Price-rise after the budget
Saturday, 16 June 2007
ONE of the areas where common people expected the present caretaker government to perform very well and promptly in line with their expectations, was in the area of controlling upward movement in the prices of essentials or at least stabilising them. It is not that the government remained unresponsive to this expectation. Allowing the Bangladesh Rifles (BDR) to open and run kitchen markets, moves to import and distribute at fair prices consumer goods through the government-run Trading Corporation of Bangladesh (TCB), initiating dialogue with the traders and examining the operation of the market mechanisms to further know about the reasons for price manipulation, etc., have been efforts of this government to control and stabilise prices of essentials. Toll collection by different groups from trucks carrying essential goods was also prevented by effective law enforcement during the last four months with a view to reducing transportation costs and, thus, prices of these transported commodities. Finally, in the budget announcement about a week ago, complete duty waiver was declared from a number of kitchen items which are largely imported in a bid to make them cheaper.
But these actions, as it appears, are not having the desirable impact on the markets. The proposed duty waiver from the kitchen items is not helping in the containment of their prices. Rather, such prices have gone up after the announcement of the budget, defying any rationale. Prices of pulses, onion, garlic, etc., have increased by Taka one to Taka three per kg after the budget declaration though ample stocks of these exist in the market and the budget has proposed full withdrawal of duties against these imported items to ensure their lower procurement costs.
Prices are essentially the outcome of the interplay of forces on both demand and supply sides. Market imperfections are also responsible for price aberrations. While unrelenting efforts are needed to remove such imperfections as far as possible, the primary focus of the government's fiscal, monetary and all other related policies and actions should be on facilitating better demand management and easing all supply-side constraints. Competitive market forces should be encouraged through all policy supports so that any mismatch between demand and supply can be addressed by easing pressures on both sides.
It will not be wise to go for any ill-thought-about market intervention by the government because the same without being properly targeted will serve no worthwhile purpose as far as price stability on a sustained basis is concerned. For market forces to operate in a free and competitive environment, trust and confidence of the business operators are extremely important. Any wrong signal given to such operators will be counter-productive as far as prices are concerned. Certainly, the government cannot assume the responsibility of conducting the whole gamut of operations in the market with wide-ranging interventions. It has also to be pointed out here that the government must not sit entirely idle in a situation where any contrived scarcity exists in the market, created by any unscrupulous section of the businesses. No section of the businesses should be allowed to manipulate prices.
Untamed very great greed or profiteering tendencies of some traders cannot be condoned, if such practices are, on a realistic ground, found to be responsible for unabated prices pressures. This is more so, in a situation where the proposed budget for fiscal 2007-08 has suggested zero import duty on some kitchen items. If international prices have not gone up and the exchange rate remains stable, there is no logical ground for the prices of all those relevant items to show any erratic price behaviour in the domestic market. The whole range of surveillance and monitoring operations by the government does need to be effectively strengthened to go for the right kind of policy actions to tame inflation and to reduce the hardship of the hapless consumers.
But these actions, as it appears, are not having the desirable impact on the markets. The proposed duty waiver from the kitchen items is not helping in the containment of their prices. Rather, such prices have gone up after the announcement of the budget, defying any rationale. Prices of pulses, onion, garlic, etc., have increased by Taka one to Taka three per kg after the budget declaration though ample stocks of these exist in the market and the budget has proposed full withdrawal of duties against these imported items to ensure their lower procurement costs.
Prices are essentially the outcome of the interplay of forces on both demand and supply sides. Market imperfections are also responsible for price aberrations. While unrelenting efforts are needed to remove such imperfections as far as possible, the primary focus of the government's fiscal, monetary and all other related policies and actions should be on facilitating better demand management and easing all supply-side constraints. Competitive market forces should be encouraged through all policy supports so that any mismatch between demand and supply can be addressed by easing pressures on both sides.
It will not be wise to go for any ill-thought-about market intervention by the government because the same without being properly targeted will serve no worthwhile purpose as far as price stability on a sustained basis is concerned. For market forces to operate in a free and competitive environment, trust and confidence of the business operators are extremely important. Any wrong signal given to such operators will be counter-productive as far as prices are concerned. Certainly, the government cannot assume the responsibility of conducting the whole gamut of operations in the market with wide-ranging interventions. It has also to be pointed out here that the government must not sit entirely idle in a situation where any contrived scarcity exists in the market, created by any unscrupulous section of the businesses. No section of the businesses should be allowed to manipulate prices.
Untamed very great greed or profiteering tendencies of some traders cannot be condoned, if such practices are, on a realistic ground, found to be responsible for unabated prices pressures. This is more so, in a situation where the proposed budget for fiscal 2007-08 has suggested zero import duty on some kitchen items. If international prices have not gone up and the exchange rate remains stable, there is no logical ground for the prices of all those relevant items to show any erratic price behaviour in the domestic market. The whole range of surveillance and monitoring operations by the government does need to be effectively strengthened to go for the right kind of policy actions to tame inflation and to reduce the hardship of the hapless consumers.