Many economists and stakeholders have expressed concerns that the additional cost will directly impact the production cost in all sectors
It’s now a double blow for the middle-class right from Monday, the first day of the new fiscal year.
A budget that has increased taxes on many counts – from mobile talk time to higher price for milk – and a sudden and record over 30 percent gas price hike have together left the consumers and producers reeling alike from the impact.
Many economists and stakeholders have expressed concerns that the additional cost will directly impact the production cost in all sectors, including industry and agriculture, which will in turn increase the prices of essential commodities and services.
Commenting on the issue, Zahid Hussain, former lead economist of the World Bank in Dhaka, said: “The gas price increase will impose direct and indirect cost burden on the people.
“Indirectly, the cost of essential commodities such as kitchen market goods and transportation will also go up. The cost of living will increase at multiple levels. Consumers are now under the dual impact of tax push and energy price push.”
Over all the budget may increase the cost of living by 30 to 35 percent, said the International Business Forum of Bangladesh (IBFB) in a recent press briefing on budget reaction.
And to this now adds extra gas price.
‘We will be in debt’
Tahmina Akter, a private university teacher residing at Mohammadpur of Dhaka, has been leading a very plain life with her earnings.
“With our fixed income, we were barely making ends meet. But with the new taxes and increase in gas prices, we will be in debt with a bank even if we continue our normal way of life,” she said.
Meanwhile, Dr Khondaker Golam Moazzem, additional research director of the Centre for Policy Dialogue (CPD), has warned that the increased gas prices may gear up inflation, as production cost will increase at all levels.
Except the small and cottage industries, gas price has been increased for all sectors. Even for the fertilizer industry, the price has been hiked by more than 64 percent, which will certainly lead to increased production cost.
More expensive fertilizers will create additional burden on farmers. The production cost will further increase in the next season, leading to increased prices of vegetables and other crops.
But Dr Moazzem added that the level of impact on farmers will depend on the government subsidy policy on fertilizers.
Impact on transportation, RMG sectors
The BERC has declared a 9.38 percent increase in Compressed Natural Gas (CNG) prices, which will ultimately be paid by the consumers. In response, Dhaka metropolitan CNG Auto-rickshaw Owners Association President Barkatullah Bulu recently said there are plans to increase the CNG auto-rickshaw fare by 15 to 20 percent.
The gas price in sectors such as tea estate and electricity has also been increased by 34 to 44 percent.
Bangladesh Garments Manufacturers and Exporters Association (BGMEA) in its reaction to budget stated that the gas price increase will put serious pressure on the readymade garments (RMG) industry.
“As the gas price in factories has gone up by about 38 percent, the total production cost of readymade garment will increase by more than one percent. In case of the small factories the costs will rise by more than 1.5 percent,” BGMEA president Rubana Huq told The Business Standard.
“The price hike will cause the garment industry in Bangladesh to lag behind its competitors. If the production cost goes up by 0.5 percent, many factories will not be able to take orders,” she added.
Rubana Huq also warned that some factories may be forced to compromise on product quality to accommodate the increased production cost.
Production cost of a kilogram of yarn and apparels will go up by 4 to 5 cents and many concerned are worried that the export industry will be severely impacted.
As per the announcement made Sunday, the government is going to increase the gas price in the industrial sector by 37.79 percent and captive power by 43.97 percent.
A captive power plant is a facility that is dedicated to providing a localised source of power to an energy user, typically industrial facilities. Textile mills which use captive power will be most affected by the price hike.
Addressing the issue, Mohammad Ali Khokon, president of Bangladesh Textile Mills Association (BTMA), an organization of the textile mills owners, said: “Almost all factories are dependent on captive power plants. Production cost in these mills will skyrocket.
“It will result in increase of production cost by 4 to 5 cents per kg of commodity. No textile mill in Bangladesh can survive the competition by hiking their price this much. Those who had set up factories by taking bank loan will become loan defaulters.”
The business leader demanded that the government must gradually increase the gas price in the industrial sector by 10 percent every year, instead of the sudden hike of 43.97 percent.