Monthly Archives: February 2014

Sri Lanka: a nation suffering from ‘Enforced’ Poverty

It is now 66 years since we gained independence, and what do we have to show for it?  Nothing much, really.  In part, this is due to a bloody war that lasted for 27 years and brought development to a standstill. No one in their right mind would invest in this country.  Those days are now behind us and we are on the path of development with foreign investments tricking in.  But, I opine that we could do much, much better as a Nation.

What is Enforced Poverty?  It is a phrase that I coined whereby the masses of the country have been indoctrinated by those in power into believing that the life they lead is unchangeable and that their younger generation will have a greener, more luxurious, brighter future.  They will strive on, firmly entrenched in poverty or the borderlines of it and will not challenge the status-quo.

Let us take as an example the typical family.  The father is a teacher or a government servant.  The mother is a housewife.  They have a son and a daughter who are both schooling.  Let us say one is studying for the ordinary level exam, and the other for the advanced level exam.  Let’s estimate the monthly household income to be Rs. 40,000.

With the cost of living as it is, rent and electricity would be at least 10,000 for someone in a suburban area. Monthly bill for essential groceries would be at least 7,500. Milk powder alone is now 386 for a 400 gram packet.  Fees for extra classes for the kids would be another 5,000 and transport for the kids and the parents via bus and the occasional three wheeled taxi would be another 4,000 maybe?  Father would probably have a mobile phone for emergencies and would cost him at least 500 a month.  A gas cylinder for the kitchen would be 2,500 every two months, and the miscellaneous expenses would also add up such as clothing and shoes, medical bills, and etc.

Buying a motor cycle let alone a car for this family is all but a dream. An average motor cycle is 150,000 and the cheapest car would be the Tata Nano, and it costs 1,400,000 here in this country.

Now we get to my point about enforced poverty.  Even if this family earns just 40,000 does that mean that they cannot have a reasonable quality of life? Poverty is enforced on them simply because of our notion of the greater good. More on that later.

Let’s see if we can get this family to buy a Tata Nano.  The cost is 1,400,000. Assume the upfront payment is 200,000 and that the balance 1,200,000 goes on a lease.  Car leases are on average 2250 per 100,000 borrowed over 5 years, which comes to 27,000 per month.  Insurance would be 20,000 per year, and we would have to add on the cost of fuel and maintenance as well.  As you can see, our teacher cannot afford this, due to enforced poverty, due to government policy.

A brand new Tata Nano 2014 model costs 234,000 in India. At an exchange rate of 2.08 that comes to 486,720 locally.  A Maruti 800 costs 238,000 in India, which is 495,040 locally.  A Fiat Punto is 500,000 and a Fiat Linea is 600,000.

Tata Nano, Starting at 100,000 when launched

Tata Nano, Starting at 100,000 when launched

Fiat Linea, Starting at 599,000 INR

Fiat Linea, Starting at 599,000 INR

If the Indian price were to be taken for the calculation above, the Tata Nano could be bought for a 100,000 down payment and the balance as 8720 in 60 months.  Wouldn’t that enhance the quality of life, and also lead to a happier nation? Now for what I said about the “greater good”.  There would be those that counter my argument by saying reduced taxes and duties resulting in lower prices for vehicles will mean more congestion on the roads and more pollution.  Maybe.  But where’s the alternative in that case? Has adequate planning and funding gone into our public transport system? Going in the morning and coming in the evening via the bus is a circus act and a battle with death, when we see the people packed in and also hanging from the foot-boards and doorways of the buses.  Do the buses run on time and as scheduled? Let’s not even talk about the mess with private and public buses operating on the same roads therefore resulting in deadly races.

If vehicle prices are being kept at these extraordinarily high levels for the sake of reducing pollution and congestion as suggested by some, then why is it that Vehicle Permits are issued to politicians, ministry secretaries, doctors, etc?  Why should they receive a benefit that the common citizen does not?  Don’t they work as hard? Don’t they pay their taxes too? Isn’t that considered to be discrimination and a violation of their fundamental rights?

Let’s take another example.  In the beginning of February we saw the price of Dhal coming down due to the reduction of import duty of Rs. 15 per kilo.  Few days later, import duty on Potatoes were increased by Rs 15 per kilo.  Powdered milk was in short supply in January as the importers were saying that the duties are too high and that they cannot sell and make a profit.  The Government is refusing to reduce the taxes and duties and allowed the prices to be hiked up.  The justification given by the Minister of Consumer Affairs was that the duties are kept at a high level to protect the local milk farmers.  But, do we have an effective mechanism to distribute fresh milk in this country?  Can’t we be self sufficient in milk without having to import from New Zealand?

Here’s another example.  The leader of the JVP, Anura Dissanayake was recently giving an example and stating that construction of the Mattala Airport took 25000 Million Sri Lankan Rupees, which is 25 billion Rupees, or 209 million USD.  The cost to maintain our world record setting battalion of Ministers is 27 billion Rupees per year!  There are 67 Cabinet Ministers and 37 Deputy Ministers which is a total of 104 for a population of 22 million.

India with a population of 1.1 billion people has got a cabinet of just 35 ministers.  China with a population of 1.3 billion has just 20 ministries.

Just imagine the type of development that could take place in Sri Lanka each year if we cut the number of ministers by half.

I’m not a professor of economics, nor do I pretend to know everything there is to know in finance, but I do believe that there is a lot of room for improvement in our country and in our quality of life.  Meanwhile, the teacher in my story and his family are destined for a life of hardship.  The mother and father will accept their standard of living and strive to give a better education to their children with the hope that they will have a better life than them.