Consumers deserve more
Thursday, 25 December 2008
Enayet Rasul
Government leaders in Bangladesh repeatedly justified higher prices of commodities sold in local markets on their higher procurement costs in international markets. But free market principles do not say that prices should be dictated by the government to remain at artificially inflated levels in domestic markets notwithstanding their decrease in the international markets.
But this is found to be the case always in Bangladesh. For example, let us see the price of fuel oils. The prices of the same are fixed by the government because the importing and distribution of these oils are entirely government managed operations. So, government cannot shift blame saying that higher oil price is due to the profiteering instincts of private syndicates. If someone should be blamed for undue profiteering in this area, then that blame must go to the government. And consumers' helplessness should be obvious when government itself violates the rules of ethical business by engaging in rip off of the consumers through setting unfairly the price of a vital commodity like fuel oil.
Government adjusted upward fuel oil prices several times over the last nearly two years and the last such revision was a particularly big one, some 40 per cent rise in prices on average across the board. Thus, the price of octane leapt up to Taka 90 per litre from Taka 67. The prices of diesel and kerosene also recorded a substantial rise.
The government's main excuse for the upping of the fuel oil prices was that huge subsidies were being borne by it for importing the same with escalating prices from international markets and then selling them at much lower prices in the local markets. As government could no more bear greater subsidy burdens on this score without dangerously worsening the budget deficits, it had to raise prices to keep limited the subsidies.
But international price of oil was some $ 147 per barrel when its price in Bangladesh was last raised . The international prices of fuel oils have been rapidly falling on the lower side since the last major upward increase of fuel oil prices in this country. The fall in prices of fuel oils in international markets led to a token downward readjustment of their prices in our local markets two months ago.
But since that time the price of oil has slid to nearly $37 a barrel. But government in Bangladesh is not passing the benefit of this decline in fuel oil prices to Bangladeshi consumers. The government finally declared a cut in price on Monday. But on offer is only a very token cut such as a Taka 3 or 3.75 per cent reduction in the per litre price of octane. After the latest reduction, per litre price of octane has decreased to Taka 77 from Taka 80. This is tragic from the consumers' point of view because they have been waiting for a cut proportionate to the drop in fuel oil price in international markets. They expected a cut by at least some 20 per cent on average whereas the cuts would be no more than even 5 per cent on average.
A great opportunity was showing up for the Bangladesh economy from carrying out substantial cuts in fuel oil prices. The doing of this would reduce production, transportation and all other related costs of a gamut of industries and services. Not only the competitiveness of these businesses would improve as a result, the conditions for the prices and charges of a large number of goods and services would be created from the falling costs of producing, transporting and marketing them.
Thus, the end consumers would start benefiting from lower prices and charges which is their main aspiration in the background of relentless price rises of all sorts of commodities and services in the local markets. Thus, the rate of inflation which is both a big micro and macro economic disadvantage would also decrease from appropriate reduction in the price of domestically used fuel oils. But the economy and the consumers will be denied such a good outcome as the cuts in domestic oil prices so far have been only titbits or nothing to write to home about.
The last two reduction in fuel oil price were no more than token efforts. If it was really intended to pass the benefits of the reduction to users or the economy in general, then the cuts in prices could be substantially deeper but that would, nonetheless, meet the ends of keeping government's subsidy on this score bearable while allowing for the bigger drop in prices to be a positive stimulus for the economy and relief for all categories of energy users.
When the oil prices were last hiked domestically the prevailing international price of oil per barrel at that time was some $147. The price dipped to some $87 per barrel or by 60 per cent by the time of its last adjustment in domestic markets. But notwithstanding this 60 per cent average decline in the international price of oil at that time, Bangladeshi consumers became the beneficiary of this decrease by only 11 per cent three months ago. Oil prices recently have dropped to nearly $ 37 a barrel from its peak price about ten months ago. But in Bangladeshi markets fuel oils would continue to be sold at the marginally decreased price after last Monday's price revision. The latest decrease, as stated above, is a very small one , a few Takas only.
It is not expected that government should bear too big a burden of subsidies for selling oil at a cheaper price. But even a decrease in its price by some 50 per cent -- now -- would mean that government would have to pay only a small amount in subsidies for oil compared to the huge amount of subsidies it was paying when the international price was $147 per barrel.
