MoEA report lists steps to fight price rise and inflation

A new report by the Office of Consumer Protection under the Ministry of Economic Affairs which was drafted on the direction of the MoEA Minister Lyonpo Norbu Wangchuk highlights various recommendations to fight inflation.

The report is titled ‘Report on Price Increases and Inflation,’ and was made in collaboration with the National Statistical Bureau.

The report says that the inflationary trend experienced by Bhutan is a mirror reflection of the Indian inflation and has been in near-double digits for quite some time now. It says this is because of too much dependence on imports and limited domestic production capacity.

It says that while nothing much can be done to contain imported inflation, the government should nonetheless keep a close vigil on the price movements and initiate putting in place appropriate measures and strategies to tackle inflation.

Develop Inflation Management Policy

The report says that Section 7 of the RMA Act of Bhutan 2010 mandates RMA ‘to formulate and implement monetary policy with a view to achieving and maintaining price stability.’

It says that RMA should come up with an overall inflation management policy. It says this policy should determine the level of inflation that is acceptable for the growth of the economy in the short to medium term, or a tradeoff level between inflation and economic growth.

The policy should have Inflation forecasting and targeting, which will anchor inflation expectations of the general public and provide time policy alerts to the government to contain inflation pressure. For instance RBI has declared a policy statement targeting headline inflation to be brought down to 8% by Jan 2015, and 6% by Jan 2016.

The report says that under the policy a multi sectoral committee involving relevant agencies of MoF, MoEA, NSB, MoAF should be instituted to monitor and manage inflation in the economy. It says RMA, as mandated by the Act, should however take the lead and bring all relevant agencies on board, with clear mandates and responsibilities.

Monitoring Price Movements

According to the report since Bhutan has a typical situation of imported inflation influencing domestic prices -owing to heavy reliance on imports for supply of both consumer and general industrial goods- it would be critically important to keep a close watch on how inflation in India is faring, and global commodity prices, and prices of domestic goods and services so that there is prior information available to the government to initiate timely policy interventions or measures. It says this task could be entrusted to the relevant agencies of the government.

Promote Competition Instead of Price Control

The report highlights that price control measures can only be adopted in case of national emergencies such as war, famine, or drought where supply of basic goods and services to the general public is disrupted. It says that although the prices of essential goods are controlled in India, farmers and suppliers (of essential commodities) are actually subsidized or compensated in the form of minimum support prices.

“ The option for us then is to consider whether the government can afford giving subsidies to the farmers or not, otherwise price control measures per se is not going to yield intended results and will be detrimental to the economy,” says the report. It says that the current economic situation suggests otherwise, and the financial burden it would place on the government exchequer would be huge and its implications far reaching.

It says that in this context, the government may accord priority to the development of competition policy framework which is currently under progress. This policy instrument will have the same desired impact of price control measures and benefit the consumers by fostering healthy competition in the market according to the report.

Strengthen Wholesale Business and Distribution System

The report recommends that as articulated in the Economic Development Policy (EDP) 2010, the wholesale and distribution network in the country be strengthened. Wholesale or dealership licenses may be issued to only those individuals genuinely interested in starting wholesale businesses and not for speculative reasons which has been the practice thus far.

It says that dealers could be encouraged to import goods directly from main principal companies in India, and not from sub-dealers or open market where goods supplied are substandard or prices not competitive enough. The number of intermediaries between wholesale dealers and the final consumers could also be reduced or streamlined since their presence in the chain only adds to the final cost of the goods and services according to the report.

“Our wholesale dealers should be encouraged to compete with their counterparts in Jaigoan and it is critically important that they receive required amount of attention from the government agencies in order for them to be more organized and competitive,” says the report.

Contain Monopolistic Trends

One idea is that any monopolistic trend should be contained as the country is already seeing the benefits or virtues of market competition in the aviation and telecom services. “This is benefitting our consumers greatly in terms of prices and better services,” says the report.

The report says that the recent announcement by the government to expand the scope and mandate of FCB Ltd. to not only expand the distribution network of fast moving imported consumer goods but also agricultural produces is a step in the right direction and will go a long way in ensuring easy availability of cheaper and quality goods and services to the general populace.

Consumer Protection Measures

As part of consumer protection measures and as empowered by the Consumer Protection Act 2012 the report recommends encouraging all retailers to use teller cash registers or at least issue receipts for sales exceeding certain value limit to be prescribed by the MoEA. This may be done in a phased manner targeting bigger trading units and then the small and medium business houses. This, the report says, will not only promote the culture of book keeping among business houses but will also help in addressing consumers’ disputes.

The report also says that it should be compulsory for all retailers to have price tag affixed on all goods displayed for sale so that pricing is transparent and unfair trade practices are discouraged.

The plan is to also conduct public awareness campaigns on the consumer rights and responsibilities in the consumption of goods and services, including procedures on redressal of consumer complaints, and safety aspects.

Publication of Price Catalogue

The report says that as required under the CP Act 2012, MoEA may come up with a standard catalogue containing prices of goods and services, which will inform the public on the general price trends in the economy.

“In this context, since prices of some 400 plus commodities are already collected by the NSB from all Dzongkhags for their monthly CPI calculation, it is recommended that the same information be shared with MoEA for publication and distribution of price catalogue,” says the report.

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