Price capping a windfall for syndicates?

"Market works at its own pace — it is driven by three things: supply, demand and expectation. So the government cannot control the market if it wants."

— Ahsan H Mansur Executive director Policy Research Institute

Every time the government tried to fix the price of a good or service, it unwittingly ended up offering a financial bonanza to the market syndicates. From potato to rawhide, from LPG to onions, from fertiliser to sugar, from saline to edible oil, there is rarely any success to speak of.

This begs the question: why does the government keep resorting to this measure instead of addressing the root of the problem?

Economists suggest that the government removes all problems in the supply chain instead and monitors whether market players are following competition rules so that the market can perform efficiently.

The government's failure in capping prices was once again exposed after it set the price of eggs, potatoes and onions on September 14.

Eleven days later, none of the three are selling at the set prices.

This in no way is an exception. Take the case of the price of rawhide that the government fixes every year ahead of Eid-ul-Azha.

But that price is never honoured under the guise of higher transportation costs, a curious price hike of salt, and a significant increase in workers' wages.

It is the same case in the agriculture sector, where the government sets the prices of fertilisers as it provides subsidies. But the farmers almost always have to pay more, bumping up production costs and prices for consumers. 

Since last year, the Bangladesh Foreign Exchange Dealers Association and the Association of Association of Bankers, Bangladesh have been fixing the dollar rate on unofficial direction from the central bank. But Bangladesh Bank inspections found banks were not following the rate.

Since 2021, the Bangladesh Energy Regulatory Commission, the regulatory body for the energy sector, has been fixing every month the price of liquefied petroleum gas, which is commonly sold in 12kg cylinders.

But that price exists just on paper now in the face of lax oversight on importers, distributors, and retailers.

The government fixed the price of the 12kg LPG cylinder at Tk 1,284 for this month. But it is actually selling at Tk 1,600.

The Daily Star spoke with two LPG distributors and three retailers and all of them said they were buying LPG cylinders at a higher rate than the price fixed by the BERC. And they are passing on the higher costs to the end users.

State Minister for Power, Energy and Mineral Resources Nasrul Hamid at a programme yesterday admitted that LPG was being sold at higher prices. He also threatened to revoke dealers' licences if need be.

In August, the government slashed the prices of soybean oil and sugar. The prices of soybean oil and sugar were trimmed by Tk 5 to Tk 174 a litre and Tk 135 a kg respectively.

While visiting two kitchen markets in the capital on Friday, it was found that loose white sugar was selling at Tk 135 to Tk 140 per kg and packaged sugar at Tk 140 per kg.

Let's have a look at the present status of CNG or petrol-run four-stroke three-wheelers.

In 2015, the government fixed the rental rates for CNG-run four-stroke three-wheelers along with the daily deposits, the fare per kilometre, the fare per minute of breaks, and the mandatory minimum fare for passenger transport over any distance.

Since then, the CNG price has gone up by Tk 8 per cubic metre, but the government did not make the corresponding adjustment. So, nothing is working as per the government-set rates.

It is very difficult to find a single CNG-run three-wheeler that is willing to go by the meter.

The Daily Star spoke with at least seven three-wheeler drivers about the issues to get a clear picture.

Anwar Hossain, a driver for 15 years, said he is paying the daily deposit as per the vehicle owner's demand and not at the government-fixed rate.

"So, it is not possible for me to follow the government's pricing. Besides, if we transport passengers at the fare fixed by the government, it won't be possible for me to survive in this city with my family."

Sometimes, the law enforcers impose fines for not carrying passengers at the government-fixed fare and for not having the meter but Anwar is willing to take that risk.

The government fixed the rates of non-judicial stamps, which are used to carry out any non-judicial commercial arrangements between parties like all kinds of property transfer agreements, leasing agreements and affidavits.

But none can buy stamps at that rate due to inadequate supply against the demand. Customers have to buy this stamp by paying Tk 20 to Tk 50 more than the fixed price.

Amid rising dengue cases, IV saline price is now between Tk 130 and Tk 170 from its MRP of Tk 100.

Interestingly, owners of buses that run on inter-district and long-distance routes are charging a lesser fare than the one fixed by the government due to a lack of passengers.

But before the two Eids, bus fares go beyond the fixed rate.

"The thin presence of passengers forces us to sell tickets at lower prices," said Shamim Khan, manager of the Ananya Paribahan at Mohakhali Bus Terminal.

What these events prove is that the law of demand and supply will find its way.

"Market works at its own pace -- it is driven by three things: supply, demand and expectation. So, the government cannot control the market if it wants," said Ahsan H Mansur, executive director of the Policy Research of Bangladesh.

A handful of companies account for the supply of oil, sugar and eggs in Bangladesh.

"Those have become natural monopolies."

The government should monitor these big business groups instead of keeping watch on the end sellers like the corner shops or the kitchen market vendors.

"But for the prices of everything else, leave it to the law of demand and supply," said Mansur, a former economist of the International Monetary Fund.

The government should look to break the market syndicate, which has consolidated over time due to weak monitoring, said Moinul Islam, a former professor at Chittagong University's economics department.

The current initiative of setting the prices of essentials by the government will not work, said AB Mirza Azizul Islam, a former finance adviser to a caretaker government.

To keep the prices under control, the supply of products in the market should be increased either through normal channels or alternative ways, he added.