Do away with subsidies

As reported in the press, the federal cabinet, in its meeting early this week, was surprised to learn that the government gives a subsidy of over Rs4 trillion annually and the total volume of subsidies and grants forms 4.5 percent of the gross domestic product (GDP) and 23 percent of domestic debt. The subject was raised in a detailed briefing to the ministers on rationalisation of subsidies and grants, presenting a comparative overview of revenues, expenditure, subsidies and grants for the last 13 years. The key sectors of the economy cited as beneficiaries of subsidies included energy, agriculture and industry.

The issue of subsidies should not have come up as a matter of surprise in the cabinet meeting held this week, as in July this year, Prime Minister Imran Khan while presiding over a meeting of a think tank on economy directed "special cell" be formed to review subsidies of billions of rupees being given to different sectors and ensure their effective utilisation to give maximum relief to people. What came out of this 'special cell' has not been made public so far.

Also, what appears to be missing out from the presentation this week is the billions of subsidies doled out to sustain loss-making public sector enterprises, notably, PIA, Steel Mills and the power generation and distribution companies.

Subsidies in Pakistan have largely been doled out to facilitate vested interests, such as:

(1) By those in seat of power to businesses owned by their fraternity - irrespective of the political divide and to select group of individuals and industries out of favoritism, political gains and vested interests, notably, subsidies on wheat, sugar, textiles and other commodities.

(2) To sustain loss-making public sector enterprises by covering up and condoning their inefficiency, corrupt practices and poor governance.

(3) Subsidies on commodities, power and gas tariffs to facilitate poor segments meant to improve supply of essential goods and services enabling consumers to easily access cheap products and commodities.

This has hardly happened. On the contrary, the consumers experienced the arrogance of subsidy recipients in terms of product hoarding, high prices and strong-arm tactics to subjugate consumers to their dictates. The recent example to cite is the exposure of the conduct of wheat and sugar cartels run by influentials on both sides of the political divide.

The regime of subsidies, which is in vogue in Pakistan since its inception, has largely been employed against public interest. It has created an elite of overnight billionaires with political clout to move and shake the governments and subjugate the helpless public hostage to their market dictates, whereas the public continues to cry out and agitate, year after year, against basic commodity prices and shortages and rising utility tariffs,

Subsidies to the tune of Rs 4 trillion, being 4.5 percent of GDP, is a red flag even for the best of economies. For the fragile economy of Pakistan it is a disaster. The government appears to have well recognised its severity but it appears there is no action beyond it.

The government may come out, financially and politically, much better if the entire regime of subsidies is wrapped up in one go. As the regulators of the country are weak it will be a futile effort to regulate it in public interest. It will not work.

The successful economies have since long moved out of subsidies and have subjected their commodities and utilities to market dynamics of supply chain. As a result, prices stabilised, shortages and hoarding evaporated and quality and service improved. It's worth a try in Pakistan to move towards market-based economy.

(The writer is former President Overseas Investors Chambers of Commerce and Industry)

Copyright Business Recorder, 2020