The story of the fuel price cuts teaches us an unpleasant lesson about economics: that the economy does not always play by the neat rules set by theory. While in theory, reducing the price of petroleum should have in essence led to a uniform fall of prices of other essential products too, in practice, this does not always happen. This is what the government has learnt to its surprise now; after decreasing the price of petrol to the lowest in South Asia, the government is perturbed that there is no corresponding reduction in the prices of essential commodities. Unfortunately, on the contrary, it seems that they are rising.

The government has tried to rectify this, with Prime Minister Imran Khan expressing displeasure over the unrelenting price rise even after petroleum prices were slashed and directed the federal and provincial governments to take immediate steps to ensure an adequate supply of such items at affordable prices. Yet here again, the government is making the same mistakes it did with the cut in petrol prices.

There are other ways of increasing the purchasing power of the people than providing massive cuts on fuel in the hope of a uniform decrease in prices. The government could have done this without causing a major dent in its own revenue – it could have reduced sales tax on certain products or increased the basket of goods that are in the low sales tax bracket. By reducing fuel prices and passing the entire benefit to the public, the government has denied itself some precious revenue in the form of fuel taxes — the revenue from which is always larger than other essential commodities — and is relying on retailers, producers and wholesalers to look to the interest of the public instead of their profits – an unrealistic expectation. It will not be altogether surprising to see the government to increase the fuel prices once more in a month or more.