Inflation in Pakistan

Theory of Inflation:

Inflation means a sustained rise in prices. Inflation can be Creeping, walking or trotting, running, hyper or gallop, demand pull, cost push, mixed, markup or stagflation according to velocity and nature. Inflation is caused by some demand side factors (Increase in nominal money supply, Increase in disposable income, Expansion of Credit, Deficit Financing Policy, Black money spending, Repayment of Public Debts, Expansion of the Private Sector, Increasing Public Expenditures) and some Supply side factors (Shortage of factors of production or inputs, Industrial Disputes, Natural Calamities, Artificial Scarcities, Increase in exports (excess exports), Global factors, Neglecting the production of consumer goods, Application of law of diminishing returns)

Inflation effects the different sectors of the economy (Effects on the distribution of income and wealth, Effects on production, Effects on the Government, Effects on the Balance of Payment, Effects on Monetary Policy, Effects on Social Sector, Effects on Political environment) and different classes of the people (Debtors & Creditors, Salaried Class, Wages earners, Fixed income group, Investors and shareholders, Businessmen, Agriculturists)
Inflation can be controlled by Monetary Measures (Credit Control, Demonetization of the currency, Issue of new currency), Fiscal Measures (Curtailment in unnecessary expenditures, Increase in rate of taxes, Increase in volume of savings, Anti inflationary budgetary policy, Increasing public debt policy) and Non-Monetary and Non Fiscal Measures (Increase in volume of production, Price control and rationing policy).

A near History of Inflation in Pakistan with reference to CPI, SPI and WPI: [1]

Consumer Price Index (CPI) is the main measure of price changes at the retail level. It measures changes in the cost of buying a representative fixed basket of goods and services and generally indicates inflation rate in the country. The Consumer price index was computed for the first time with 1948-49 as a base for industrial workers in the cities of Lahore, Karachi and Sialkot only. Continuous efforts have been made, since then, to make CPI more representatives by improving and expanding its scope and coverage in terms of items, category of employees, cities and markets. Accordingly, the CPI series were computed with 1959-60, 1969-70, 1975-76, 1980-81 and 1990-91 as base years. At present, the CPI is being computed with 2000-01 as base year. And according to the studies of CPI, the inflation rate during the fiscal year 2000-2001 was 4.41, during the fiscal year 2001-2002 it dropped down to 3.54, further dropped to 3.10 during the fiscal year 2002-2003, rose again to 4.57 during 2003-2004, increased drastically to 9.28 during 2004-2005 and then dropped to 7.92 during 2005-2006. And by the mid of October 2006, the CPI is reported to be 8.43.

The Sensitive Price Indicator (SPI) is computed on weekly basis to assess the price movements of essential commodities at short intervals so as to review the price situation in the country. The SPI is being presented in the Economic Coordination Committee of the Cabinet (ECC). Sensitive price indicator was originally computed with 1969-70 as base which was subsequently switched over to 1975-76, 1980-81 and 1990-91 as base year. Presently, the SPI is being computed with base 2000-2001. And Sensitive Price Indicator (SPI) shows the facts as; 4.84 in 2000-2001, 3.37 in 2001-2002, 3.58 in 2002-2003, 6.83 in 2003-2004, 11.55 in 2004-2005 and 7.02 in 2005-2006. Recently (By the mid of October 2006) the SPI is reported as 9.86.

The Wholesale Price Index (WPI) is designed to measure the directional movements of prices for a set of selected items in the primary and wholesale markets. Items covered in the series are those which could be precisely defined and are offered in lots by producers/manufacturers. Prices used are generally those, which conform to the primary sellers realization at ex-mandi, ex-factory or at an organized Wholesale level. The WPI initially was computed with 1959-60 as base. Since then, continuous efforts have been made to make the WPI more representatives by improving and expending its scope and coverage in terms of commodities, quotations/markets, etc. Accordingly, WPI series were computed with 1969-70, 1975-76,1980-81 and 1990-91 as base years. Presently, the WPI is being computed with 2000-01 as base. The Wholesale Price Index (WPI) tells the story as; 6.21 in 2000-2001, 2.08 in 2001-2002, 5.57 in 2002-2003, 7.91 in 2003-2004, 6.75 in 2004-2005 and 10.10 in 2005-2006.


