The government’s decision to increase the output price of wheat, or the rate at which provinces distribute their grain stocks to flour mills to control retail prices of flour, from nearly a third to Rs 1,950 per 40 kg up from Rs 1,475 last year is in line with its policy of cutting open-ended food subsidies to ease the burden on its budget. In addition, the government had no choice but to increase the issue price after increasing the purchase price of the product to Rs 1,800 per 40 kg, compared to Rs 1,400 for the last harvest plus early this year. Last year alone, the provinces collectively bore a subsidy bill of nearly Rs 100 billion because of the expense of purchasing and storing their wheat stocks. According to the Federal Minister of Finance, the government risks losing 650 rupees per 40 kg this year if it does not increase the output price of wheat. Even now, he argued, provinces “would still bear nearly Rs 100 per 40 kg of subsidy” to maintain retail flour prices.

With the growing accumulation of provincial debt due to food operations, the need for wheat supply and price reform cannot be overemphasized. In the Punjab alone, circular food debt has jumped to Rs560bn, equal to its development spending target for the current fiscal year. Unless provinces limit their wheat operations to purchasing minimum quantities to maintain a reasonable buffer stock for market interventions in times of scarcity and begin to fully recover their costs, it may become impossible for them to manage their supply. food debt. But such reforms are difficult to implement and maintain in the absence of a strong mechanism to provide targeted food subsidies to low-income households suffering from rising inflation. The average price of wheat flour has increased 20% over the past year despite government subsidies. Likewise, the prices of other basic necessities consumed by low-income families have increased by more than 13% in one year, according to official inflation data, at a time when the purchasing power of the public is under voltage. Undertaking price reforms in such circumstances can prove difficult and backfire if those who need to be protected against inflation are not adequately protected. The idea of ​​providing additional targeted cash subsidies on wheat flour, sugar, ghee and pulses under the Ehsaas program is laudable, but it only provides a temporary respite. It must be followed by concerted measures to reduce poverty and increase incomes through restructuring of the economy and job creation.

Posted in Dawn, le 16 September 2021


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