The ever-increasing flour prices are a cause of worry for everyone, as they push a few hundred thousand people down the poverty line every year. Apart from political and social tensions that they can generate, these prices now have legal dimension as well.

The courts, taking it as violation of fundamental right to food, have been telling the governments — federal and provincial — to devise ways to at least protect the poorest of the poor.

Unable, or unwilling, to spare money from other priority areas, all these governments are slow to respond. This is despite the fact that all theoretical work and documentation to build such a system already exists. Numerous studies by international and national agencies tell the governments how to go about it.

Each and every ‘poorest of the poor’ household was also listed by different agencies that formed the basis of the‘Benazir Income Support Fund. To the credit of those who documented those households, political consensus on their work exists. The present government has also taken it as the most credible documentation so far despite its political rivalry and is basing its planning on the same data.

It is the outstanding debt of the Punjab food department that creates a vicious circle of loans, interest payment and default, and keeps affordable flour prices out of reach for millions of the poor. That is the point Punjab has to ponder

On how to go about it, one such study maintains that if the poor is somehow helped with 20pc additional resources, there are chances of him not only escaping malnutrition but slowly come out of the poverty trap as well. To authors of the study that included some respectable sociologists and economists, 20pc is crucial because anything below that line does not create impact and anything above that leads to wastage. If that line is implemented in local context, where a family earning around Rs10,000 is taken as part of the strategy, each one of them needs Rs2,000 a month to survive and perhaps start struggling out of the trap.

Given the resource squeeze, the federal and provincial governments need to join hands, plan together and execute it through a joint venture. Punjab, being the majority of population province and richest of all, can divert additional financial resources to the pro-poor plans and, even crucially, it can help bring down prices of food — especially the staple.

There are a number of steps that Punjab can take immediately to bring flour prices down. One such step is taking the old liabilities off the Food Department. All these liabilities has to be cleared by the Punjab government anyway, because these were its dues that it did not pay but the department has to service them at huge cost and then recover them from the consumers.

Out of its total Rs322 per maund incidental charges that it incurs on wheat stocks, Rs290 are mark-up charges that the Food Department pays to banks. The department itself runs on rest of Rs32 per maund. Out of a total liability of Rs200bn, over Rs90bn are outstanding for years. The Punjab government has in fact defaulted on those Rs90bn because it has sold the wheat against which that money was borrowed.

The Punjab Food Department takes two liabilities each year: one for the current procurement and other is outstanding loans. Of the two, the current liabilities are always cheaper by almost 50pc in mark-up terms because the department starts selling wheat after six months and paying off the loans and bringing down mark-up payments.

It is the outstanding debt that costs up to 14pc a year and is a huge drain on the department resources and a major cause of increased flour price. In total, the department is paying almost Rs60m a day in interest payments. It is this bad debt that creates a vicious circle of loans, interest payment, default and ballooning of payments and keeps affordable flour out of reach of millions of the poor. That is the point Punjab has to ponder.

By simply shifting those Rs90bn from what in official parlance is called Account-II to its other accounts, the Punjab Government can bring flour price down by Rs100 per maund, if not more. This liability belongs to the Punjab government and it neds to pay. Why should the consumers be made to pay for it? But it is politically convenient to keep that money in the books of the Food Department and let it service those huge loans and then advertise even those interest payments by the Punjab Government as subsidy money to help the poor.

Published in Dawn, Economic & Business, July 14th, 2014