Evaluation of the year 2005-2006 (Government’s View):[2]

Inflation Among the most appreciated developments, during fiscal year 2005-06, was the significant abatement of price pressure over the course of the year. For the first ten months of the fiscal year July–April 2005-06, all important barometers of price pressure in the economy indicated a steady deceleration in inflation. Inflation during the first ten months July-April of the current fiscal year is estimated at 8.0 percent as against 9.3 percent in the same period last year. Food inflation is estimated at 7.0 percent as against 12.8 percent in the same period last year. Non-food inflation at 8.8 percent is on higher side compared with 6.9 percent in the same period last year. The core inflation which excludes food and energy costs from the headline CPI, moved up and estimated at 7.7 percent as against 7.0 percent in the same period last year. House rent index also played an important role in building inflationary pressure this year. With second largest weight in the CPI (23.4%) after food (40.3%), the house rent component of the CPI registered a marginal decline to 10.3 percent as against 11.1 percent in the same period last year. When viewed in the context of year-on- year performance of inflation, the current fiscal year exhibits significant abatement of price pressure and declaration in overall inflation as well as its sub-indices. The current fiscal year, started with an inflation rate of 9.0 percent in July 2005, but continued to decelerate, reaching at 23 months low at 6.2 percent in April 2006. Food inflation was closed to 9.7 percent at the beginning of the current fiscal year but decelerated sharply to 3.6 percent in April 2006- the lowest in the last 31 months. The measures taken by the Government, particularly since April 2005, when overall inflation reached 93 months high at 11.1 percent (the last time inflation was at this level in July 1997) and food inflation peaked at 15.7 percent in April 2005 (last-time it was at 15.7 percent in May 1994), yielded handsome dividend in the shape of overall inflation decelerating to 6.2 percent and food inflation to 3.6 percent in April 2006. Notwithstanding a steady deceleration in inflation, the prices of some of the essential food items (out of the basket of 370 items in CPI) registered sharp increases, particularly during the second half of the fiscal year and therefore adversely affected the low and fixed income groups. The expenditure on food items constitutes bulk of the monthly expenditure of the poor segment of the society. Sharp increases in the prices of some of the strategic food items put pressure on the poor. The higher inflationary trend in Pakistan over the last two years has been the outcome of pressure that emanated from demand and supply sides. Four years of strong economic growth has given rise to the income levels of various segments of the society. The rising level of income have strengthened domestic demand and put upward pressure on prices of essential commodities. Supply side pressure emanated from a variety of factors, prominent among those are: increase in support price of wheat for three years in a row, shortage of wheat owing to less than the targeted production, mismanagement in wheat operation in one of the wheat deficit province, inter-provincial ban on the movement of wheat resulting in sharp increases in prices of wheat and wheat flour. The prices of other food item such as beef, mutton, chicken, milk etc also registered sharp increases owing to “sympathy effect” on the one hand and demand pressure on the other. Lower production of sugar due to a relatively lower production of sugarcane and a sharp increase in the international prices of sugar brought about by a significant diversion of sugarcane into ethanol (petroleum substitute), by the largest producer, Brazil, also contributed in building inflationary pressure in Pakistan. Prices of various kinds of pulses also registered sharp increases owing to a significant decline in domestic production as well as shortages in international markets. This inadvertently kept the prices of pulses at record high level. An unprecedented rise in international oil prices also contributed to the build up in inflationary pressure in Pakistan.

