Why fair-price shops are actually unfair

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Image source: Ekantipur.com

Image source: Ekantipur.com

Once again with the festive season at our door steps, the government’s intervention in the market and our daily lives is clearly visible.  Owing to the fact that particularly during this season the economy becomes more vibrant and the players in the private sector try to increase their profit by engaging in unscrupulous activities, one of the many ways through which the government tries to check this behavior is by setting up fair-price shops across the country.

Although, the government does this with good intentions, the same has not necessarily translated into good results. The previous year, the government set up fair-price shops to provide salt, sugar, rice, ghee and other commodities at subsidized rates to the people. Nepal Food Corporation (NFC) also took to selling goats. NFC bore a loss of NRs. 3.7 million selling goats last year and the allegations of corruption that made it to the headlines in the distribution of goats clearly indicate government inefficiency in doing business. And yet, the government plans on doing the same this year as well. Year after year, the government incurs losses, creates avenues for corruption and does not really help the customers—how fair is their do-gooder business model then?

The rhetoric of the government of Nepal being a free economy is contradictory to its action owing to the fact that fixing price is not a sign of a free market economy at all. Last year the government hue and cry about the implementation of maximum retail price (MRP) on essential products. As it turned out while a handful of big shops in urban centers went ahead of MRP, endless small shops across the country were unaware of the decision which meant the decision to implement MRP went largely unaccounted for, unimplemented and unregulated.

The government plans to open up fair price shops at seven locations in the valley and about a dozen others all over the country. The question that pops up with around 26 million population being spread across 75 districts is that–do these few fair price shops cater to the needs of all the people across the country? And is it really fair to subsidize the commodities of urban citizens with taxpayers’ money when majority of the people in rural areas, never get benefitted by it? Definitely not. Looking back, price fixation in the previous year did not work well and very few people benefited from it. So, in that case, how is it going to be any different this year?

It is quite clear that the government isn’t good at running business and there are several reasons for it. First and foremost government is run by politicians not businessmen and we know that the only goal of politicians is to get re-elected and their intentions are mainly focused in pleasing the people for short term. Things that would be beneficial to them in a short term could become a disaster for the economy in the long term. Politicians are constantly trying to prove themselves to people and are encouraged to do so with policies that bring more harm than benefit. Even if not doing anything would be the best option politicians opt to make rules and regulations puts them in the headlines.

Similarly, an undeniable fact is that government doesn’t have capital to invest; all it does is tax people and use their money for doing business which it is not good in the first place. Private sector, on the other hand use their own capital and resources to create wealth by providing goods and services that people choose to consume and use. When a government run business fails, it is ‘us’ who suffer mainly because we are denied of the promised goods and services which we paid up for in the form of tax. On the flip side, when a corporation fails it is either a group of investors or an individual who is at loss; for a consumer even if a corporation fails there are always other options to choose from which does not happen in the case for monopolistic government-run businesses.

Another reason why government should not be running business is its nature of being a monopoly and not being competitive. Examples include Nepal Electricity Authority, Nepal Oil Corporation, Agriculture Input Company Limited and several other public enterprises. Nepal Food Corporation providing goods at a lower rate subsidized by the government keeps other competitors out of business which eventually lowers the number of private goods and service providers limiting the options for general people. Because of this very reason the sight of long queue for fertilizers, petroleum and other products provided by the government has been regular throughout the year.

If the government really wants to help the people and check the private sector it needs to build a strong monitoring and evaluation system with set standards in discussion with the private sector which would be a better way to go about.

So, this festive season when you see fair price shops and see people lining up to get goods at a subsidized rate ask yourself how fair are the fair prices shop.

Koshish Acharya

About Koshish Acharya

Acharya is a student of social sciences and has been associated with Samriddhi, The Prosperity Foundation for the last three years.

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