Govt. all out to curb inflation despite setbacks - Bandula

Trade, Marketing Development, Co-operatives and Consumer Services Minister Bandula Gunawardana in his interview with our staffer Shanika Sriyananda, maintained that inflation which was 20 percent in January, still remains at that figure to-date. Here are excerpts of the interview:

Q: According to some analysts the country is now facing an economic collapse as the tourism and foreign investments have reported a setback. What is your opinion ?

A: Whether we like to accept it or not there is a conflict in the country. We have a fight against terrorists and now the government is engaged in eliminating terrorism. The LTTE targets important economic sectors and attack them to destroy these sectors. The air attack on Katunayake is one such example.

The government has to safeguard the country and the people. Because of this, there are several setbacks in certain economic sectors like tourism.

But as a responsible government we need to maintain a sustainable development while engaging in defeating terrorism to create an environment for all the communities - Sinhalese, Tamils and Muslims - to live in harmony. The government has to spend a tidy sum on security and therefore the government defence expenditure has gone up.

The number of avenues to increase government revenue has dropped and this has resulted in a drop in investments and job opportunities. When a country is in a conflict, no one can expect a sound economic situation in the country.

Q. The ordinary people suffer due to sky rocketing cost of living. What are the steps taken by the government to balance this situation ?

A: One reason is that the government had given large number of jobs to graduates and non graduates in the government sector. Huge salary increments have also been given to the employees in the government sector.

Other reasons are the fertilizer subsidiary and the huge expenditure on war. The expenditure is high but at the same time there is no increase in revenue. Therefore due to a budget deficit the inflation rate has gone up.

Another reason is that international trade is not at a satisfactory level. On the other hand, out of a total in the import bill, a mere 9.3 percent is spent on food items like infant milk powder, rice, wheat and dry fish.

But we have to spend over 20 percent on oil as the price of a barrel has shot to US $ 70. In such a situation though the import cost is up, the government revenue will not be increased.

The total state expenditure is higher than the total foreign exchange earnings and the rupee has devalued. Due to these reasons the Cost of Living (CoL) is high.

The prices of diesel, petrol, gas and kerosene oil has gone up drastically and this has resulted in a huge price hike, this causing an inflation.

To facilitate the consumers the government has identified 10 new varieties of essential items. We use this as a safety net to maintain a balance between the monthly income and the expenditure of the ordinary people.

Under this safety net we have identified a 'food basket' with 14 essential food items including rice, dhal, potatoes, red and big onions, canned fish, wheat flour, chicken, sprats, gram and green gram. The prices of some of these essential food items have come down in recent months while the prices of other items have gone up. This way the consumers can balance their expenditure, under this novel scheme.

For example: The price of a kilo of a sugar was Rs. 64 in March and now it has been reduced to Rs. 50. There is a saving of Rs. 14 from each kilo of sugar and if a family needs 10 kilos of sugar monthly, by this way they can save Rs. 140 monthly. And when the price of a gas cylinder is up by Rs. 34 the consumer can balance the extra price by buying the gas from the money saved.

When Some items like gas, water bills, milk powder, and bus fares increase, there are price reductions in other food items. The consumers today should be smarter to maintain his family budget frugally. Then, there is no big difference in their monthly expenditure and this is called the 'Strategy on price stabilization'.

We did not highlight this strategy much though it is in operation from last March but it is visible in the index. The Index is 20.7 percent in January 2007, 19.2 in February, CoL 19.5 in March and 16.3 in April.

Q: So you do not agree that the CoL is going up ?

No. The Col is 16.3 today. When the CoL index is at 16.3 percent the media reports that the CoL index is 20.7 percent. They do not report with a sense of responsibility. The interested parties, especially politically motivated people, are planning to overthrow the government and to take people on to roads. And they do not want to talk about the reality.

This is the whole problem. People who are unaware of the news ask where they can buy these food items at reduced prices.

They can easily get all these food items from Sathosa outlets, in over 55 places. There are economic centres, budget shops and over 11,000 co-operative shops, where people can get this benefit.

