EDITORIAL: Pakistan Bureau of Statistics (PBS) sensitive price index (SPI) for the week ending 14 January 2021, covering 17 urban centres and 51 essential items, noted a decline of 0.22 percent over the week ending 7 January 2021 with a fall in price of eggs (15.62 percent), tomato (11.18 percent), potato (4.99 percent), onion (4.06 percent) and chicken (2.79 percent). In terms of non- food components of the SPI prices declined for electricity in the first quarter by 0.49 percent, LPG by 0.28 percent with a joint impact of negative 0.74 percent and price of petrol and diesel remained unchanged. This no longer holds for non-food items in the week ending 21 January 2021 for which data has not yet been released by the PBS; however, the government took two decisions during the week that would indicate that their prices have risen.
First, on 15 January 2021, the government approved a raise in petrol price by 3.22 rupees per litre (a little over one-third of what was recommended by Oil and Gas Regulatory Authority), kerosene by 3 rupees per litre, light diesel oil by 4.42 rupees per litre and high speed diesel by 2.95 rupee per litre. The government argues is that it has not only minimized the rate rise, being a fraction of what was recommended by the regulator, but attributes it mainly to fuel adjustment charges or pass-through of the raise in the international prices of oil and products; however, this rationale does not take account of the heavy reliance of the government on petroleum levy as a revenue source (approximately 8 percent of total Federal Board of Revenue taxes collections) and the application of the sales tax of 17 percent on these products.
Secondly, the government decided to raise base tariff of distribution companies by 1.95 rupees per unit across-the-board. The government had to approve the hike in tariff given that this is a critical condition of the International Monetary Fund (IMF) without which a staff level agreement on the second mandatory review would not be possible – an agreement that would in turn allow for the disbursement of the second tranche of the 6 billion dollar Extended Fund Facility programme.
PBS also noted an increase in prices of sugar (3.66 percent), vegetable ghee (23.02 percent), cooking oil (2.12 percent), vegetable ghee (2.39 percent), rice (14.77 percent), and bread (14.47 percent) for the week ending 14 January and this rising trend is likely to continue as transport and input costs would rise as a consequence of the rise in petrol and electricity prices. With respect to imports of edible oil, Pakistan imports nearly 75 percent of total edible oil consumed in the country and hence the rupee-dollar parity plays a major role in terms of domestic prices. The rupee value continues to fluctuate. Pakistan has adopted a market based rather market-determined exchange rate which allows for State Bank of Pakistan’s intervention, however in recent months, the rupee value has been stable at around 160 though on 9 January the buying rate was 159.50 and the selling rate 160.20 while on 19 January the buying rate was 160.90 on the open market.
To check inflation in the short term may entail imports (which negatively impact on our scarce foreign exchange reserves) and perhaps subsidies (which the government can ill afford) but also some measures to encourage the farm sector to prefer producing one crop over another. Prime Minister Imran Khan has rightly placed part of the burden of higher prices on the middlemen held responsible for not only poor prices to farmers but also higher prices to consumers, especially in urban centres. In this context perhaps the government can consider not only reintroducing support prices for some essential crops other than wheat but also announce Agricultural Produce Marketing Rules which in India were designed to prevent farmers’ exploitation though granted that they were poorly implemented and which the Modi government has tried to do away with through its policy in favour of corporatization leading to massive resistance by the farming community. The Pakistan government should consider dealing with the myriad issues facing farmers in general, particularly the large number of poor farmers, by engaging with the stakeholders to formulate a policy that would be a win-win for all concerned.
Copyright Business Recorder, 2021