Indexation,Food Stamp & Extended Credit

Indexation, food stamp and extended credit, Growth should reach all before memory fades it.

Govt's decision to implement the 9th pay scale amid high inflation leaves difficult choices for the private sector. Several news reports indicate that govt allotted To 1.4 trillion for paying salaries and pensions of 1.4 million public servants and pensioners in the budget of FY 2026-27. The proposed budget requires Tk 890 billion which current budget could not accommodate. Revenue collection is projected to have a deficit of more than Tk 1 trillion. Even if the govt is managed to implement the new pay scale, the sheer addition of this fixed cost to the budget will definitely drive up the prices of essential commodities, worsening the inflation.

There is no doubt that implementation of the new pay scale will increase the wages of private sector, increasing the urban minimum wage. But whether that increase in private wages will be adequate to offset the price increase remains a genuine concern for private sector employees. So the new pay scale not only increase the prospect of wage hike in private sector, it will also increase the possibility of further hike in cost of living.

Public sector has national pay commission to deal with inflation. Private sector does not have such thing. They merely depend on collective bargaining power or the mercy of the owner. There are increments at the end of the year, but most of the time it is not enough to deal with the inflation.

In foreign countries, job contracts include indexation clause that allows adjustment to salary as per inflation level. So a private employee never feels the heat of inflation as his real income never falls. In Bangladesh, private companies or firms are not immune from inflation. Moreover, their financial position is not that good that they will offer such clause to employees to insulate them against inflation. Less inflation proof measures for firms plus the cost are holding back firms from offering indexation clause in job contracts.

An intermediate step between no clause and full indexation clause in the contract will be partial cover from inflation. Some job offers already include increment, which can be viewed in light of this intermediate step. This kind of mild contractual obligation one day will lead our firms to strong contractual obligation when economy fully develops and balance sheets of the companies improve. This sort of contract is badly needed for lower income group employees.

Govt can do more in helping the lower income group in the troubling times. Special deposit schemes for them in banks or group participation of lower income group individuals to treasury bill purchase at one hand augments their incomes, on the other protects them from rising inflation. Setting a certain limit on deposit or bill purchase will make govt intervention more meaningful. Say, a lower-income group individual can avail a special high interest bearing deposit scheme worth Tk 100000 in a high inflation year. Or 5 such individuals can purchase Tk 250000 worth of treasury bills by forming a group in a high inflation year. This kind of specially designed programs at one hand will make sure that benefits reach the target individuals ,it will stop govt leakages in social benefit programs on the other.

Food coupon or food stamp is another such program aimed at lower income group who cannot avail quality nutritious food in hard times. In USA, it is known as Supplemental Nutrition Assistance Program (SNAP). Interestingly such program was taken so that American farmers could sell their surplus produces to consumers who could not avail them. In the 1930s, during the Great Depression, number of the unemployed rose, many households lost their purchasing power, but there were ample of foods in the market. So the Federal govt came up with the food coupon plan that allowed the needy American households to purchase surplus farm produces. Govt set eligibility criteria like income level for the households to participate in the food stamp program. With the food coupons, households can buy dairy products,cereals, egg,milk,fresh fruits and vegetables. Later food stamps were transformed into Electronic Benefit Transfer (EBT ) card,some kind of debit card. Federal govt transfers the benefits to the card of a household belonging to a certain income group. The household uses the card to buy food from super market. EBT fraud is very rare and it is very effective in terms of fighting hunger, inflation and increasing farm sales.

I think govt should introduce this kind of food stamp program for lower income group who bears the most brunt of inflation. In the time of inflation, there is significant erosion in their purchasing power. Most of them reduce their protein consumption. A food card or special MFS account will greatly address their lost purchasing power issue. Say one individual deposits Tk 1000 into his food card or special MFS account,he / she will get Tk 2000 to buy foods. Food card/ MFS account will be used to buy meat,poultry products,milk,dairy products,wheat,rice,pulses and locally grown fruits. Sacrifice of protein consumption will be avoided due to food coupon/ cards. Meanwhile, food cards can also be viewed as sales booster for grocery items during high inflation. Usually sales of dairy products or protein items drop during high inflation. Revival of the loss of sales can be achieved through this food stamp. Moreover, many new firms, poultry farms,dairy products may pop up to cater to the need of the consumer class who gets the much needed cash transfer during the time of inflation. So food stamp is boon for both consumer activity and business expansion.

It will be particularly helpful in tackling urban poverty. Nowadays, TCB operations are stretching across the city. In addition, chain stores are scattering across the city. A lower income group household can show up at any of the TCB sale point or chain store and avail the protein products with the food card. Govt will use prevailing distribution facilities or commercial facilities without any further intervention. Use of MFS account can further extend the reach of the program.

The beauty of this program is instead of giving support both the agricultural producer and consumer at the same time,cash transfer to particular income group is helping both the farmer by increasing his sales and consumer by restoring his/her purchasing power.

Another way to cushion the adverse effects of inflation is to offer easy credit with long duration of paying back to lower income group. Since salaries are paid to the bank accounts or MFS account in the private sector , a private sector employee can be offered special credit by the govt during high inflation so that he can afford protein during this difficult time. Say the private employee of a certain income group can draw a credit of up to Tk 10000 in a high inflation year. He can pay back the money in 4/5 years at a special interest rate. It will not create extra burden on this private employee with limited income during inflation.

Growth, prosperity should be shared with people. It is highly unjust that lower income group who barely receives any govt support will only pay the cost of inflation. They never participated in the decision making process,often proved to be erroneous, that provoked the inflation. So why should they pay for something they are not responsible for? Meanwhile, they hardly receive any benefits when economy performs well. To accelerate the trickle down process, indexation clause, food stamp and extended protein credit programs should be introduced. These will not create any discrimination rather these will create fairer chances for all.