#Pakistan - Ramazan and the dreaded price hike

The advent of Ramazan has over the years become so closely associated with price hike as to be considered synonymous. The fasting causes a huge gap in demand and supply of edible items leading to an abnormal price hike. Governments have been providing some relief by underwriting subsidies. The pressure on prices with the inception of Ramazan is unlikely to be any different this year. The inflation is already being reported at 7.9 per cent and a substantial raised in prices of petroleum products just four days ahead of the fasting month will likely compound the problems for the consumers.

The government’s response is not vastly different from its predecessors: the Utility Stores Corporation will provide 19 essential commodities at subsidized rates. The government of the Punjab has also decided to follow the USC subsidy model, without disclosing the amount to be provided for the subsidy. The Economic Coordination Committee has approved a Rs 200 million Ramazan Relief Package, 2019, compared to Rs 1.73 billion given in 2018. The substantial cut in the relief package speaks for itself.

A report in the media says subsidy will be limited to only 10 items. The remaining 9 items on the list will just be sold at wholesale rates.

Subsidized Ramazan Bazaars have been very popular with the citizens. In a certain sense they speak of a weakness in its price control regime. In broad terms, the subsidies lower consumer prices, help manufacturers maintain their profits and sustain a service. To some extent, such subsidies can be justified in terms of correcting for externalities and protecting struggling sectors.

For multiple reasons, Ramazan subsidies meant to benefit the poor, often fail in achieving the objective. First, USC outlets and Ramazan bazaars are set up mostly in urban centers. Second, the subsidized bazaars do not discriminate against the affluent.

It has been argued that the best way to support the targeted segment of the population is direct income support. The Benazir Income Support Programme is a model in this respect. A worthy goal may be to maintain an effective price control mechanism throughout the year. As Ramazan creates a temporary imbalance in demand and supply, the government might make special arrangements ahead of the month to ensure that supplies in the market remain adequate. Good planning in consultation with farmers, market players, and retailers can ensure that the month of fasting does not become a month of extra hardship.

https://dailytimes.com.pk/389111/ramazan-and-the-dreaded-price-hike/