Zero effect, say experts
Independent economists agree that the trickledown effect has had no effect on the lives of lesser mortals.
Former chief economist Dr Pervez Tahir says that while inflation is down, one sees no cheers on the faces of ordinary folks. “Other improvements that the ministers brag about — ratings, stock exchange, donor endorsements — do not make any sense to them. What does make sense to them is continued loadshedding, shortages even with historically low oil prices, fears of scarcity of flour amidst plenty of wheat, rising school and health costs and so on,” he says.
“In short, they see a government ineffectively busy in issues that do not concern them. The economic incompetence does not have a parallel in living memory. The people see the opposite of what was promised. Instead of breaking the begging bowl, they see the glorification of increasing debt. Energy is left to MOUs that do not have a timeline. For jobs, they have threats of privatisation. The poor seems to have been assigned permanently to mechanisms like the Benazir Income Support Programme (BISP). There is not much difference between the cricket team and the economic team!”
Former finance minister Dr Hafiz Pasha blames the government decision to exorbitantly increase procurement price for the “significant upward swing” of the prices of food items.
“The price of staple food items like sugar, wheat and vegetable ghee has not been brought down. To protect the interest of big farmers, wheat and sugar price was almost increased by Rs9 per kg. The prices of wheat byproducts have witnessed gradual increase. This is the outcome of the imposition of regulatory duty of 20pc on sugar import and 25pc on wheat. As a result, the prices of these staple food items which are mostly in use of common people are artificially raised. Contrary to this, the government has provided subsidies on export of these commodities to give benefit to the foreign consumers,” he says.
“The trickledown is not there though the government reduced petroleum prices. Still, it is not clear how much benefit in oil price was transferred to the local consumers. High speed diesel, the main fuel in the transport sector, was subject to 37pc sales tax. The trickledown effect will only be visible in case government’s policies focused on bringing the food prices down. The maximum benefit should be passed on to the end consumers. We should have used the fall in international price to reduce the price of food items so that the trickledown effect could reach the consumers,” he concludes.
Faisal Bari, a Lahore-based economist and academic, notes that while the inflation is down and the rupee is stable, there still is low level of economic growth. “We cannot achieve rapid poverty reduction or even reduce inequality with this level of growth. Now, to achieve those, we need a higher level of growth or much stronger re-distributive policy that takes assets and resources from the rich, and give them to the poor.
“Our taxation system and our social protection policy or even the expenditure on health and education are not strong means of re-distributing resources. Hence, with the current state of economy, it is almost impossible to achieve any poverty reduction targets. What we need is significant policy shift,” he asserts.
Former caretaker finance minister and a leading World Bank official Shahid Javed Burki is clear on the way things should move. “Much of the economic gains have been captured by the rich. The gains are going to the urban rich, and not to the rural well-to-do as was the case in the past. The only way to address this is via fiscal policy; by increasing taxes on the urban rich.”
Published in Dawn March 22nd , 2015