Welcoming latest move: ADVOCATA urges Govt. to refrain from price controls
Welcoming the Government of Sri Lanka’s decision to remove price controls on essential products, a policy think tank urged the Government to refrain from using price controls to address equity concerns. Recently, the Government decided to remove the price controls on imported powdered milk, wheat flour, cement and LP Gas which led to drastic price changes in those products and other consumer goods. Welcoming the move, ADVOCATA institute urged the Government to create a competitive business environment and to boost supply.
Fostering competition and boosting productivity is a better way of reducing the cost of living. Consecutive governments have used price controls to address equity concerns instead of undertaking the hard reforms needed to create competitive markets, it said. Price controls create distortions such as shortages, rationing and the creation of a black market as well as substitution towards low quality alternatives, it said. Although price controls are often introduced by Governments with the intention of protecting the poorest consumers in society, they are inefficient, as a means of redistribution, it said.
Sharp increases in prices could have negative consequences on low-income households in the short run and such price increases should be made gradually so consumers can adjust to them or be able to shift to cheaper alternatives, it said. Our experience over the past few months illustrate the adverse impact of price controls on the economy. (MA)