The squeezed middle class

Soaring price of daily necessities constrains the middle class most.

Sadly true, policy actions and market control mechanisms are still traditional and primitive. As for example, green chillies, onions, tomatoes and potatoes being perishable commodities, primitive system of storage or other means of maintaining a buffer stock can help very little to play any critical role to augment the supply position in the market, especially in the summer days. Even when our ministers and high officials visited developed countries and saw for themselves storage sites , no such action and technological device was ever adopted in this country. Ordinarily, the fires of price escalation are doused through government intervention. While to intervene, you need a buffer stock, shockingly, the most crucial factor helping such venture to be successful comes from the steady supply of power that is still a distant dream.

Undeniably true, people and the government have to contend with the fact that in the event of a shortfall of production of an agricultural commodity, that is linked to people's bare necessities, panic or rumour mongering mostly done by big businesses takes priority over the law of supply and demand. With the fall in production and shrinkage of area, there is a chance of speculation dominating the scene that brings about a high price rippling from the production field and continuously driving up the price through all the hands it passes. This is not an unfamiliar situation which a careful government must guard. Pathetically true, the agencies concerned in the country, as usual, were not fully alive to the situation that had spread its root much earlier and when the situation went somewhat out of control bringing in public criticism, the respective ministry rose to the occasion allaying public fear and resentment by making a disclosure that government would import 50,000 tons of rice and one lakh tons of wheat that are likely to arrive in the country in September next to help the market being stabilised!

At a time when the price hike of food items and essential commodities has hit the poor people hard, the fixed income group including those not on any job, retired employees of either government or non-government organisations or employees of the private firms, find themselves in a bind. In this country of 140 million people, National Pay Commission benefit has reached only a microscopic fraction of about 12 lakh people belonging to government and autonomous bodies, but the tell-tale effect of the pay hike or rather the steam gushing out of a small group of the beneficiaries pocket has affected the vast multitude of people living across the country.

With prices of food stuff and daily essentials soaring every day after the pay hike and announcement of new budget, Anisur Rahman Khan, a retired government employee having still four members in the family dependent on him faces a gruelling battle with his savings like a small monthly pension and a pension benefit he has put in a bank He is now in a double quandary. He is worried about the cut in the bank rate as part of the government fiscal policy reforms. .Anisur Rahman has no particular interest about the BB's credit policy. Nor he is an economist worried about the high rates of interest cutting into the competitiveness of the country's industry. Over the years the cut has been going on in a bid to trim the budget deficit in other sectors. And each cut in interest/profit rate reduces his monthly income. "The cut in interest rates may or may not help the Bangladesh economy reach new milestones in productivity and growth but it has certainly impoverished me," laments Anisur Rahman.

Anwarul Haque who retired as a teacher from a government secondary school is in a similar bind. Years ago he invested his entire pension money in the National Savings scheme at an annual interest rate of 13 per cent. After the scheme matured, he had to reinvest only at 9.5 per cent or less. "At a time when the prices are rising steadily every day than a few years ago, my monthly income would be falling", remarks Haque. What will he do in the event he or any member of his family is down with any serious illness ? Lamentably, the country till now does not have any elaborate health care system to take care of such unfortunate people who served the government while in service with competence, commitment, dedication and last of all with integrity With prices spiraling every day, these people with no means to bridge the shortfall in their earning are now in aÊ desperate situation. Bank deposits account for the largest share of financial savings of households and interest rates on deposits of different maturities have come down to an astounding low mark in the last few years pushing them on the edge.

The fear of falling returns cuts across generations. Tanvir Hasan in his mid-40s and managing director of a startup technology firm is worried too. "Saving opportunities are vanishing. The options I was comfortable with have either disappeared or are not lucrative anymore", he complains.

Unlike Anwarul Haque Tanvir has the qualification and ability to study different saving options, but he won't do that because of inertia. "I don't have the inclination to continuously look for newer and complicated saving options", he says. After the shocking crash of the stock market in 1998, nobody feels the least of desire to take that line of business.

Falling interest rates are only one cause of growing despondence among middle class savers. A bigger but less expressed cause of worry is the shrinking of saving options. Real estate and gold have ceased to be tools of investment. Rightly so, more than 90 per cent of middle class people have neither the know-how nor the proper faith in the financial system now in place in the country and they are a distressed lot. In the new global economy, savings in financial assets (deposits, bonds, mutual funds, stocks) are more productive than savings in physical assets (property, gold)

But the financial instruments that replaced physical models of savings in the last decade have lost lustre. Returns are also falling in tax-saving schemes. So in effect, part of the uncertainty in the saving community stems from the fear of the failure of the financial institutions. People are asking one another and sometime rush to experts for opinion as to where their money would remain safe.

With the announcement of the dream budget and implementation of National Pay Commission award, there is a sting biting the common people. Before the money has come out of the safe vault of the banks inflationary trend haunts the country. Inflation that now hovers on 7.3 per cent is an indirect tax and hurts the poor most. Inflation erodes savings . It keeps interest rate high. If there is anything growth-enhancing about inflation, many developed countries would have embraced it and made it part of their economic philosophy. Mentionably, in most countries alarm bells will ring if the rate of inflation cruises just 2 per cent.

With the dream budget just 'released' a dangerous idea of jump starting the economy with larger expenditure has set in. No one seems to have paused to ask what the government will spend on? There is no other sector other than roads that has the capacity to absorb large sums of government expenditure. Despite the fact that funds were made available in many projects like health, education and agriculture and most prominently in power sector in the previous financial years, the agencies concerned found it difficult to utilise these allocations. Because government spending requires plans, estimates, approach, sanctions etc. not to speak of audits. Caught in the unending battle between price hike of daily essentials and meagre resources like fixed earnings, lack of risk-free options for investment and dwindling earning from saving schemes, the middle class including the poor class are getting not only squeezed but totally ruined.

Needless to mention, the price hike of principal food items like rice, salt and pulses causes a shock wave in the stability and efficiency of any government in any country. Reports have it that in the weeks before the 1980 electoral victory of the Congress Party in India under Mrs. Gandhi, the price of vegetables had spurted by a rupee, helping the party to reap huge electoral gains against its rival, the Janata Party. Governments in all countries have to heed these lessons.

It is certainly true that world economy and market trends today are extremely complex. But notwithstanding all such unpredictable and capricious market forces there at play, there is certainly a large amount of analysis and statistical information available on many intricate issues. To ignore such information or to remain oblivious of people's sufferings and hardship and to live by slogans and rhetoric is to court disaster. Ideology, politics and power must not dull our common sense and must not rob us of pragmatism. The economic strains in any country exacerbate strains in the rank and file of the population and pose a threat to either flowering or growth of democracy and good governance. Precisely true, the economic crisis in the country is the legacy of decades of stagnation caused by authoritarian rule right from 1975. But prices of essentials now are certainly outrageous.

By a clear analysis it is evident that the production mechanism has been affected by several factors like frequent power disruption and rise in the price of fuels. As much as indications are available, the performance of the power sector will continue to remain abysmal in the days to come. Even though the government introduces new pay scales every year for its employees, it means little pay-off when the supply position of goods and services remain erratic and prices keep on jumping continuously.

Md Asadullah Khan is a former teacher of physics and Controller of Examinations, BUET.