Government leaders in Bangladesh repeatedly justified higher prices of commodities sold in local markets on their higher procurement costs in international markets. But free market principles do not say that prices should be dictated by the government to remain at artificially inflated levels in domestic markets notwithstanding their decrease in the international markets.
But this is found to be the case always in Bangladesh. For example, let us see the price of fuel oils. The prices of the same are fixed by the government because the importing and distribution of these oils are entirely government managed operations. So, government cannot shift blame saying that higher oil price is due to the profiteering instincts of private syndicates. If someone should be blamed for undue profiteering in this area, then that blame must go to the government. And consumers' helplessness should be obvious when government itself violates the rules of ethical business by engaging in rip off of the consumers through setting unfairly the price of a vital commodity like fuel oil.
Government adjusted upward fuel oil prices several times over the last nearly two years and the last such revision was a particularly big one, some 40 per cent rise in prices on average across the board. Thus, the price of octane leapt up to Taka 90 per litre from Taka 67. The prices of diesel and kerosene also recorded a substantial rise.
The government's main excuse for the upping of the fuel oil prices was that huge subsidies were being borne by it for importing the same with escalating prices from international markets and then selling them at much lower prices in the local markets. As government could no more bear greater subsidy burdens on this score without dangerously worsening the budget deficits, it had to raise prices to keep limited the subsidies.
But international price of oil was some $ 147 per barrel when its price in Bangladesh was last raised . The international prices of fuel oils have been rapidly falling on the lower side since the last major upward increase of fuel oil prices in this country. The fall in prices of fuel oils in international markets led to a token downward readjustment of their prices in our local markets two months ago.
But since that time the price of oil has slid to nearly $37 a barrel. But government in Bangladesh is not passing the benefit of this decline in fuel oil prices to Bangladeshi consumers. The government finally declared a cut in price on Monday. But on offer is only a very token cut such as a Taka 3 or 3.75 per cent reduction in the per litre price of octane. After the latest reduction, per litre price of octane has decreased to Taka 77 from Taka 80. This is tragic from the consumers' point of view because they have been waiting for a cut proportionate to the drop in fuel oil price in international markets. They expected a cut by at least some 20 per cent on average whereas the cuts would be no more than even 5 per cent on average.
A great opportunity was showing up for the Bangladesh economy from carrying out substantial cuts in fuel oil prices. The doing of this would reduce production, transportation and all other related costs of a gamut of industries and services. Not only the competitiveness of these businesses would improve as a result, the conditions for the prices and charges of a large number of goods and services would be created from the falling costs of producing, transporting and marketing them.
Thus, the end consumers would start benefiting from lower prices and charges which is their main aspiration in the background of relentless price rises of all sorts of commodities and services in the local markets. Thus, the rate of inflation which is both a big micro and macro economic disadvantage would also decrease from appropriate reduction in the price of domestically used fuel oils. But the economy and the consumers will be denied such a good outcome as the cuts in domestic oil prices so far have been only titbits or nothing to write to home about.
The last two reduction in fuel oil price were no more than token efforts. If it was really intended to pass the benefits of the reduction to users or the economy in general, then the cuts in prices could be substantially deeper but that would, nonetheless, meet the ends of keeping government's subsidy on this score bearable while allowing for the bigger drop in prices to be a positive stimulus for the economy and relief for all categories of energy users.
When the oil prices were last hiked domestically the prevailing international price of oil per barrel at that time was some $147. The price dipped to some $87 per barrel or by 60 per cent by the time of its last adjustment in domestic markets. But notwithstanding this 60 per cent average decline in the international price of oil at that time, Bangladeshi consumers became the beneficiary of this decrease by only 11 per cent three months ago. Oil prices recently have dropped to nearly $ 37 a barrel from its peak price about ten months ago. But in Bangladeshi markets fuel oils would continue to be sold at the marginally decreased price after last Monday's price revision. The latest decrease, as stated above, is a very small one , a few Takas only.
It is not expected that government should bear too big a burden of subsidies for selling oil at a cheaper price. But even a decrease in its price by some 50 per cent -- now -- would mean that government would have to pay only a small amount in subsidies for oil compared to the huge amount of subsidies it was paying when the international price was $147 per barrel.