I can not say that all these places offer food items at reduced prices but in majority of these places, the prices are the same. Some private traders also sell these food items at the same price in a very competitive manner. They have got a big turn over.

We have selected traders who sell these items at low prices and earn good profits. Over 100 selected traders will be presented with awards for their achievements by the CAA soon.

The very common complaint is that the prices are escalating but the government does not intervene to bring the prices down. After taking steps to facilitate the consumers still we get the blame.

When the gas prices were up by Rs. 85. We stopped it. When the Prima Company increased the price, we filed a case against them. We raided the traders who did not pass on the benefit to the consumers. It's pity some media are helping the racketeers and do not divulge the truth.

The need of the hour is we should get together and help the consumers by educating them on these benefits so that they will not fall prey to unscrupulous traders.

Q: You claimed that there is no system to detect the traders who sell essential food items higher than the fixed prices. What action which will be taken to bring them to book ?

A: We are going to amend the Consumer Protection Act. Because of some lapses in the Act, the benefits go to the multi-national companies. When the prices of essential items are increased without informing the authorities, we can only file a case against them. The government does not have any authority to stop the price hike under this Act.

Consumer societies will be established. These societies would be run by the people who do not belong to any political party. Consumers can lodge their complaints to these societies and this a system that will look into complaints and take action against the errant traders.

The co-operative shops will also be strengthened to be more active to maintain the fixed price system to pass on the benefit to the consumers.

Q: The Shell Gas Lanka Ltd. seem to increase the price of gas without the approval of the Consumer Protection Authority. What action have you taken against them for breaching their agreement ?

A: The gas price was increased without our approval. Now we are discussing with the gas company to implement a price formula. Under this formula with price fluctuations in the world market, These should be in the local market.

The company has requested for an increase in price by Rs. 160 but was given permission to increase only by Rs. 34. The government is also looking into the possibilities to allow the other interested companies to enter the local gas market. When there is good competition the consumers will derive the benefits.

But other than that, the government can not do much regarding gas as we are not a gas producing country. There is no system to sell gas at a lower price while the international prices are going up.

No government can give a pledge that they can bring down the price of gas, petrol, diesel, dhal and milk powder. The party in power can not do anything as the prices are changing due to the price fluctuations in the world market.

Q: If there is a shortage of gas can the CAA intervene to prevent such a situation ?

A: Yes, we can intervene under the CAA Act. This give us the authority to take action against those who hide their stocks creating an artificial shortage and then selling the gas at a higher price. We can take legal action against such traders.

Q: How do you expect to control the artificial gas shortages ?

A: No. There is no such artificial shortage of gas in the country but some officials in the gas company and their supporters tried to show that there was a shortage of gas. The gas price hike was scheduled on May 26 and they tried to bring this date forward. They used some people to create a shortage.

Q: What is the progress of the Sub- Committee on Col ?

A: The Sub committee meets monthly and discuss on prices of essential food items. The stand of the Opposition is that these prices should be decided on supply and demand but on the instructions of President Mahinda Rajapaksa a sub committee on CoL has been appointed to control the prices of essential food items. The prices will be decided collectively by the Ministries of Trade, Agriculture and Finance.

Q: At the recent CoL Sub Committee Meeting the Prime Minister has ordered to maintain a stable price of all essential items even after the festive season. Why did you fail ?

A: No, we did not fail. We maintain the price reduction upto date from the festive season and this is a monthly program to control the prices of essential food items. People say that they can not buy things for the reduced prices at their shops in their villages. But the fault is with the consumers.

We need to have logical consumers these days. Consumers should know their rights including, how to get protection from errant traders, right to access to information and right to choose what to buy and not to buy. Mainly our consumers should be aware of their own rights.

They also should be aware of the places that they can get items at reasonable prices. The CAA plans to expand the consumer education to pass the reliable information to the consumers.

Q: As an economist what do you think is the root cause of this sudden inflation ?

A: This is not sudden inflation. In January inflation was 20 percent and still it is the same. Our aim is to hold this rate at 20. If this stagnates at 20 it means that our programs are successful. Therefore there is no inflation, which is a creation of some parties.