Analysis:

Pakistan, with a population of about 16 million people has undergone a remarkable macro economic growth during last few years, but the core problems of the economy are still unsolved. Inflation is one of these core problems. Government claims that in order to keep the prices of essential commodities under control, it has been taking various measures throughout the year. These measures include: a liberal import regime for food items including zero rating of the imports of these commodities. In order to provide relief to the low and fixed income groups, the government has been selling wheat flour and sugar through the outlets of the Utility Stores Corporation (USC) at much lower prices than the market. In order to augment supplies of essential commodities in shortest possible time and at lower freight charges, the government has also allowed the import of various items through land routes from neighboring countries. But, all these are secondary measures. Problems like ‘inflation’ and ‘poverty’ etc can’t be resolved by applying the secondary measures directly, these need strategic planning. Unfortunately, in Pakistan, these core problems have never undergone such planning process. Government has never invited foreign investment for the production of basic goods. Agriculture sector, on which the major industries rely for the raw material has not been given sufficient subsidies. The major rise in the prices is because of the increasing prices of oil (as increased prices of oil increase the cost of production), but no such steps have been taken to control the oil prices, or at least lessen the effect. Selling basic food items at USC is not an achievement. Did this step have the effective distribution of goods? No, privileged group has taken the major part of goods from these USCs, and the poor couldn’t have access over these basic goods even then. Government further claims that the role of the Trading Corporation of Pakistan (TCP) has been enhanced. The TCP is active in importing sugar from around the world to build up strategic reserves with a view to continue selling sugar at less than the market price through the USC. The TCP has also been asked to import various kinds of pulses to meet the domestic consumption requirements and stabilize their prices in the country. In my opinion, TCP should plan the process by which we can have the maximum production at lower cost at home, instead of formulating plans to import the items. Domestic productions at less cost of production will not only make the availability of goods much easier but Aggregate Supply will also increase, and domestic industry will get developed.

Conclusion:

Inflation is one of the obstacles on the way of development. In Pakistan, it has squeezed the major part of the population. It needs to be controlled by strategic planning. Domestic production should be encouraged instead of imports; investment should be given preference in consumer goods instead of luxuries, Agriculture sector should be given subsidies, foreign investment should be attracted, and developed countries should be requested for financial and managerial assistance. And lastly a strong monitoring system should be established on different levels in order to have a sound evaluation of the process at every stage.

REFRENCES:

[1] Federal Bureau of Statistics

[2] Economic Survey of Pakistan 2005-2006

* Economic Theory (K.K. Dewett, P. A. Samuelson, Parkin)

*Journals of the Chief Economist of WB (The Writer)

Iqbal’s Falsafa (English Translation)

Youth’s thinking is either open or privy.
Is not hidden from a Sufi’s eye.

I’m aware of, how your present is
For I crossed this road years ago

Wise don’t baffle the words’ perplexity
Do divers target shell rather than pearl?

Wisdom that aspirants bear
Turns the baby flame into flare.

The truth that the heart approves
Values more than the pearl

Philosophy is dying…..! Or dead!
Essence of which, is not the sweat blood

Also at

Political Economy

Political economy in its originality is the study of production, buying/selling, and their relationships to laws, customs and government. Adam Smith is considered to be the founder of such phenomenon of study (According to him, “in political economy we study how to produce wealth for nations”, Latterly his follower David Recardo furthered his concept by adding the distribution of wealth in it). In contemporary world, the scope of ‘political economy has changed a little, but the essence is same, ‘the related approaches to study economics and political behaviour’. In Political economy generally we put light on two aspects, the production and the distribution.
First of all let’s have a glimpse of production side, where by following are the concepts of production:

1- Individualism: According to this concept a single person, with his or her will and his or her own desires, is the basis of production It states that the individual contributions to production are always measurable, so it makes sense to view one individual’s contribution as separate from those of others.

2- Communitarianism: According to which it is the action of a group, with particular exceptional individuals, which forms the basis of production. In other words the individual, within a community, is considered to be the basic unit.

3- Collectivism: It states that it is impossible to measure the contribution of each and every individual of the society, so it works on average.
The next part of political economy is the distribution side. Here remember these terms.

