Very visible ‘arms’ of the govt


In the recent episode of almighty IMF summoning esteemed members of the government, assurances were exchanged with respect to the restructuring of the Trading Corporation of Pakistan(TCP), Utility Stores Corporation and PASSCO. One proudly proclaims itself to be the trading arm of the government, based on which the remaining two can be extrapolated to be the “selling” and the “storing” arms of the government.
A recent controversy has dragged this troika into the writer’s notice. TCP’ recent cancellation of sugar tenders, based on the latter being quoted at a higher than market price, has come with a cost. If one were to believe the trading arm’s ‘feeling cheated’ sentiments, a fair view should also be taken of the losses sugar millers have had to incur. Given that the quoted price was around Rs66/kg and the prevailing market price was Rs59-62, the TCP has benefited from its own red tape and connivance by canceling the tender when the market price came down to Rs50/kg. The losses or foregone income of the millers on account of the sugar hold up ranges from Rs2.1-2.4 million. Conversely, this amount has been quoted in the defense of the government’s ‘business arm’ as the loss the national exchequer would have to incur had this transaction passed through.
At the outset, it just seems wrong for a government body to be calling itself a business arm as it completely and utterly trashes the entire concept of the public good. Simply put, the government should not be in the maximising profit game at all. And so this ‘public’ private limited company has been making profits close to Rs2 billion and above annually since FY-09. Given that their primary objective is to provide goods at affordable prices to the common man, regular profits imply that they have been buying at low prices and selling at higher.
And that is where the remaining arms come into play. One provides additional storage capacity where as the other serves as a retail outlet when prices are skyrocketing. And guess what, everyone goes home with some portion of the profit in their pocket. On the funding side, the affiliation with government comes in handy as credit is cheap and easy to obtain, as the former clearly offers a risk free window to invest in. Over the last 3-4 years, government borrowing under commodity operations has ranged between Rs300-400 billion. Although this may seem like a paltry sum given that public and private borrowing run in trillions, one must keep in mind that this sum is reserved for the troika’s use solely.
If the government really cared about the availability of commodities in general, the wheat support price would not have been fixed at Rs1050/maund, especially when the cost of wheat production in Punjab and Sindh lie above Rs1,020/maund. Moreover, distortions have also been created in the cotton market as the government has recently announced its intention to purchase cotton, in order to ‘stabilise’ prices, ie, save them from falling any lower. If one is any smarter by now, they would clearly know that lower prices are generally good for the population at large which by the way does need to clothe itself. And that this is another classic attempt at buy low to sell high. This is the lowest the cotton prices have touched in the last year and a half. A possible impact may be further denting of already descending textile exports as competitiveness gets hampered in a low-demand environment abroad. But yes, one must still complement the dear TCP for providing some brain and entrepreneurship to our hyper intelligent government.

The writer is an economic
analyst and freelance financial journalist. She can be reached at [email protected]