The inflationary impact, measured by the various price indices viz. sensitive price index (SPI), consumer price index (CPI) and wholesale price index (WPI) are regularly monitored by the concerned government functionaries. The Federal Bureau of Statistics maintains and releases the data periodically. However, what this jargon of indices and data means to a consumer or a poor man cannot be measured in real terms as this indicates difficulties faced by the lower income group of the society. 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 and understood 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, energy tariffs and POL prices etc. (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, and other market forces (iv) which government departments are responsible for controlling and checking prices, (v) is the over profiteering being adequately taxed, and last but not least (vi) what measures if any, these departments are taking to control the price hike.
Although it will not be appropriate to come up with a new description or category of inflation as only economists may be authorized 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 mainly due to poor government control, awful governance and economic mismanagement.
A careful perusal of the Government Rules of Business reveals that the Economic Coordination Committee of the Cabinet (ECC), National Tariff Commission (NTC) and the Competition Commission of Pakistan (CCP) directly or indirectly control prices and over profiteering. The provincial governments also have a role in controlling 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 National Tariff Commission Act 2015 explicitly states that while examining a proposal for tariff assistance and making recommendation to the Federal government the NTC has to satisfy itself that the additional cost, of tariff protection / assistance, to the consumer will not be excessive.
The CCP, as per the Competition Act, 2010 is responsible to provide free competition of commercial and economic activity to enhance economic efficiency and to protect consumers from anti-competitive behavior. Whereas, undue profit resulting from cartels or monopolistic situations are causing over profiteering on many local and imported edible and other products as the powerful business groups control the prices and markets to which the CCP is either totally unaware of or has closed its eyes.
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% under a cascaded tariff structure. Moreover, the products attracting 3% customs duty rates have been reduced to zero rate of duty in the budget for 2019-20. Besides, most of the raw materials are being imported from China at highly competitive prices and are mostly under-invoiced. 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. The government seems to have no account, control and check on these issues.
Government’s irrational tax measures announced in the fiscal budget for 2019-20 are also unduly causing inflation both for industrial as well as individual consumers. Levy of regulatory customs duties on cotton and polyester filament yarn coupled with arbitrary and unlawful levy of anti-dumping duties are pushing up the cost of production for not only exporters but for local consumers also. Restriction of import procedures for import of used automobiles etc. have also multiplied the inflationary impact. Same is the case with the large number of finished imported products and inputs in the steel sector etc. which have provided an unjustifiable opportunity for the local manufacturers to raise the prices of their products causing artificial hyperinflation.
Another major and basic reason for inflation is arbitrary and illegal POL price fixation. The National Accountability Bureau (NAB) has already conducted a detailed inquiry in 2006 on the POL Pricing Scam and identified at least ten legal aberrations resulting in exorbitant profits for the oil marketing companies, dealers and oil refineries. The areas identified by NAB, inter alia, include (i) non-capping OMCs / dealers margins, (ii) use of redundant formula for fixing prices of motor spirit (MS), (iii) charge of profits by the refineries over and above forty percent, (iv) payment of price differential claims, (vi) charge of premiums on HSD (diesel) with one per cent sulphur content and MS etc. These aberrations still continue and are generating undue and illegal profits, in violation of the ECC decisions, for the POL sector to the disadvantage of the economy, industry and the consumers.
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, automobiles, ceramic floor tiles, and paper and paper board etc. On the other hand, some of the raw materials include items such as ferrous and nonferrous metals, PVC, hydrogen per oxide etc. which are overpriced due to higher tariff protection and other reasons. Detailed scrutiny of these sectors, inter alia, should be carried out by the National Tariff Commission 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.
The macro economic instability resulting from uncalled for increase in interest rates, depreciation of Pak Rupee and irrational levy of regulatory customs duties and FBR’s inability to check and control concealment of colossal profits and evasion of taxes and duties and economist’s ineffective measures to control inflation will soon take it to an unmanageable point which is fast acquiring the snowball effect. Inflation is also tarnishing government’s image and the general public is losing its confidence in the government’s long-term economic development programmes. The parliamentarians are debating the issue in the house. The intentions of the opposition benches to initiate heated debate in and outside 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. 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.
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.
The best way to check and control the prices of these and other products is to get the cost of production verified and if required should be appropriated. The adequate method could be to take the value of raw materials / inputs and conversion cost plus general and other expenses and add a normal rate of profit to it as added in the similar economies. This information is available with some of the government departments and also on internet around the world.
With (i) half the population living below the poverty line, (ii) high rate of unemployment and (iii) considerable reduction of upfront cost of raw materials the inflation in Pakistan can by no means be attributed to demand pull and cost push factors. The economic managers of the country need to come out of the theoretical economic rigmarole and develop a practical understanding and educate themselves on the issue of artificial hyperinflation, which has been created by huge unaccounted for business profits going untaxed. The government can rationalize the above mentioned legal and economic aberrations and get the nation out of the clutches of the artificial hyperinflation which is the killer of all values by giving some relief to it.