1- Social surplus = Societies produce more than isolated individuals.
2- Capital Surplus = Labour with the aid of capital produces more than labour alone.
3- Social Costs = Societies generate more waste than an individual
4- Capital Requirements = Capital makes demands for investment and organization.

In contemporary situation, political economy can be discussed with reference to following political thoughts.

The first political thought is liberalism, according to which capital surplus should be kept within the hands of individual while the social surplus and social costs should be distributed as widely as possible. It advocates the state’s intervention in the distribution of social costs ans social benefits. Since social surplus is low as compare to capital surplus, liberals believe that there’s nothing to distribute. (John Locke & Thomas Jefferson are considered as the promoters of this idea)

The next thought in the context of Political economy is ‘Conservatism’. According to this thought, capital surplus should be kept by individual but a part of it should be kept by state as well. Social surplus’ distribution should be according to the circumstances, and social cost should be distributed among the masses. Conservative thought is actually the base of modern times’ social structure. (This thought was originated by Richard Hooker but the doctrine was presented by Edmund Burke)

After conservatism, the next thought in queue is ‘Socialism’, which demands total control of the state on the economic setup. According to this thought the part of capital surplus is very low in comparison to the part of social surplus.(Rousseau was the originator of the socialist; thought )

Next thought is Libertarianism, which is a little closer to liberalism as well, according to this thought, as individual has paid for the economic activity to be done, so there’s no social cost left for him to be distributed. But as far as capital surplus is considered, it’s purely individual’s effort so it should be kept by him. Secondly libertarianism concludes that there’s no social surplus. Laissez Faire is an example of such economic setup, which opposes state’s interference in economic activities.

And lastly there’s Communism, which was originated by Karl Marx, and the thought promoted as ‘Marxism’. It also shares the view of Libertarianism that there’s no difference between social surplus and capital surplus, but it holds that the surplus is kept by state’s control.

Gender Discrimination

Nature has always maintained a balance in the objects of this world in order garnish it with a beauty, and so it produced a balancing factor for each and every object. These balancing factors vary in the proportion of the support they provide to their counter part.
In the same context men & women are considered as the supporting counterpart for each other, but the major conflict in this systematic support is the term ‘gender discrimination’.

‘Gender discrimination’ is often based on gender stereotypes of a particular society, i.e. considering men physically strong and women as emotionally sensitive. It is because of the fact that the term ‘gender’ is often conflicted with the term ‘sex’. Both the terms are used as synonyms of each other in normal context, but there’s a technical difference between the both. ‘Sex’ is a biological differentiation of individuals, categorizing them as males and females, this difference of individuals is same in all the cultures, while ‘gender’ is a social differentiation of individuals which categorizes them as ‘masculine’ and ‘feminine’. This difference determines the role of individuals in a particular society. The role of individuals in different societies is different and thus the role of gender is variable in accordance with the prevailing social setup.

‘Sex’ and ‘gender’ are different in origin but basically the general role of individuals in a particular society is partly based on the physical potentials of individuals. Along with physical requirements individual must have to use his / her mental capabilities in order to move in the society. Gender discrimination in its originality is a phenomenon, by which the role of individuals is determined with in a particular society. Gender Discrimination allows the distribution of the social responsibilities among the members of the society in such an effective manner that one can fulfill his/ her responsibilities by using his/ her physical and mental capabilities at optimum. The conflict of gender discrimination arises when only physical part of one’s strengths is considered and the mental part is neglected. As a result of such half considered phenomenon, individuals are categorized as ‘strong’ and ‘weak’, ‘emotionally strong’ and ‘emotionally sensitive’, ‘competent’ and incompetent’, ‘leaders’ and ‘followers’ etc. In this case the gender discrimination doesn’t remain in its totality or originality and is considered as a factor deteriorating the process of development of human skills.

