Over the past few years, Bangladesh has been falling into an inflationary trap with regard to prices of essential commodities during August-October quarter. Agricultural production is hampered during the period for various reasons including floods, cyclones and supply-chain disruptions, and the prices of essentials sky-rocket as a result. The interim government led by Professor Muhammad Yunus is therefore facing a huge challenge, similar to that faced by the caretaker government of 2007-08. Although floods have not harmed all regions of the country this year, the business syndicates have used this as a pretext for increasing the prices of essentials at an abnormal rate.
Although the law-and-order situation during the rule of 2007-08 caretaker government was better, the businessmen were in panic owing to uncertainties arising from the initial drive against corruption and irregularities. Numerous businessmen shut their businesses, and many even fled the country, resulting in a serious crisis. Besides, there were also natural calamities like the cyclone 'Sidr'. Consequently, the overall inflation rate rose to 12 per cent and food inflation jumped to a record 17 prt cent. A more or less similar trend is being observed during the rule of current interim government, as the country is facing another round of record inflation due to abnormal price-hike of vegetables and poultry products.
A recent study by Dhaka Chamber of Commerce and Industry (DCCI) has found that the factors contributing to this inflationary pressure include rise in production cost, fall in supply, inefficient market system, high transportation cost, dominance of some market-players, and limited bargaining power of consumers. It was also revealed during discussions on the DCCI study that the producers did not receive a fair price, although prices jumped several times before reaching the consumers. However, the prices would come down if costs of storage, processing and transportation could be reduced; besides, importing the right quantities of commodities in times of need may also offset the inflationary pressure.
The DCCI study also pointed out that creation of supply crunch artificially, unpredictable fluctuations in the prices of seasonal goods, depreciation of taka, inefficiency of supply system, inadequate storage facility, and limited access of producers to the market have all led to abnormal inflationary pressure in the country. Besides, the country's cultivable land is shrinking by about one percent each year, which is contributing to increased import dependency. Productivity at the domestic level could be boosted by enhancing subsidy to the agriculture sector, which is currently much below the global average. Preparation of tariff and product calendars by the government for different commodities could also be useful for taking timely policy decisions on supply and tariff-related issues for imports and exports.
Some observers claim that although the current business environment in the country does not display that same level of fear as was observed in 2007-08, many businessmen who were very close to the ousted autocratic regime are still apprehensive about their immediate prospects. In fact, it was this business-class that derived maximum benefits from the mafia-like regime of Awami League over a period of fifteen years. Alongside the political system, they succeeded in wielding enormous influence on the country's administration and financial system. As a result, loan defaults rose manifold and money laundering touched an unprecedented height. Although the interim government has adopted a rigid stance against some big businesses who derived undue benefits from the fallen regime, the trading of essential commodities is still reportedly under the overall control of a syndicate of 8 to 10 big business groups. Cases have been filed against some of the top businessmen, and some others are also fearful about their status. If imports by these business houses are hampered, then the prices of essentials may rise further. The supply situation can only be improved if the existing oligarchy in the trading of essential commodities is broken up through opening up of avenues for other competing business establishments.
Concerned businessmen also opine that another contributing factor to high food inflation has been the interest rate charged by banks. The central bank has raised the policy rate nine times during the past one year. As a result, the interest rates are now hovering at 14 to 16 per cent. The opening of LCs also became difficult due to the dollar crisis. Imported commodities have therefore become more expensive, resulting in a steep rise in their prices. As for the domestically produced crops, prices have risen abnormally due to the existence of market syndicates as well as lack of monitoring following floods in some regions of the country.
The executive director of SANEM Dr Selim Raihan has suggested a coordinated approach under a comprehensive action plan for improving the situation. A coordination platform should be created for the purpose through inclusion of Bangladesh Bank, National Board of Revenue, the ministries of commerce, agriculture, and food, as well as the Competition Commission. The ministry of commerce can provide leadership to this initiative. This would facilitate synchronisation of policy measures by these entities and the government as a whole. For example, the National Board of Revenue can decide on waiver of duties on imported goods in line with the changes in policy rates announced by Bangladesh Bank.
The Competition Commission was rendered useless by the previous regime in order to benefit the crony business houses. If it is strengthened now, then it can take strong measures against business irregularities. In fact, this is the right time to strengthen the Competition Commission, as the interim government does not represent any special interest group. This commission can take short, medium, and long-term steps for bringing order to the market, which in turn can contribute significantly to reducing inflation. Another previously underused body is the Tariff Commission, which has been found to be quite effective in many other countries in controlling inflation. Another idea worth considering is helping the farmers' organizations across the country become bigger players in marketing their own products. The situation is unlikely to improve unless coordinated efforts are made by all relevant agencies and stakeholders to bring the inflationary pressure under control.
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