Price relief

13 Feb 2020

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RATTLED by the public censure of its harsh economic and fiscal policies in the wake of the recent surge in food prices, the government has finally leapt into action to try and mitigate the extreme pain of inflation. The district administration in Punjab swung into action against alleged hoarders and a relief package has been approved by the federal cabinet. The package has several planks, some of which may have been motivated more by political considerations and aimed at deflecting criticism of poor governance and harsh economic policies than easing the suffering of the common man.

The relief plan puts on hold, at least for now, a decision to further increase electricity and gas tariffs, a major contributor to price escalation along with the sharp currency depreciation in recent months. A scheme to reintroduce ration cards for the ‘deserving’ before Ramzan begins is also expected. And in order to provide immediate relief to the people, the government intends to dig out Rs10bn from its pro-poor Ehsaas programme for providing food items such as wheat flour, ghee, rice and lentils at marginally reduced rates for the next five months through its network of utility stores. Few expect this arrangement to help slash food expenditure for the targeted population though. Given the tainted reputation of the Utility Stores Corporation, it is feared that a big chunk of these funds could be stolen or get lost on its way to store shelves. That is not all. The plan effectively excludes from its ambit the rural poor and a substantially large number of urban lower-middle-class households that don’t have access to these stores. The subsidy is more likely to end up in the pockets of some USC elements or in the kitchens of those who probably don’t need it.

With food prices escalating by over 20pc last month and headline inflation numbers more than doubling to the nine-year high of 14.6pc from a year ago, the government needs to realise that its policies are squeezing the economy and impoverishing the middle class. The cost of living has rocketed manifold because of rising utility prices, higher indirect taxation and steep devaluation. After cutting their other daily expenditure, middle-class households now have no option but to slash their food budgets. Economists project anaemic growth and high inflation that will push at least 1.8m people into poverty during the present fiscal year. The solution to this hardship is not to be found in short-term, myopic policies or knee-jerk responses to criticism. The situation is tough and calls for out-of-the-box solutions that look beyond ineffective, meagre price subsidies. Implementing policy measures to ease inflationary pain doesn’t necessarily have to involve a rollback of the stabilisation programme. The answer to the country’s economic problems lies in initiating a debate on the government’s current policies, and tweaking them to control inflation and grow the economy. The use of subsidies to influence the markets rarely works.

Published in Dawn, February 13th, 2020