Putting genie back in the bottle
WE cannot call inflation a conspiracy against the people, but the sophistication with which it is being fanned seems to be part of a well thought out strategy.
We do not understand the mysteries of the economy, nor do we consider the government to be totally ignorant of people’s problems, what we do know is that all kinds of policies are based on certain assumptions, right or wrong.
Here is the latest example. The government was expecting LNG prices to fall in the coming days in the global market, so it rejected cheap bids in this regard.
Eventually it had to accept the most expensive bid, for failing to secure supplies in time could trigger energy crisis in the country.
The intention was good but if the fate is bad then the dog bites even the rider on the back of the camel.
Another example is the PTI’s assumption and, consequently, a promise, that when it came to power, it would bring back the wealth looted by the previous governments and spend it on the welfare of the people.
Now, three years later, it has come to light that though corruption had taken place but the politicians put in jail on the charges of corruption had to be released for want of proof.
The PTI’s third assumption was that if electricity and gas bills are high, it means the rulers were stealing.
Now those who used to be called thieves have gone away, but the electricity and gas bills have not only increased a lot more than before but also the rate of increase is not slowing down.
Obviously, if the current rulers came to power to remove thieves and eliminate theft, they cannot be expected to fall into these bad deeds themselves.
This simply means that the rulers don’t necessarily commit theft but their real problem, rather than compulsion, is that they cannot stop theft.
The fourth assumption is that devaluing the currency improves the balance of exports and consequently external payments.
The reality is that exports have not increased but, instead, the volume of internal and external debt has increased to the tune of Rs 11 billion.
The fifth hypothesis, though not the invention of the present government, is that the rich should be taxed less so that they can use their savings, or profits, to expand their businesses.
It’s assumed that the wheel of the economy will move fast, the poor will get jobs and the gross domestic product (GDP) will increase.
This means that the burden of taxes should be placed on the poor and the middle class, because, firstly, these classes do not save and secondly their savings do not transform into investment.
The regressive taxation policy, as it is called, was adopted in the United States after the First World War and as a result it faced the worst economic crisis in history. But we still have that policy.
The present government has not only complied with this but has also given trillions of rupees in concession to the rich.
The reality of the assumptions has come to light and the result of believing in them blindly is that the monster of inflation has come out of the bottle and the government has just knelt before it. The matter of truth is different altogether.
It can be seen with the eyes, heard with the ears and felt with the hands. Truth is that the burden of exchequer remains on the majority, which can’t even make their both ends meet and, as a matter of principle, need subsidies rather than made to cough up revenue.
It’s also true that other than the indirect taxes (applicable to the rich and the poor) levied on essentials, other major sources of government revenue are import-related taxes, which means that if the imports of essential commodities are reduced, the national exchequer suffers.
Consequently, the masses are taxed doubly and if the government delays imports to save foreign exchange, the commodity prices will soar higher.
The commodities we need, namely edible oils, pulses, petroleum products, gas, have low production of their own and are being procured from distant markets.
India is a huge market in our vicinity from which we can at least order food items, which is our biggest problem at the moment, but our relations with this country are not good.
The second fact is that the circulation of money in the country has increased by one third in the last three years.
Billions have been thrown in the market in the form of cash assistance in various forms. Overall the situation is that the government is spending billions of rupees to shore up purchasing power of families across the country.
It’s logical that commodities’ demand will go up while supplies are dwindling. Inflation is certain. But the government’s case is that it turns assumptions and is not ready to accept the reality.
The point is, assumptions are not facts. To become a truth, they have to go through a rigorous research process.
Books have been written on the consequences of swimming in non-tested waters. When it comes to politics, there is no room for error.
So, it’s time to rectify the wrongs on economic fronts and face the reality of inflation with a bold face. The real question is how to boost purchasing power of the people.
Neither cash assistance, nor devaluing currency is solution to the problem, but bringing down indirect taxes other than abolishing a lot of others levied on the commoners is.
Too, it is time to get of expansionary growth model, turn to progressive taxation and match supplies to the demand, knock on wood.
—The writer is politico-strategic analyst based in Islamabad.