The major determinants of gender discrimination include the social setup, culture, religion, geographical conditions, economic setup, moral standards and education level of the society. All these factors individually or in combination make up the face of gender discrimination. But the conflict of gender discrimination is divergent in nature as it originates from a single point with different angles. And that point of diversion is ‘Male Chauvinism”. The term ‘male chauvinism’ is a prejudiced belief of an individual or a group of individuals that men are the superior to the women. The ‘male chauvinism doesn’t stop on biased categorization of the society in two groups but furthers the glorify one as more privileged one and another one, merely less privileged. Further more the privileges for one group are decided in accordance with their physical strengths, not the mental capabilities.

In my opinion, ‘male chauvinism’ may be found as an ultimate outcome of individual perception or a way designed by a group of individuals.

‘Male chauvinism’ as an ultimate outcome of individual perception is a situation, where by one perceives himself and individuals of same gender as superior and rest as inferior. This perception of the individual is regardless of any external factor, like, family, society, religious belief, culture etc.

‘Male chauvinism’ at group level can further be classified under the head of social setup, religious belief and cultural heritage. Chauvinism according to social setup is dependent on social and moral values of a particular society. In such society, male individuals are trained to be dominant while females to be submissive. In such a condition, male even being on wrong way are considered to be right and women even being on a right way are considered to be wrong. The moral judgments of such a society are on the basis of physically dominant gender. Not only in social and moral context, the physically strong individual is placed on higher position but in economic, educational and intellectual race as well.

‘Male chauvinism’ defined by a particular religion, restricts the role of one gender in certain acts of practical life while gives liberty to the other in the same. This sort of chauvinism is, however, not the extreme in nature, as it sets boundaries on the basis of both equity and equality. This is not the pure male chauvinism as it tries to maintain equilibrium as well.

‘Male chauvinism’ with reference to cultural heredity is the product of social and religious contexts as both social setup and religion are the major components of any culture. In addition to the two factors discussed above, geographical conditions and economic setups also aid to provoke the thought of male chauvinism.

Male chauvinism being the origin of the conflict of gender discrimination, results in many types of injustice, including social injustice, economic injustice etc. And when there is unjust environment with unequal distribution of opportunities, the balance of the world (mentioned at the very threshold of the writing) disturbs, and one of the counterparts which nature has designed to support the other one loses its potential to support the other. And as a result the so called superior counterpart also collapses.

The story of social and economic injustice with reference to gender discrimination is very long, as it exists in almost all the societies and economies. I’ll quote few conditions of gender discrimination which are responsible for the imbalance in different setups.

First of all I’d quote the gender discrimination at individual level (individual’s thought of male chauvinism’). This type of gender discrimination exists round the globe, regardless of the influence of any religious or social factor. In this context we can’t say that followers of such kind of discrimination are found more in western society than eastern, or they exist more in religion ‘A’ than religion ‘B’. The reason behind this phenomenon can be any physical or psychological factor.
After that comes group level activities which hold the conflict of gender discrimination. In this context economic and social responsibilities of individuals are misallocated. Let’s start it with social responsibilities first. Keeping females away from general education, holding that they are not supposed to participate in any economic activity so there’s no need to educate them, is one of the major examples from Asian social setups. Women are discouraged in other social concerns as well, for instance people will heartily accept a man as their leader even if has some criminal record in the past, but for a woman it’ll be impossible to become the leader of a mass (for a social issue) if she’d been involved in a minor crime. Critiques may prove me wrong in this saying by quoting the example of ‘Phoolan Devi’, the bandit queen who rose her voice against the unjust society and lead the gang of robbers for more than a decade, she was made the member of ‘lok sabah’ (Indian national assembly) latterly. But let me clarify it earlier, that letting her be in the house was a political game whereby she was used by so called ‘male chauvinists’ for their personal benefits and she was brutally killed latterly.

