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Every time market volatility crosses limits, the authorities are quick to identify reasons behind unstable market behaviour. Although they have little faith in their own statements, they keep repeating them for a while. Of these, the oft-repeated ones are--- the situation is artificially created, that there is a market syndicate dictating market prices, and that it is rampant hoarding by dishonest traders. Hence, as a remedy -- as though a ready one -- they prescribe solutions in the form of suggesting surveillance by law enforcers against hoarding, and asking the TCB to intervene the market through selling products at fair prices directly to the consumers.
That their statements are not baseless, grown from decades of experience and market wisdom, must not be debated. But the point here is: blame game does not help. Isn't it the responsibility of so many state agencies, including the Competition Commission and Directorate of Consumer Rights Protection, to monitor the market while also keeping an eye on undesirable situations that might create conditions for market volatility allowing unscrupulous elements to play foul?
Since the past one month or so kitchen markets all over the country are wobbly, particularly in respect of abnormally high prices of vegetables, cooking oil, and staples. Meat and fish prices have also seen a rise. The hike has not only seriously affected the low-income population, but consumers in general. The heat may be less felt by the well-off groups.
The government as part of its routine reaction has warned strong action against hoarding and syndication and asked the TCB to increase the number of its mobile selling points by deploying more trucks as a measure of boosting supply. Meanwhile, some fiscal steps are also in place in terms of slashing import duties and VAT.
Observers are of the opinion that cutting duties and VAT may not have any significant impact on the market at this stage as products already imported at higher import cost will continue to be sold at higher prices as it is done now.
The key issue concerns how the supply is going to be increased in order to stabilise the market. The government expects the TCB to rein in the unruly market, as though with a magic wand. The TCB's limitations are well known. For years, its role is confined to open market sale (OMS) of essential commodities once or twice a year -- one occasion being the pre-Ramadan period. But how far that works as a market intervention measure is a big question. All it does is benefit some people, mostly in the big cities, for a brief period.
Harsh though it may sound, it is true that the government does not have any effective market intervention mechanism. Clearly, market intervention is far more than just to curb hoarding in that it allows market forces to operate free from any untoward pressure from any quarter, and for this to happen, the all important issue is to boost supplies. Now who is going to do this? Not the traders. It is here that developing countries in our region and elsewhere rely on state trading agencies to prevail on the wobbly market caused by supply shortage. In our case what could have been achieved by our lone state trading agency, the TCB has not been attended to. Still, it appears to be the last resort of the government. But the fact remains that as a state trading organisation, it was neither groomed nor empowered with the resources to prevail on the market as the successive governments have vainly tried to project it. How many products and in what quantity the TCB can procure and store in its warehouse is indeed the key issue. For, it is the sufficient volume of products in TCB's warehouse that can act as a potential deterrent to syndications.
Given that the TCB is a public sector enterprise, there has not been any mechanism in place, so far, to see it emerge as a business entity -- an essential feature it was to assume long back. A quick reference to similar organisations in neighbouring India will reveal the lacunas embedded in the TCB's operation mechanism since its very inception. The reason similar agencies there, numbering in all a dozen, are strong enough to neutralise undesirable price instabilities lies in the basics -- freedom of operation, and financial and professional resources. Although initially provided with endowment funds by the government, they operate entirely on their own income just like private sector business houses, engaged throughout the year in bulk imports and exports, and intervention of the market, when necessary. To provide the much required dynamism to the operational challenges, the CEOs of these agencies often come from the private sector.
The key issue is the strength to effect successful market intervention by the state trading body. To acquire strength enough to do so calls for strong legal, institutional and financial backups. Market syndicates will obviously be the big rivals and breaking the oligopoly and monopoly of organised market syndicates requires that the TCB is empowered with sufficient resources in the first place.