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October 11, 2020

Controlling prices the wrong way

Peshawar

October 11, 2020

During times of high inflation, everybody gets a hit but the poorest of the poor suffer the most.

For them, buying day-to-day essential commodities for themselves and for their loved ones at a higher price becomes a nightmare. This is why keeping the price of necessities low for the citizens should be a priority for the government.

It is fairly easy to issue a government directive that declares the exact price of a certain essential commodity throughout its jurisdiction. However, price control is a supply-and-demand problem. The dynamics of the free market decide the equilibrium price, which is dependent on multiple factors. Shop rents vary from city to city and from locality to locality. Better sales require a bigger, brighter, shinier & fresher shopping experience. Spending has to be done on advertisements to attract heavy customer traffic.

Fast-moving consumer goods incur a lot of waste that has to be incorporated into the costing equation. Transport and storage costs of goods across the entire supply chain are different for different locations. Then there is the added cost of documentation and taxation. Talent and the availability of skilled and unskilled workforce also vary across cities. Due to all these additional factors, it is completely illogical to expect the same price of essential commodities across the country, province, or even the same district. Therefore, trying to forcefully fix the price of a commodity at a certain level is not going to work.

A much better way to control prices is to allow the free market to take its natural course, by allowing it to have access to better data, in order to make better decisions. If the demand and supply are measured accurately, then by just regulating supplies to wholesale commodity markets, prices of individual commodities can be controlled to an affordable level.

A central digital ‘Girdawari’ is going to play a critical role in this connection. Manual ‘Khasra Girdawari’ is currently being used to record the type and quantity of crops being grown by farmers on their agricultural lands. If this ‘Girdawari’ data is digitised and made easily accessible to the department of National Food Security, this will give them the much needed insights into the expected surpluses and shortages within the country, which will help them propose better import/export suggestions to the federal government. Furthermore, this can play a critical role in identifying false shortages, and to check on how much is being hoarded away in “unknown places”. It will also immensely help during times of natural disasters to assess and settled losses.

Similarly, automating wholesale commodity markets is another critically missing initiative. In these markets, all the financial transactions can be done electronically via context-driven digital payments gateway, whereby the government would know if the payment is against an invoice or an agreement; full or partial; for some service rendered or goods delivered. Thus, all buying and selling data - like the quantity of potatoes delivered and bought on a certain day; along with the daily fluctuation information of its prices like the minimum, maximum, average - can be made available for display on digital boards, in real time, in every commodity market for all growers and sellers. Imagine an ordinary farmer entering into these markets to sell his produce.

He would instantly know what the current sale/purchase price of his commodity is, without being exploited by buyers or their touts. The data generated as a result of this automation should be made available to supply regulators to keep a vigil on anomalies and other stakeholders operating within the supply chain to better predict the surge in demand for certain commodities on certain occasions eg during, before, and after events like Ramazan, Eid or Ashura and make their business plans accordingly.

Once this entire system is in place, it will not just stop at price control. We can digitally monitor and track the whole economic sphere enabling us to make the right revenue and taxation policies. It will have a drastic impact on our exports and domestic business activity. For the first time in our history, we might finally be in a position to measure and analyse the effectiveness of our policies in a concrete way.

Thus, to move forward in controlling prices the right way, short-term strategy would be to engage supply chain consultants as opposed to economists and finance experts. In the long run, institutionalising supply chain expertise within the government is strongly recommended, aided with tools like big data, supply chain management, artificial intelligence and machine learning.

The writer is member PM’s Task Force on Austerity and Restructuring Government.