Unabated price spiral: Commerce minister's U-turn

Therefore, the general public felt assured, and looked at him with admiration, when Commerce Minister Hafiz Uddin Ahmed, BB, visited the Karwan Bazar kitchen market immediately after assuming his new job. He went to check the prices himself and declared that appropriate actions would be taken against any syndicate manipulating the prices. Further, he forecasted that prices would come down soon. He made this promise, like his predecessors, on several occasions.

Finance Minister M. Saifur Rahman in the FY 2006-07 budget reduced duties and taxes on a number of imported items. The government functionaries expected that tariff reductions would lead to a fall in prices. BNP Secretary General Abdul Mannan Bhuiyan predicted a fall in prices in a month's time. However, the tariff reductions had little, if at all any, impact on prices.

It may be recalled that in an article published in "The Daily Star" of May 22, I wrote: "The minister did not divulge how he will bring down the prices. In any case, The Shamokal, a vernacular daily, in its May 18 issue, listed several methods. It seems that tariff reduction, and import and distribution of essential commodities by the Trading Corporation of Bangladesh (TCB) are high on his list of contemplated actions. They may help to an extent, but are unlikely to have a big impact. Business syndicates will gain, at the expense of the exchequer, from tariff reductions, and import and distribution of goods through TCB would push prices up in the likely scenario of appointment of party cadres as distributors. The minister also intends to fix prices after consulting the traders. Price fixing without ensuring adequate supply will not work."

For the last few months rainfall in the country has been less than usual. This is not a good omen. More rains may be coming in the next few weeks, along with more melted ice water from the Himalayas through our transnational river system. The combined effect may result in more than normal flooding of much of the countryside, adversely affecting agricultural production. This period would be followed by the holy month of Ramadan, when consumption demand would be much more than usual. Therefore, the government has little time to spare if it really wants to curb the price rise further.

Equilibrium of demand and supply determines the price of any commodity. Price rises sharply if the demand for a commodity is inelastic, even with a slight shortfall in its supply. Most items of daily necessity have far less demand elasticity than luxury items. Since demand management, particularly of daily consumables, is far more difficult than the management of the supply chains the government should immediately embark on an exercise to estimate the demand-supply forecasts of all essential items in coming months. If any disequilibrium is expected measures should be taken to bridge the gap.

Several factors contributed to the unabated rise in prices of essential items in the last few years of the BNP led alliance government. Most items of our daily necessities -- rice, pulses, edible oil, sugar, onion, etc. -- are produced locally. The shortages are met with imports from abroad. Demand for these items, with rise in population, have increased, but domestic production of most items suffered setbacks. The table below gives their production figures, contained in Bangladesh Economic Survey, 2006, tabled by the Finance Minister in the National Assembly, along with other FY 2006-07 budget documents.

Table-1 shows that production of major agricultural crops, food grains as well as cash crops except boro rice, has declined during the last few years of BNP rule. The increase in boro production was also not as spectacular as it was during the previous AL regime. Food import, including food aid, rose from 1.78 million metric tons in FY 1990-91 to 2.43 tons in 1995-96, the last year of the previous BNP government, which came down to 1.55 million tons in FY 2000-01, the last year of the AL reign. With BNP in the driver's seat, the food import started rising and reached an all time high since the birth of Bangladesh in 1971 to 3.37 million tons in FY 2004-05.

The total bill for imports rose from $9.34 billion in 2001-02 to $13.15 billion in 2004-05, as against export of $6.47 and $8.66 billion respectively in those two years. Exports financed 69.27% of the imports in FY 2001-02, coming down to 65.86% in 2004-05.

As the import dependence increased, despite laudable increase in workers' remittance from abroad, from Tk. 10,266 crore in 2000-01 to Tk. 23, 647 crore in 2004-05, Bangladesh's external liability increased from $15 billion in 2000-01 to $18.8 billion in 2004-05.

The terms of trade fell from 94.39 in 2000-01 to 78.04 in 2004-05. The Taka-Dollar exchange rates depreciated from Tk. 53.06 a dollar in 2000-01 to Tk. 66.67 a dollar in 2004-05 and the rate is currently at Tk. 70-71 a dollar. In an environment of rapidly depreciating value of the Taka, the fall in domestic production of agricultural products, and rise in imports, hiked the prices up in hats and bazaars across the country.

Last but not least, the import, processing, packaging and marketing of essential items like food grains, edible oils, milk powder, sugar, etc. are now controlled by a syndicate of importers cum traders cum packers and manufacturers. It is reported that in an inter-ministerial meeting, chaired by the commerce minister and attended by business leaders, Partex group, City group, TK group, Meghna group, etc. were identified as the leading members of the aforesaid syndicate. Apparently these business tycoons have a close nexus with a powerful quarter within the government.

Sensing his inability to control their unbridled profit mongering, Commerce Minister M. Hafizuddin, retracting his earlier declarations in despair, reportedly said that it is not his ministry's job to check their activities. Later, in a meeting with the members of a foreign chamber, he abdicated his responsibility by citing the example of a neighbouring country and saying that a new ministry should be created to control prices.

Since the "Allocation of Business" assigned the responsibility to monitor and control prices to the commerce ministry is there any scope for the commerce minister to make this "U-turn" within such a short time of his promise to bring down the prices and take action against the syndicate?

In case of unusual flooding

during the August-September period, and uncontrolled rise in prices during Ramadan, the BNP propaganda campaign that it believes in "development and production," though belied by statistics contained in the finance ministry's publication (The Economic Survey, 2006), will fool no one in the next general election. Still there is time for the BNP to take a U-turn against the importers' syndicate and reclaim credibility, if there is any left.

The author is a former Commerce Secretary.