Distortion in market mechanism: Thousands tumble down poverty line

from The New Nation

Pulack Ghatack

A prolonged distortion in market mechanism has been dragging tens of thousands of low-income people of the country below the poverty line.

The Government's safety net programmes, micro-credit of NGOs, income-generating initiatives by the individuals and groups, all come to a naught as people approach the market, it is observed.

The market has been eating up their everyday incomes, thanks to the treasonable skyrocketing prices of daily necessities. Middle-income groups have been leading their daily lives under severe economic hardships just like the poor, while the low-income groups have been passing their days in extreme poverty and are being pauperised.

It is found that savings of the major portion of the population has reached a zero level while many are bracing for a future with minus reserves.

The real picture of savings at the household level mocks at the figures provided by Bangladesh Bureau of Statistics (BBS) that puts the national savings rate at 24.5 per cent of GDP last year.

Economists said that the BBS data reflects only the savings of the beneficiary of the distorted market economy.

Unnayan Shamunnay, a research organisation, in its Bangladesh Economic Outlook for September '07 says, vast multitude of poor and unemployed people are having a difficult time to survive.

It says the rising world food prices have also serious poverty implications for Bangladesh. About 50 per cent rise in the world price of rice, wheat and edible oil would push the overall consumer price index to 2.3 per cent.

"This would lead to a rise in head-count poverty by 0.31 percentage point in the rural area and 0.42 percentage points in the urban area," it added.

Citing the study report, noted economist Dr Atiur Rahman said, "Rising world prices of food lead to rise in the consumer price index with significant margin, and as a result have some profound negative impacts on inflation and poverty in Bangladesh. Simultaneously, the issue of food insecurity or hunger will be a matter of greater concern."

Fuel price rise also has some poverty implications as this would lead to an increase in the head count poverty by 0.11 percentage point in rural and 0.19 percentage points in urban areas.

Under this scenario around 25,000 rural and 11,000 urban households have fallen into poverty.

Many middle-men, wholesalers and importers are acting as syndicates and are causing huge price hike, by making cartels and hoarding essential goods like rice, wheat and edible oil. These cartels fix the prices of these goods, dictate supply in the market, and earn excess profits.

"Taking advantage of the weak consumer protection laws, there might be some short-term alliances among the suppliers of these goods to influence over supply and prices. This may have some impact on the rising prices of essential items," said Dr Atiur.

Shamunnay conducted a survey among 200 poor families in the capital and found that food inflation for them increased 21.3 per cent in August 2007 (point-to-point basis), which is much higher than the BBS estimate of 12.5 per cent.

The Shamunnay study estimated average inflation at 14.1 per cent during last one year as against BBS estimate of 8.5 per cent.

It says, the dominant portion of the food basket of the low-income groups has been affected by the sever price hike as 71 per cent of poor people's food basket is fulfilled only by rice, pulses and vegetables.

During August 2006 and August 2007, on average, price hike was 20 per cent for both coarse rice and pulse, 68 per cent for vegetables and 17 per cent for no-vegetable proteins.