Deeply concerned by an unabated rise in food prices in the local market and its impact on poor and low-income people, economists have recommended removing tariffs on essential food items, echoing the inflation-control measures proposed in the FY25 budget.
However, trade leaders are sceptical of the budget's effectiveness in curbing prices, as they argue that such plans will be ineffective "until rule of law is established."
They allege that a small group of six to eight "oligopolistic groups" currently dictate food imports, pricing and even commerce policies.
"These groups participate in high-level meetings at the commerce ministry to discuss food prices and dictate everything," said Shams Mahmud, former president of the Dhaka Chamber of Commerce and Industry (DCCI), at a discussion at the National Press Club on Thursday.
The Research and Policy Integration for Development (RAPID) organised the programme on the proposed FY 2024-2025 budget.
"Food inflation will not decrease until the influence of these individuals is curbed and accountability is ensured," Shams Mahmud commented.
Despite a decline in international food prices and lower freight costs, Bangladesh has been experiencing food inflation exceeding 8 per cent for the past three years. Unlike most countries paying standard food prices, people in the country faced a double-digit inflation rate of 10.76 per cent in May this year.
According to Mr Mahmud, the persistently high food inflation is a consequence of a small group of six to eight traders controlling essential food prices in the country.
He said the FY 2024-25 budget proposes tax cuts on several food items, but these measures "would be ineffective until there is established rule of law and ensured accountability."
Shams Mahmud said Chattogram's Khatunganj, once the country's largest wholesale market for essential commodities, used to have 300 to 400 traders, ensuring competition and keeping prices in check.
"The current situation is that six to eight traders control all imports and they even have their own ships," he said. "This oligopolistic group dictates the prices."
At the event as the guest of honour, Director General of the Bangladesh Institute of Development Studies (BIDS) Binayak Sen said it is puzzling that food prices in the local market show no sign of cooling off.
The BIDS Director General said food prices are the primary driver of inflation, even though food items only account for 40 per cent of the inflation basket.
Referring to an analysis of inflation data from 2020 to 2023, he said it showed a faster rise in food inflation compared to non-food inflation. "We need to investigate the reasons behind rising food inflation."
"Is the market structure dominated by a small group leading to spiralling food prices?" he questioned, also suggesting an assessment of why the traditional structure of Khatunganj is no longer effective.
Mr Sen also called for reviewing tariff policies to identify if structural anomalies are contributing to food price hikes, as he said, "Food security is non-negotiable."
Binayak Sen acknowledged the government's policy adjustments based on both global and domestic conditions.
Prime Minister's Economic Advisor Moshuiur Rahman elaborated on this point, saying that inflation varies across sectors. He highlighted the importance of food security and advocated for lower or zero taxes on unprocessed food to maintain affordability.
Moshuiur Rahman said the budget has three main focuses: macroeconomic stability, loan management and mid-term fiscal planning.
Budget shows cracks, offers no repairs
Presenting the keynote address, RAPID Chairman Dr MA Razzque commended the proposed budget's good intentions but criticised its lack of clear direction.
"While the key economic challenges have been identified, the policy directions for addressing them are not well-defined," he commented.
Dr MA Razzque said the fiscal policy stance appears to be not complementary enough with the contractionary monetary policy measures.
"Restoring macroeconomic stability should be given the utmost and urgent priority," he said.
He suggested revisiting the growth target as a tool for improved macroeconomic management. Mr Razzque warned that failing to achieve macroeconomic stability could hamper export competitiveness and investment attraction.
He criticised the budget's objective of achieving high growth with an unrealistically high expected private investment-to-GDP ratio, mirroring the target set in the previous year.
Dr Razzque also aired concern about the high budget deficit of 4.6 per cent of GDP, considering the ongoing inflationary pressures. He said rationalising operational and development expenditures could reduce the need for deficit financing, thereby helping to control inflation.
Razzque urged the government to identify projects that could be postponed without significantly compromising development goals.
He said to strengthen the country's fiscal space, priority should be given to fundamental reforms in tax policy and administration. This includes automating and digitalising the National Board of Revenue (NBR) rather than solely relying on setting ambitious tax collection targets.
While welcoming the tariff rationalisation measures, Dr Razzque noted their limited impact compared to the objectives outlined in the National Tariff Policy.
Chasing growth, or achieving price stability?
At the programme, DCCI President Ashraf Ahmed expressed frustration with the approach of raising interest rates to control inflation.
"How can we expect growth with an inflation target of 6.5 per cent?" he questioned. "If you restrict money supply to control inflation, how can you achieve the desired level of investment?" he argued.
Many economists criticised the proposed budget by calling it "contradictory" on the topic of inflation. They argued that the obsession for a 7.5 per cent growth and the dream of reducing the inflation rate of about 10 per cent to only 6 are mismatching.
According to them, the government should focus on taming inflation for the sake of macro stability.
In his speech, Dr M Abu Yousuf, executive director of RAPID, advocated for expanding the tax net.
He said the government should take the least developed country (LDC) graduation seriously to avoid macroeconomic vulnerabilities.
Mr Yousuf also called for a broader tax net and suggested collaboration between the NBR and city corporations to identify 10 million new taxpayers.
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