One can further argue that, ‘Phoolan Devi’ is the case of Asian society only, west has nothing to do with such kind of discrimination. So I’d place the example of ‘Merlin Monro’ the legendary heroine of Hollywood here. She had been used by Kennedy Brothers (one of whom have been the president of USA as well) for their political and personal requirements and when she dared to demand for the opportunity in Kennedy’s cabinet was poisoned. If it’s not enough to hold that west is also discriminating individuals on the basis of gender. I’d just place a query, why USA couldn’t have a single woman president in their history of more than 200 years. I don’t mean to say that west is having too much gender discrimination, but only that they also have the element of gender discrimination in their society, though its ratio is very low as compared to the rest of the world.

Economic aspect of ‘gender discrimination’ is also of utmost importance. Economically there are two different criterion for the participation of individuals in economic activities. Firstly in enlightened parts of Asia, women are encouraged to get educated, so girls heartily join the technical courses. But after getting technically or professionally qualified they are not granted permission to play their role as an earning member of the family, so they don’t participate in economic activities and hence their professional qualification goes in the bin. Don’t go far; just have a glimpse of ‘medical studies in Pakistan’. As the admission in medical colleges is subjected to the merit, and luckily girls excel in academics so more girls avail admissions in medical colleges. After getting qualified from their as M.B.B.S, 90% of the girls do not practice, due to social hurdles. And according to careful approximations, it takes about Rs.150, 000 to prepare one doctor. Now the mass which do not practice wastes public finance. The other face of the picture shows that, boys who can’t seek admission in medical college, due to failure in aptitude test (those who are able to study medical, and to practice at full as well) change their field of study, although they’d planned for medical for a long time. Only a part of them gets adjusted with the new field and rest continues the alien field with unsatisfactory level of work. This unsatisfactory situation leads them towards economic and social crises.

The above mentioned criteria better suits in Asian region. Another act of gender discrimination can be found in the last decade, where by more and more females are encouraged to avail job opportunities in different sectors of economy. May be there’s some constructive thought behind this act, but research shows that organizations prefer female workers over male workers because, they are more hardworking, accurate , they work on less remuneration than that of male workers, and she bears the bossy nature of the employer without uttering a word of grief. Here not women are on hit of capitalists, but men also. Women are over burdened and paid less, while men are deprived of the opportunity even they are equally qualified and have same potentials for the same job.

Concisely, in unaware parts of the world, woman is considered as a liability, not an asset, as she’s not the earning member of the family and she has to rely on the male member of the family for her needs. And man being the earning member of the family is considered as the dominant member of the family so woman is deprived of the opportunities for which she qualifies. And in mean corporate sector, men are deprived of the equal employment opportunity for cost effectiveness and to maintain the bossy environment.
For such corporate behavior, the equal employment law of 1964, in it’s section VII states that, if two individuals have equal level of qualification, they ought to be paid equally.” This law further discourages any kind of discrimination on the basis of gender, race or colour.

The conflict of ‘gender discrimination’ is a long term issue, and there’s no such tool which can bring a change in status quo. Formulating a law is not the solution of the problem. Laws which have already been made are comprehensive. Need is there to put them in practice and then evaluating the performance of the law. This campaign should not be kept on the shoulders of the government of the country, instead domestic, regional and international organizations should plan and execute these laws in collaboration with the local governments. Further, mass media can play a vital role in bringing awareness among the general public. Social reforms of the societies by inviting the leaders of the societies at a bigger arena can also help to resolve the conflict.

Along with the group activities mentioned above the intellect part of the society should also play their part. Intellect portion of the society is considered to have an influence on the leading bodies of the society, so these people should express the right face before the society by mentioning sound basis.

Finally I’d conclude that, ‘gender discrimination’ in its originality is not a curse. Nature has structured individuals in different physical proportions, but mental capabilities are kept same for both men and women. And social responsibilities don’t only require physical strength but mental strength as well. So the distribution of responsibilities should not be based only on physical potentials, it brings conflicts. And these conflicts can only be resolved by filling the missing part of mental capabilities, and maintaining a balance between the distribution of responsibilities on the basis of equality and equity.