October 1, 2007	Monday	Ramazan 18, 1428

The recent atta-push inflation has served to expose the weaknesses in the centralised decision-making in an area as sensitive as prices directly affecting common persons, i.e. retail prices of common consumer goods and services.

Every time the Economic Coordination Committee (ECC) of the Cabinet meets, which it does more frequently than all other cabinet committees, the first order of business is always the prices of sensitive items. Before it became a prime ministerial committee, the ECC used to meet almost every week. Every Thursday the Federal Bureau of Statistics (FBS) collects data on sensitive items and constructs weekly Sensitive Price Indicator (SPI) by Saturday. This fitted nicely with this scheduling of the ECC.

The FBS presents the latest SPI and the Planning Commission is supposed to present a summary to go behind these figures. There is then a free-for-all discussion, usually expressing satisfaction over prices being lower than region. If some price is misbehaving, decisions are taken for corrective action.

Energy is the only area of federal domain and, if any thing, the record is the worst. Technically, the watchdogs for energy prices are the statutorily constituted regulatory bodies anyway. Other than utilities and utility stores, the 50-odd items in the SPI have nothing to do with the federal government. They are produced and supplied in the provinces and any regulation is possible only at the provincial or district level.

Price magistrates, release of wheat stocks, crushing schedules of sugar mills, slaughtering, market committees, etc are issues for the provincial and district governments. These governments are not part of the ECC. That is why the ECC decisions usually are in the nature of issuance of directives to provinces and district governments, which recently have become nothing but bad jokes.

Just because the FBS, a federal agency, collects information on prices does not entitle the federal government to start making policies in that area. The same data can be supplied with the same speed to the provinces and the districts, who then can take timely local action in a pro-active rather than reactive manner. They should be the first ones to be worried about shortages, hoarding and blackmarketing.

Provincial autonomy does not just mean that more subjects should be allocated to the provinces. They must have all that the Constitution allows under their jurisdictions, but they should exercise in letter and spirit the autonomy they already have. If there is need for federal action, like the need to import a commodity and the measures to control smuggling, the initiative should come from the provinces. It is opportunistic on the part of the provinces to let the federal government get the blame for price hike and not advisable for federal government to act where it in fact cannot.

It must be understood that one is talking about specific prices of individual items and the micro economic and administrative action required to keep them in line. There is no suggestion here that there can be a Punjab rate of inflation or an NWFP rate of inflation. Economic policies lie in the federal jurisdiction. Among other things, these policies have traditionally aimed at achieving low inflation and price stability.

Effective achievement of a policy objective requires a reasonable control over the requisite instruments. Being macro economic in nature, the objective of low inflation and overall price stability legitimately belongs to the federal government or, if autonomy has any meaning, to the State Bank.

Inflation is intimately related to money supply, and the State Bank has all the instruments to regulate it at its disposal. The same cannot be said of individual prices at micro level. The federal government controls some and the State Bank controls none. But the price of onion in Faisalabad has to be the business of the district government there and at the most the Punjab government.

This is what explains State Bank’s focus on core inflation, defined as related to non-energy and non-food items. It is weary of dealing with overall inflation, castigated as headline inflation measured by a large number of consumer items comprising the Consumer Price Index. As a matter of fact, it has gone to the extent of computing a separate trimmed CPI. Money makes the mare go in developed economies and thus makes the monetary policy tick. Despite substantial monetisation over the past six decades, monetary policy has its limitations in a developing economy such as ours.

An important reason why ECC’s packages, special committees and directives do not have the desired effect is that the federal government is overreaching in domains beyond its writ. As already indicated, money is a matter for the State Bank to worry, energy is the headache of NEPRA and OGRA and most other commodities are the concern of provincial and district authorities. The only role for the federal government is to restrain its spending within safe limits so as not resort substantially to borrowing from the State Bank, which acts like spitfires for inflation.

Going by the history of federal economic indulgence, it is not very likely that the federal government will change and shed some load that it can no more take. The present regime claims having devolved a lot of authority to the local governments. But just as it keeps announcing development packages to take credit for development, it keeps announcing Ramzan and other price packages so that it is perceived as the only level of government which cares for the common persons.

However, the pressure to perform here is telling on the data gathering itself. In his early days as chief executive, General Musharraf doubted the validity of the prices collected by the FBS. He went to the extent of directing the then chief of general staff to revisit the markets visited by the FBS staff and re-check the price data. The army men authenticated the FBS data. This, alas, is no more the case.

A number of FBS staff posted in districts have reportedly complained about approaches by unrelated superiors from Islamabad. Small wonder that whenever prices go up and the top man in economic authority announces his resolve to bring them down by some per cent, the Statistics Division bosses and the line staff of the FBS take it as a target to be achieved. And those who should actually work towards the achievement of these targets, the provinces and the local governments, have a nice time.

It is high time that the federal government acts on its promise of an autonomous statistics organisation, which should be accountable to parliament rather than the executive. Hopefully, it would then provide equal access to its data, especially on prices, to provinces and districts.