Governance in Punjab: New chief secretary proposes measures to control inflation in four weeks

ISLAMABAD: New Punjab Chief Secretary Kamran Ali Afzal’s presentation to Prime Minister Imran Khan urging better governance in Punjab puts the provincial revenue administration, led by his senior colleague Babar Hayat Tarar, in a difficult position. Afzal is essentially saying that revenue cases are not being resolved in an efficient and timely manner.

Tarar, the present senior member Board of Revenue (SMBR), who is many batches senior to Kamran Afzal, was also a contender for the much sought-after position of the chief secretary. His name was also included in the three-member panel put forward to the prime minister for picking one of them as the chief bureaucrat in Punjab.

The chief secretary, a reputed economist, has proposed a plan of action to control inflation in four weeks. However, it is the consensus of financial experts and economists that inflation control is the function of the central bank and the finance ministry. They point out that inflation is generally controlled by the State Bank of Pakistan (SBP) and/or the government. The main policy used is monetary policy (changing interest rates). Higher interest rates reduce demand in the economy, leading to lower economic growth. In the present case, the chief secretary has proposed law and order and administrative measures to control inflation.

An officer who has spent a long period in the finance ministry said that there are a variety of tools to control inflation in theory, including monetary policy: control of money supply as monetarists argue there is a close link between money supply and inflation, thus controlling money supply can control inflation; supply-side policies – policies to increase the competitiveness and efficiency of the economy, putting downward pressure on long-term costs; fiscal policy – a higher rate of income tax could reduce spending, demand and inflationary pressures; and wage controls – trying to control wages could, in theory, help reduce inflationary pressures. However, apart from the 1970s, it has been rarely used.

The official said in our case, factors like the exchange rate (massive devaluation of the rupee), oil prices, wheat and sugar prices, the import price of essential food items like edible oil and pulses, and the cost of gas and electricity are key factors fuelling galloping inflation.

All these factors also reflect the views of the federal government. The measures proposed by the chief secretary as a panacea for controlling inflation will at best improve supply. The present inflation is not because of the scarcity or lack of supply but due to these listed factors.

An expert said the idea of price control through magisterial action is based on the premise that market forces do not work in Pakistan and prices are not determined by the interplay of supply and demand. It ignores the major factor of cost of production, import, transportation, and supply. Inflation is almost always a monetary phenomenon. SBP policies, the interest rate and money supply, are the key forces that cause inflation. The exchange rate depreciation has a direct impact on almost all these costs.

He said the structural constraints on the supply side, leading to increase in prices, are again not amenable to magisterial action. The actions by the deputy commissioners are likely to result in harassment of shopkeepers, interruption in the supply of commodities etc. The raging inflation will shrug off such measures and continue on the back of economic forces. A mechanism -- price control through administrative measures-- with its long history of failing to control prices is being polished and launched once again. The move serves the purpose of shifting the responsibility for inflation, that rests with the federal government and its institutions like the SBP and finance ministry, to magistrates-- the bogeyman of the middleman and unscrupulous shopkeepers.