The Rigmarole of Price Increases in Mauritius

Many have been complaining for some time now in Mauritius about rising prices of day-to-day items. This kind of complaint became more strident during the last electoral campaign when people complained that prices of basic stuffs had been increasing so regularly that it had become difficult for them to make the two ends meet.

It looked partly like electoral rhetoric. However, if one were to examine certain trends on the local market, there is some justification to this view.

First, one cannot pick up more than a handful of regular items of goods and services which have seen their prices go down in the recent years. Despite the South African rand depreciating severely in the past year, for example, imported products from this country did not see their prices decline on the local market. Someone must have been pocketing all the benefits of this situation to the detriment of consumers in general.

On the other hand, we’ve seen prices of many goods sold in shops and supermarkets increase, never falling subsequently below their previous peaks. This trend embraces both branded and non-branded products. Let us pick up a couple of examples. Juice concentrates of 840 ml that were selling only recently at Rs 87-97 have seen their prices increase by steps to stand today at around Rs 149. Less well-known brands have increased as well to Rs 135. A pot of 200 mg of a highly branded instant coffee that sold for Rs 200 at most last year now posts a “normal” price of Rs 269, a price increase of 34.5%. Almost every item of common consumption – from powdered milk to pharmaceuticals, pens, pencils, letter envelopes — has been seeing successive price escalations from month to month.

Such price increases are not caught in the country’s rate of inflation because the consumer price basket which is used for computing inflation does not pick up every item whose price is going up. Even where it does, single price increases get averaged out. That however does not keep consumers from feeling the pinch month after month. In this kind of price environment, consumers make do with the best they have on offer.

Some of the bigger retail chains offer during limited periods of time each month selected items on ‘Sales’ (‘Promotion’), which is flourished by regular issues of pamphlets indicating what the “normal price” is and what the promotional price is. The “normal price” is the level to which the price has been jacked up by successive regular past periodic price escalations. The difference between the two is quite wide on occasion, making consumers feel that they are actually having a deal. It encourages them to “take advantage” of the temporary time-bound illusory “lower price” offer. Actually, they have no choice, given that traders hiking up prices continuously are sole in command. Some of the consumers even move from shop to shop, depending on the price differential on offer.

This is how our shopping centres have been passing on successive price increases to consumers – and surviving! One is tempted to ask the question as to whether there is not one or a few collusive wholesale import price manipulators engaged in the business of passing on, at their discretion, ever increasing prices of items of common consumption on the local market. The question is especially relevant when seen against the backdrop of more or less stable prices of some other commodities of common consumption such as sugar, edible oil, bread, rice, pulses and flour, whose prices are usually kept under harder scrutiny by the authorities. Why are the prices stable in such cases and so upwardly jumpy in the other cases?

On the whole, we see a situation of generally sustained price increases of commodities of common consumption in Mauritius. This is happening in Mauritius at a time when other countries, such as Europe, are facing continuously falling and record low rates of inflation. Across the world, commodity prices have been falling to the point that analysts started asking the question as to how will economies of Africa, which have usually thrived on booming commodity price markets, manage, given the downtrend in commodity prices?  The answer is that certain traditionally commodity-exporting African economies have been developing other poles of producton, e.g., financial services, which help insulate them from the negative effect of falling commodity prices.

There is a trend of falling commodity prices at the global level as well. According to commodity-price index of The Economist, the dollar index of all commodities fell by 6.7% during 2014, with food items accounting for a price drop of 3.9%. Prices of all industrial commodities also fell during the year by 10.2%. Non-food agriculturals’ price index dropped by as much as 21.2% in 2014. The local situation doesn’t reflect any such declining price trend, pointing rather to a possible case of collusive market capture by a few importers “fixing” prices at will.

There has been no aggressive exchange rate depreciation of the rupee either, which could have been employed as an excuse to explain local price increases when viewed against the global background of falling commodity prices. It is therefore not clear why, in contrast to what obtains at the global level, we’ve been having continuing price escalation of all sorts on the local market.

The same sort of questions could be asked, for example, of telecoms and internet service providers, banks, financial institutions, medical care centres, etc., which keep escalating prices despite ever cheaper technology available to them. Some of them resort to splitting up the services they provide into as many separate components as possible and jack up individual prices continuously for both old and new “services” so as to dig deeper into consumers’ pockets. The best thing would be to put a brake to the discretionary price increases being regularly imposed on the local market, out of tune with international market trends.

* * *

India’s ‘Quantum Leap’ and how Mauritius could be part of it

Eight months into the government, Prime Minister Narendra Modi stated on Sunday last in the course of a high-profile event in Gandhinagar, Gujrat, that India was now planning to “make a quantum leap”. He also stated that India was trying to complete the “circle of its economic reforms speedily”. All attention is therefore focussed on the government’s next budget and the international openings it would make by overtaking past policies – especially tax policies and red tape – that have served to thwart the sustained economic progress the Indian economy had made in the first decade of the 21st century.

The event was attended, amongst others, by US Secretary of State, John Kerry, UN Secretary-General, Ban Ki-moon, Head of the World Bank, Jim Yong Kim as well as speakers from Japan, Canada and Singapore. The country remains in the limelight, with the scheduled visit later this month by US President Barack Obama.

Expectations were high when the BJP government came to power last year that it would overhaul India’s economy much the same way market-friendly policies had previously helped lift the economy of the state of Gujrat with Narendra Modi as its Chief Minister. However, the start of the new government proved somewhat disappointing especially as the government’s first budget did not firmly address the many uncertainties created in the minds of investors by several adversarial tax threats that were not dealt with effectively. Contrary to generally held expectations, the budget did not pave the way to bring to India the huge amounts of investments – domestic and foreign — needed to promote manufacturing, and to support plans to expand the rail, road, energy and digital networks, consonantly with the project ‘Make in India’.

In the course of last Sunday’s meeting, Mr Modi reassured his audience that he was keen to see to it that the government’s policies are predictable and that the tax regime should be stable. On his part, Mr Kerry expressed the view that to make progress, it was necessary to avoid having to deal with a stifling bureaucracy.

It is in India’s power to give the necessary reassurances to investors to trust India as a credible, stable and flexible investment destination. Mr Modi is going in this direction. Too much of bureaucratic rigidity and policy uncertainty in past years took away the attractiveness from a bright spot that India represented in a world economy beset by gloom. Countries like Mauritius which have been pooling investments from different global sources to be channelled into India were cast into bad light, with the result that investors going through Mauritius into India no longer felt as enthusiastic as before to take the India route. Hopefully, this is currently being put behind.

The time has now come perhaps to dispel those clouds of bureaucratic harshness and consequent loss of investor confidence and to launch, instead, a new era of international cooperation to affirm international commitment to the growth and development of what is Asia’s third largest economy after China and Japan. If so, Mr Modi would have correctly foreseen India’s “quantum leap”. Once the uncertainties surrounding the India-Mauritius Double Tax Avoidance Agreement are removed in such a context, it should augur well for a renewed phase of strong economic cooperation between India and Mauritius.

* Published in print edition on 16 January  2015