UNBRIDLED PRICE MECHANISM CAUSING INFLATIONARY PRESSURE

TARIQ AHMED SAEEDI (tariqsaeedi@hotmail.com)
Jan 07 - 13, 2008

While deregulation regime attracts private investment in different sectors of trade and industry, at a balanced proportion it holds negative implications by virtue of the non-efficient price control mechanism of the country for common persons in majority looking only to satisfy their basic needs, which has been statistically proven in spate of news reports of ever upward moving scale of food inflation.

Officially it is justified that because Pakistan not being a socialist or communist country government can not force marketer or service provider to lower down products' price at par with consumers' buying power. It is said in market driven economy market forces determine prices instead of government functionaries. Insofar as telecommunication and financial sectors are concerned, deregulations augur well for both consumers and service providers. The laicize faire market operation begot stiff competition in these industries resulted into supply exceeding demand. Thereby, consumers started to have price advantage and to buy products at nominal prices. Incredibly, these sophisticated and quality products are accessible to all. Sales volume of durable goods keeps on increasing and its price on decreasing. However, ironically prices of edible goods (consumer goods) such as wheat, rice, oil, utilities except domestically consumed gas and other household's basics are swelling in consumer price index rapidly like ever before. It is consecutive third year that CPI inflation has remained in the range of 8 to 9 per cent. The expectations that improvement in food supplies and stability in domestic oil prices coupled with tight monetary policy would bring down inflation below 7 per cent have not been realised.

The monetary tightening of SBP was complemented by government measures such as allowing imports of some food items from India, banning export of wheat, and the subsidised sale of many items especially edibles through outlets of the utility stores, as well as other administrative measures. These measures did indeed lead to a drastic reduction in core inflation but CPI inflation driven by food inflation remained high.

Unbridled market economy and feeble and informal price control mechanism of the country are attributed to current inflationary pressure, said Mian Abrar Hafiz, Secretary General, Consumer Rights Commission of Pakistan. .

CRCP is a rights-based civil initiative registered under the Trust Act, 1882. Established in 1998, CRCP is an independent, non-profit, and non-governmental organization. It largely works through local fund-raising and engaging volunteers. It is not supported by any industry or commercial sector. It is the first national consumer organization in the country, which approaches the issue of consumer protection in comprehensive and holistic terms. Its vision and strategies have significant cross linkages with both market practices and issues of governance.

He said though free market economy induces investors to operate without apprehensions or free of fear of low investment returns, extra market forces often abuse the privileges by indulging into hoarding and stocks pilling. They openly flout state laws. It is common in food markets all around the country that middlemen locally known as arthi determine prices of commodities at their discretion arbitrarily. There is no stable and efficient system available with the government to check the illegal and malpractices of these elements. Unlike other provinces, he said, in Punjab things are some how under control. Consumer tribunals are active there to hear grievances of consumers. More over, government of Punjab bound legally all retailers to show upfront price list of goods. In other provinces, perhaps there is a lack of political will to take such measures, he added.

Certainly, in the province rights of consumers are constitutionally guaranteed. Further to amend the Price Control and Prevention of Profiteering and Hoarding Act, 1977, President of Pakistan promulgated the Price Control and Prevention of Profiteering and Hoarding (Amendment Ordinance, 2007) to check the price hike, profiteering and hoarding in the country; to obtain information regarding prices of essential commodities prevailing in various markets; to review the prices fixed by the competent authorities in various parts of the country; to monitor the action taken by the Special Magistrates and other enforcement authorities under this Act for purposes of price control; to issue directions and orders to ensure implementation of the provisions of this Act.

As government links price hike to supply chain, among other measures, it is subsidizing consumers to buy consumer goods from designated utility stores. Yet, the numbers of these outlets are disproportional to population's demand graph. Reportedly, the current outreach of the USC outlets is not above 20 per cent of the over all population.

Above all, Mian Abrar said that these outlets are not relieving deserved people to a greater extent. Every person irrespective of his income bracket uninterruptedly makes purchases on government subsidized rates notwithstanding this assistance is only to support marginalized segment of society or those belonging to low income group.

To resolve the issue, he came up with a novel idea that a Performa should be filled up by consumers at these outlets to know his/her income bracket. Alternatively, people registered to Zakat and Usher or Baitulmal should only be allowed to buy any products from the USC outlets.

Despite renaming of monopoly control authority to competition commission of Pakistan to broaden its scope of working, no success stories have so far been emerged up, he said. The cartels still exist in the market violating laws and fleecing customers. Even own price (extra money charged along with actual rate) of LTVs has not yet been removed. It is not that CCP has scant resources. Resources are in abundance only vested interests are putting halt in an operational activism, he added. Consumer protection laws are not implemented.

The Supreme Court has taken the issue of rising inflation for the first time in a long while.

It is a fact that no pro-open market country could refrain itself from inflationary pressures. There also exist efficient and effective measures to rein in turbulent price determinants and spoilers of market integrity. Internationally, open market operation is favourable however consumers are there compensated against loss sustained due to such laicize faire in form of vigilant disbursement of social allowances to halve public burden.

Deregulation should not be misperceived as a panacea to administer to all quarters and sectors of the economy simultaneously. A pragmatic application should be effectuated in conformity to local market needs.