Businessmen for reducing production cost as high inflation threatens economy

The Federation of Pakistan Chambers of Commerce and Industry’s Businessmen Panel has stressed the need for reducing the cost of doing business, besides evolving a new price control mechanism, as the inflation has broken all records during the last three years, with food prices doubling owing to huge taxation, rising oil prices and constant jump in electricity and gas tariffs, lifting the inflation to historic high.

The FPCCI’s Businessmen Panel Chairman Mian Anjum Nisar said that the International Monetary Fund's financial assistance has brought a fresh wave of price-hike, as inflation is already hitting the industry hard due to continuous rise in oil prices and depreciation of local currency. He said that absolute dependence on borrowing has devastating effects on the economy, as with more taxes and increased rates of utilities, cost of production has increased manifolds, rendering Pakistani exports uncompetitive in the global market.

He warned the authorities that inflation above 6 percent can hurt economic growth and a careful policy is required to keep it in control. He said that the pace of inflation is skyrocketing, which has made it difficult for the people to cope with the situation, as country is facing a situation of stagflation because economic growth rate is slow while unemployment and prices of goods and services are high.

Mian Anjum Nisar said the present situation indicates the complete breakdown of administration in all federal and provincial governments besides highlighting the impacts of unprecedented taxation on dictation of the IMF.

He said that it has now proved that the central bank's tight monetary policy in the past had no effect on the prices of food items that were increasing because of supply shocks, increase in sales tax rates and monopoly of few businesses. The former F% CI President said the high interest rates have affected the industrial expansion while also hurting the economic growth prospects.

Quoting the data he said that from Oct 2018 to Oct 2021, electricity rates have increased by 57%   from Rs 4.06 per unit to Rs 6.38 per unit. By the first quarter of Oct, the price of 11.67 kg cylinder of LPG had gone up by 51 per cent from Rs 1,536 to Rs 2,322. Similarly, the price of petrol had gone up by 49 per cent in three years, up from Rs 93.80 per liter to Rs 138.73 per liter.

Consumer Price Index (CPI) registered 10.94% increase (2.86+4.16+3.92) during 2015-18 as opposed to 27.36%  increase (7.34+11.12+8.90) during 2018-21; Sensitive Price Index (SPI) rose by 3.73%  (1.31+1.57+0.85) as against 35.82%  increase (5.15+16.84+13.83); and Wholesale Price Index (WPI) recorded 6.46%  increase (-1.05+4.04+3.47) as opposed to 32.44%  increase (11.97+11.06+9.41) during the three year period 2015-18 and 2018-21, respectively.

He said that owing to soaring inflation Pakistan has been ranked the fourth most expensive country in the world, as the rate of inflation here clocked in at 9% while inflation rate in India is 4.3%. The month of Oct saw a new round of increased prices of consumer items as inflation edged up to 9% from 8.4% while the Wholesale Price Index (WPI), which captures prices in the wholesale market, also rose sharply by 19.6%.

The government has set the average inflation target for the ongoing fiscal year at 8.5%, indicating that the year-on-year inflation may remain in double digits in the fiscal year 2021-22.

Mian Anjum Nisar observed the most serious threat to the economy in the current fiscal year has become inflation which has touched the highest level.

He said low inflation helps economic agents to predict outcome of their economic decisions with fair level of certainty. Especially, producers follow their plans for business expansion with more confidence; and new investment is undertaken in the expectation of predictable returns, he maintained.

BMP chairman said there is a consensus that a low inflation rate helps economic activities, while high inflation hurts economic growth. The high inflation environment affects decision making of all economic agents in economy, like investors, savers, consumers and producers through uncertainty about the expected payoffs from their decisions, he added.

Moreover, a persistently high inflation also causes erosion of the value of the local currency in terms of foreign currencies. Such uncertainties, in turn, have adverse implications for economic activities, he added.