Claims that 5 percent hike in fuel prices should not lead to rise in prices
The government’s Task Force to fight inflation had its first meeting on Thursday chaired by the Minister for Economic Affairs Lyonpo Norbu Wangchuk.
The terms of reference of the multi sectoral committee (see box) is to examine price increases of consumer goods and services like agricultural produce, meat, rentals and transport services, recommend to the government practical measures to be adopted to contain unwarranted price increases and suggest and institute an appropriate mechanism for inflation management.
“Inflation should be the top priority of any government. Though inflation is largely imported from India there are still a lot of initiatives that we can do to control prices here in Bhutan,” said Lyonpo Norbu Wangchuk.
He said that there had been a lot of concerns raised by the public that prices are soaring so the Prime Minister’s announcement during the State of the Nation address announcing the formation of the Task Force is a reflection of the concerns raised by the public.
The minister said that the recent hike of fuel prices by five percent as a green tax should not create any inflationary pressures as the hike was very small. He said it should not affect product prices and the calculation by some that it would lead to an equivalent increase in the price of products was wrong.
Lyonpo said that some local research has shown that while on one hand there was price rise it was also true that there was a perception and assumption of price rise like the co-relation between pay hikes and prices of retail goods which did not hold on closer examination. This was the same also for the nominal increase in fuel prices.
Lyonpo said that the Task Force was an empowered one with the mandate to control prices. He said that it would offer policy advice to the government and other agencies on controlling prices and also alert the government of policy implications on prices.
Apart from constantly monitoring prices they would issue directives to various agencies that are in anyway related to prices and also carry out educational and awareness programs for the public.
According to Sonam Tenzin, the Executive Director of the Office of Consumer Protection under MoEA and a member of the Task Force, the first meeting of the Task Force had four recommendations.
The first recommendation is that Royal Monetary Authority (RMA) would be the lead agency to maintain price stability in the economy based on its own RMA Act. This is also because the RMA would have all the monetary policy tools at its disposal to control inflation with regard to the flow of money in the economy.
The second one was that one of the reasons of high prices was because the trading sector was being done in an unorganized manner. For e.g it was felt that. a manufacturer would include both
the cost of transportation and a profit margin for the whole-seller and retailer. Sonam Tenzing said that if it was done properly shops could even charge below the maximum retail price.
The third was that Food Corporation of Bhutan which was already mandated by the government to be in the retail business should stabilize prices for essential goods.
The fourth recommendation was to take up a few measures already given in the Consumer Protection Act, like making it mandatory for shops to issue receipts and have price tags on all goods and services. It was also recommended that the fines and penalties given in the Act should be imposed for those failing to meet these requirements.
The minister, however, clarified that the task force would not be involved in fixing prices. He said ideally the economy under the right conditions should allow the market forces to come into their own and decide prices, but he said to make this happen many institutions should come into play as when institutions falter then market forces also suffer.
Lyonpo pointed out that the task force given its multi sectoral composition and empowered nature would be in constant touch with various agencies. He said it would also be accountable to the Cabinet and the Prime Minister by submitting quarterly reports on the situation on inflation and actions being taken to control it.
The minister did not shy away from giving specific examples of how the committee would tackle inflation in areas like agricultural products, rents, trade goods, meat and others.
He said that in the case of local farm products the public had a view that prices were really high and sky rocketing but the task force would study this issue, make recommendations and alert the concerned department to look into the problems and causes behind the price rise.
In the case of RMA, recommendations could be given on various initiatives to ensure price stabilization in the economy.
Lyonpo said in the case of unfair rent increases not in keeping with the tenancy act, MoWHS would be informed.
In case of grocery items and retail shops the Trade Department and BCCI would be alerted so that action could be taken.
Lyonpo said that prices even in the case of the transport sector would be monitored and acted upon.
The minister also dealt with in length on the phenomena on high meat prices at times and its absence due to meat shops and regulatory bodies not being able to agree on the higher prices.
The minister said that meat prices increased due to two major reasons. “One reason is that before a holy month there is a rush for meat and suppliers across the border collude and jack up prices and the same happens just when a ban is over and there is a rush for meat,” said the minister.
Citing the second reason he said, “We have also found that meats shops have to pay sky high rents in Thimphu which even jumps up to Nu 180,000 a month and so the meat sellers pass on this cost to consumers who pay a higher cost.”
The minister said that the government could intervene in such a case by seeing if it is correct to charge such high rents. “If it is not correct then the government could intervene by allotting a separate piece of land where sheds could be set up so that meat could be sold,” said the minister.
Lyonpo said that arbitrary increases in prices happen when there is a lacuna or something is not done which agencies are supposed to do. “In agriculture the supply side needs to be strengthened and in rents the tenancy act needs to be implemented. The MoEA must also monitor retail and wholesale practices and see how they are operating,” said the minister.
Highlighting the importance of sorting out demand and supply issues and also letting market forces decide the minister said that even the Tenancy Act is a temporary measure as there would be balance once the housing supply matches the demand.
He said that the Task Force would not have any separate secretariat but would make use of existing mechanisms in other agencies like for e.g BAFRA officials or Trade officials in areas that concerned them.