Cracking down on profiteers

Updated February 17, 2020

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It is good that the government has finally acknowledged the economic stress that Pakistani households are enduring. It has sprung into action at last.

It is another matter if these actions seem desperate, ad hoc attempts at salvaging whatever little public goodwill that the PTI is left with.

Will the Captain’s strategy succeed in providing the poor with relief, punishing market manipulators and arresting the inflation spiral? People express doubts about the last two of the three elements of the official strategy.

They believe that a Rs15 billion subsidy announced for Utility Stores Corporation (USC) to provide basic food items at affordable prices may give some measure of relief to the needy even if the scale is limited.

Sweeping the FIA report on market manipulators under the carpet in the last cabinet meeting, however, raises doubts about Prime Minister Imran Khan’s commitment to identify and punish the politically powerful beneficiaries of the price spikes, particularly in the cases of wheat flour and sugar. There is suspicion in the relevant circles that some culprits might be members of the inner circle of the ruling party or its political allies.

Runaway food inflation amidst falling family incomes and rising joblessness is eroding the ruling party’s political capital

The attempts to rein in inflation through raids and nabbing small fish in the country’s sprawling markets may actually backfire by further alienating the powerful trading community that is already hostile towards the government. The impending chaos can take a toll on the already depressed business sentiments mounting more downside pressure on the GDP growth.

Runaway food inflation amidst falling family income and rising joblessness is forcing households to make harsher adjustments. This is understood to be eroding the ruling party’s political capital.

In January, the government ordered a crackdown on profiteers who, it claimed, gamed the market and staged the sudden spike in the prices of essential food items. Last week, the cabinet decided to release a Rs15bn subsidy, to be disbursed at the rate of Rs2bn per month, for five key food items: wheat, sugar, rice, oil and lentils.

The government declared that the subsidy would be channelled through USC. It also decided to strengthen, streamline and expand the network of USC to serve the poor across the country. The idea of family ration card was also floated to check the abuse of the facility and broaden the base of beneficiaries.

According to the Pakistan Bureau of Statistics, general inflation measured by the consumer price index (CPI) increased by 14.6 per cent in January from a year ago. Food inflation shot up 24pc. The prices of perishable items scaled up 78.5pc while those of non-perishable food items rose 16pc.

The dissection of inflation data points to more natural factors that built up gradually led to the price hike. These include the neglect of the commodity sector at all tiers of government, the overlap of multiple departments responsible for implementing relevant laws (see the chart) to keep prices of food items in check, a weak Competition Commission of Pakistan (CCP) responsible for curbing market abuse and the lack of direction in economic policies.

The fact that it was the perishable food segment (up 78.5pc) that primarily drove the price graph northwards confirms a limited role of mafias that enjoy better leverage in the non-perishable food segment (up 16pc). The evidence clashes with the government’s perception about a hidden hand behind inflation.

Most experts supported the intent of the premier’s team but mocked its strategy that they thought would hurt business sentiments more than it would help the people or stabilise prices.

A senior economist expressed frustration about the tendency of the ruling clique to opt for the easy way out by blaming conspiracies instead of attempting to understand the situation to identify the actual downside drivers for dealing logically in a planned way to tackle a problem. He cited the delay in the IMF deal as a classic example of confusion in the ruling team. In his opinion the rising production cost and suppressed supply are primarily fuelling inflation. He did not see the policy to control inflation delivering in a meaningful way.

A retail sector expert from Lahore commented: “You can’t order prices down. This is no rocket science. In markets, the interaction between demand and supply determines the price. As long supply falls short of demand, an upward price pressure will persist. So if the government succeeds in tackling the supply situation, prices will crawl down on their own.”

Yousuf Jamshed, the CEO of LXY Global, a retail consultancy, advised the government to put better brains into controlling market manipulation. Market raids will shatter the confidence of small businesses and open new avenues of corruption for enforcers, he added.

All Karachi Tajir Ittehad Chairman Atiq Mir was in favour of direct action against market abusers.

The secretary of the Punjab government’s industries department, Captain (retired) Zafar, has been spearheading the campaign against profiteers. He said he was confident that the crackdown would achieve the desired results.

Punjab Food Secretary Waqas Ali Muhammad told Dawn that the provincial authorities were making it mandatory for traders to declare their stocks to check hoarding.

FIA DG Wajid Zia was approached to shed light on the report presented before the cabinet on market manipulators, but he did not respond.

Many relevant people were also critical of sidelining the CCP and its August 2019 policy note that made tangible recommendation for stable markets.

The body has the expressed mandate to check market excesses and abuse of dominant position. Instead, they pointed out, the body is rendered ineffective as the Competition Appellate Tribunal is dysfunctional owing to the delay in the appointment of its members by the government.

The CCP found the Pakistan Flour Mill Association (PFMA) flouting the market in December 2019 and imposed Rs75 million penalties. The PFMA appealed against the CCP order in the tribunal but the case is pending. According to details gleaned from the CCP website, orders involving over Rs15bn penalties on the violators of the Competition Act are currently pending for the lack of government action.

When reached for comments, CCP Chairperson Vadiyya Khalil emailed the following response.

“CCP is cognisant of its mandate in deterring anti-competitive behaviour. Sectors that are under our regular surveillance and monitoring include wheat, sugar, fertiliser, poultry, cement, telecom, oil and gas, pharmaceutical and bidding in public procurement. We have taken enforcement actions in 22 sectors and imposed penalties to the tune of Rs27bn.

“It is our aim to create a level playing field where all businesses (big or small) can co-exist and flourish. Our law is pro-business, pro-growth and pro-consumer protection. However, if there is a violation or infringement, we will not let it go.”

A businessman made a case for the duty-free import of edibles in short supply. “You allow free imports and see how quickly hoarders clear their stocks in fear of a price crash,” he said. “Is this not a better punishment than raids and spreading scare?” he asked.

“Revive growth and make space for constructive investment. Private funds tend to flout market in the absence of viable avenues of investment,” added another businessman, recommending investment-friendly policies to check money flows towards undesirable activities.


Laws relating to price control

Federal:

The Price Control and Preventaion of Profiteering and Hoarding Act, 1977

Balochistan:

Balochistan Foodstuffs Control Act, 1958

Balochistan Agricultural Produce Markets Act, 1991

The Price Control and Prevention of Profiteering and Hoarding Act, 1977

Khyber Pakhtunkhwa:

The West Pakistan Foodstuffs Control Act, 1958

Agricuture and Livestock Produce Markets Act 2007

The Price Control and Prevention of Profiteering and Hoarding Act, 1977

Punjab:

The Food Stuff Control Act, 1958

Punjab Agricultural Produce Markets Ordinance, 1978

Registration of Godowns Act, 2014

The Price Control and Prevention of Profiteering and Hoarding Act, 1977

Sindh:

The Sindh Essential Commodities Price Control and Prevention of Profiteering and Hoarding Act, 2005

The Sindh Wholesale Agricultural Produce Markets (Development & Regulation) Act 2010

The Sindh Registration of Godowns Act, 1995

Published in Dawn, The Business and Finance Weekly, February 17th, 2020