering, is a normal rate of profit defined or prescribed by any authority or left to the equation of demand and supply, (iv) which Government departments are responsible for controlling and checking prices? and lastly (v) what measures if any, these departments are taking to control the arbitrary price hike?
Although it will not be appropriate to come up with a new description or category of inflation as only economists may be authorised to do it but the type of inflation prevailing in the country could be termed as “mixed inflation”. Part of it falls under the established categories of inflation like demand-pull inflation or cost-push inflation, etc and the second can be classified as “artificial hyperinflation” created by some of the business enterprises due to enormously high profits and with income going unaccounted-for and untaxed. This article focuses on the artificial hyperinflation resulting from colossal untaxed income.
A careful perusal of the Government Rules of Business reveals that the Economic Coordination Committee of the Cabinet (ECC), National Tariff Commission (NTC) and Monopoly Control Authority (MCA) directly or indirectly control prices and over profiteering. The ECC, which meets every week, is primarily concerned with demand and supply and the prices of essential items like wheat, sugar and other relevant products. The Section 12(ii) of the NTC Act 1990 explicitly states that while examining a proposal for tariff protection or assistance and making recommendation to the Federal Government the NTC has to satisfy itself that the cost of tariff protection to the consumer will not be excessive. The public is unaware whether the NTC, since inception, has initiated any case, on its own motion, against higher protection where cost to the consumer is evidently excessive.
On the other hand undue profit resulting from cartels or monopolistic situations is checked and controlled in terms of section 10(e) of the Monopolies & Restrictive Trade Practices (Control & Prevention) Ordinance, 1970. Under this Section the Monopoly Control Authority has to make recommendations to the Federal Government or a Provincial Government for suitable actions to prevent or eliminate undue concentration of economic power, unethical monopolistic power or unreasonable restrictive trade practices resulting in over profiteering. All this is apparently going by default.
Over the last couple of years the Government has considerably reduced the customs duty on imported raw materials and most of the raw materials now attract duty rates as low as 5% to 10%. Besides, most of the raw materials are being imported from China at highly competitive prices and mostly at under-invoiced prices. Yet no reduction in the domestic prices has been witnessed nor has the benefit of the reduction in the import duties been passed on to the consumers, on the contrary the prices are increasing day by day. Moreover, the Government seems to have no account, control and check on these issues.
It is argued that in the mixed or free economies it is the market mechanism that determines the price level on the basis of demand and supply. But in these countries the economic system is well-documented, consumers are educated and understand their rights. Moreover, strong consumers’ associations are there to protect their rights both with respect to quality and the price of goods.
In Pakistan at present there is no control over the exorbitantly high prices being charged by the traders and manufacturers causing genuine hue and cry by the poor section of the population. Some of the essential commodities the prices of which need to be controlled are vegetables, fruits, food grains and pulses, flour, edible oil and ghee, tea, soft drinks, squashes, pharmaceuticals, milk and dairy products, toiletries (soaps, detergents, shampoos), sugar and garments etc. The finished goods and products the prices of which need to be scrutinized and controlled, inter alia, include consumer durables (air-conditioners, deep-freezers, washing machines and fridges etc), motorcycles and automobiles etc. On the other hand some of the raw materials include items such as ferrous and nonferrous metals, PET resin, formic acid, soda ash, PVC, stearic acid, sorbitol which is overpriced due to higher tariff protection and other reasons. Detailed scrutiny of these sectors, inter alia, should be carried out by the National Accountability Bureau with the assistance of technical experts. Netting and taxing the concealed income would yield substantial revenues, control the prices and consequently reduce the artificial hyperinflation. Over profiteering on some of these items is quite obvious, e.g. motorcycles are being exported to Bangladesh with a reasonable profit at half the price at which it is being sold in the domestic market. Likewise over profiteering is evident on poplin fabric as it is has been subjected to antidumping duties when supplied to the importing country.
The writer is Director IMDC International Islamic University, Islamabad
*****
