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PPP govt’s rule saw sharp rise in food prices

September 25, 2012

Pakistani people wait in line to receive free food. – Reuters (File Photo)

KARACHI, Sept 25: A sharp increase in food items prices was witnessed during the last four-and-a-half years of the Pakistan People’s Party government, and in the absence of any effective price checking campaigns by the federal or provincial and local governments, multinational and local companies continued to enjoy monopoly over prices.

According to an expert, one cannot deny the negative impact of exchange rate parity, demand and supply gap, high world food prices, change in local taxes and import duties, but the government hardly took any practical measures to ascertain whether the price hike was artificial or genuine. Karachi Wholesalers Grocers Association chairman Anis Majeed said that no serious attempt was made to stop the price hike.

Rupee-dollar impact and increase in petroleum prices, coupled with high power and gas rates, made an adverse impact on prices, he added.

The government remained busy in other issues and did not take the price issue seriously.

Moreover, no serious measures were taken to boost productivity of various cash and minor crops. Consumers saw a decline in sugar prices due to improved production as compared to its consumption while good wheat crop helped save foreign exchange which earlier used to be spent on import of wheat.

However, a bumper wheat crop failed to bring any big decline in flour prices owing to increase in its support price.

Research analyst at Top Line Securities, Nauman Khan said that inflation, measured by the Consumer Price Index (CPI), jumped by approximately 52 per cent during the last four and a half years.

“The rupee value eroded from Rs62.80 against US dollar in March 2008 in the inter-bank market to reach Rs94.5 currently.

He said weighted average increase in the gas price for residential consumers (up to 100 cubic metres) surged from Rs82.1 per mmbtu to Rs100 per mmbtu.

“The gas tariff for residential users above 500 cubic metres, however, declined to Rs500 per mmbtu from 688.4 mmbtu.

Power tariff for residential users (consuming kwh exceeding 300-700 units) went up to Rs12.3 from Rs6.5 per kwh.

The 50kg cement bag price is now tagged at Rs437 as compared to Rs266, Nauman added.

He said that the government remained engaged in structural issues, primarily stemming from low tax mobilisation and decline in foreign flows. These caused the economy to under-perform.

“Augmenting the issues was escalation of energy crisis (power as well as gas), heightened security environment and consecutive floods of 2009 and 2010. Lastly, higher international oil prices and overall slowdown in global economy didn’t help the cause.”

He said that during the period, average GDP growth stood at three per cent which is well below our historic average of five per cent, while investment to GDP dipped to historic low of 12.5 per cent in FY12 from 22.5 per cent in FY07.

Lastly, tax as a percentage of GDP dropped below 10 per cent that coupled with higher subsidy outlay (over Rs1 trillion in the last four and a half years) resulted in escalating fiscal deficit.

All these factors directly or indirectly rendered into elevated levels of inflation in the PPP government.

However, all was not bad as pro-agricultural policies helped the sector post 2.5 per cent average growth in the relevant period, while the astonishing figures of two-year performance were marred by devastating floods.

Surprisingly white ignoring other items, the government provided only one relief in 2012-2013 budget by cutting general sales tax on tea imports to five per cent from 16 which tea blenders passed onto consumers immediately.

However, blenders hint a price hike in the coming days on account of rising world tea prices.