Take a bow, Mr. Sinha! Your performance in the parliament yesterday was reminiscent of a beaten and thoroughly exasperated gladiator who keeps on flogging a half-dead horse (or should I say an ass?) that is the typical Indian middle-class fella. What’s more he actually rises up time and again inspite of your repeated blows and continues slogging. However, this time, you’ve exceeded yourself by not only slapping him on both cheeks but also kicking him on his posterior end.
That, very aptly sums up the much awaited, much expected and extremely “taxing” budget presented by the FM yesterday. Successive FM’s have repeatedly tried and failed to clean up their balance sheets and every time they fail, the blame invariably falls on tardy tax collections and uncontrollable expenditure of the Government. The poor cannot be taxed because they simply don’t have any income, the more affluent lot in the upper echelons of society get away by changing the colour of their earnings into black or by filing bogus returns and the poor guy in the middle class faces the music everytime only because he is where he is – in the middle.
While the FM’s intentions to clean up the books by boosting the tax collections are laudable, the way in which he has gone about doing it is deplorable. This budget has been extremely severe on the salaried middle class people, both from the expenses and the tax angles...let’s see how.
- Increase in prices of commodities and services – LPG prices have been increased by Rs. 40 per cylinder and Kerosene prices by Rs. 1.50 per litre. What the FM has done here is some seemingly clever financial jugglery. He has cut back sharply on the subsidies for these 2 products and passed on the burden to the consumer. There is nothing to feel elated about the miniscule reduction in the prices of petrol and diesel by Re. 1 and Re. 0.50 respectively. The pinch would be definitely felt on people in New Delhi because the RTC is likely to pass on the increase in LPG prices to commuters. For mumbaiwallahs, the partial flogging was already done by Mr. Nitish Kumar in the railway budget by way of increasing the fares.
Assuming that a typical Indian middle class family of 4 consumes 1 LPG cylinder in 1.5 months and about 15 litres of petrol a month, the net incremental outflow of the family for the whole year works out to Rs. 140. Not a big amount...but this is only an example and the actual consumption of these two may vary from family to family. By Mr. Sinha’s own confession, the prices of petrol would be cheaper by Rs. 8 after the dismantling of the APM but he preferred to pass on Rs. 7 of that benefit to the Government and leave only a pittance for us. Beauty parlours, health clubs and fashion designers have been brought under the ambit of taxes too and it goes without saying that these increased costs would invariably be passed on to the consumers. Cellphones, pagers, soaps and other cosmetics will be a lot cheaper than before but what’s the use? I can’t survive by eating them, can I?
- Direct Taxes - Whoa! A whole lot of surprises here! Though the FM left the personal IT rates untouched, that was only a small consolation. A National Security Surcharge of 5% has been imposed on all taxpayers who earn more than Rs. 60, 000 per annum the earlier surcharge of 2% for contribution to the Gujarat Relief Fund has now been removed. The net effect, therefore is only 3% and not a big amount but even a tiny pin pricks a lot.
The most severe mauling comes in the form of withdrawn benefits under section 88. Indirectly, the common man has been made the proverbial “bakra” to bail out the ailing Indian bank. The Govt hopes to garner around Rs. 1500 crores by withdrawing the 10% benefit under sec. 88 and of this, Rs. 1300 crores is being pumped into the chronically ill Indian Bank to nurse it back to health. Whereas previously, a rebate of 20% was allowed for all those with an income of Rs. 1, 50, 000, this has now been cut down to 10% for individuals with an income between Rs. 1, 50, 000 and Rs. 5, 00, 000...effectively meaning that an individual can now save only upto Rs. 8000 by investing the entire amount of Rs. 80, 000 u/s 88. Since most salaried middle class people have salaries ranging in this slab of Rs. 150000-500000, they are the hardest hit by this measure. On one hand, the savings avenues are restricted and on the other, of the few that are left, interest rates are brought down. The reduction in small savings interest rates by 0.50% or by 50 basis points (bps) as it is called in financial circles will definitely see banks reducing the interest rates on their deposits ultimately resulting in limited incomes for an individual from his savings.
For those who take an avid interest in tracking the fortunes of the stock market and invest in shares of bluechip companies with the intention of enjoying the dividends received on them, the FM dropped a bombshell at the fag end of his speech by announcing that dividend received on equity shares and Mutual Fund investments would be taxed at the rate of 10% in the hands of the recipient. This will definitely make small investors think twice before investing in these avenues unless of course they opt for growth options in Mutual Funds. At the same time, companies and Mutual Funds are also likely to declare higher dividends because they don’t have to foot the 10% tax and 2% surcharge thereon anymore.
About the only thing favourable to anyone, if any, is the reduction in peak tariff duties on “foren” goods. Then again, what’s the use when our net income is taking a huge hit? Overall, the budget has been a major disappointment for all concerned, be it the corporates or individuals. What Mr. Sinha has done is only some clever jugglery, most of which is aimed at correcting the fiscal imbalances of the Government. Instead of admitting that the fault lies with the Government machinery, he has very conveniently passed on the punishment to the common man. The inflation, currently at around 1.13% is at it’s 20 year low and that’s one of the probable reasons that could have prompted the FM to raise the prices of essential commodities.
The FM has not really done much by way of pump priming the economy which is lagging behind though I wouldn’t necessarily say that it’s in a recessive mode. There was not much by way of noble intentions to boost the economy...no announcements of major spending on infrastructure, no steps to bolster fresh investments nor boost savings, no measures to reduce unemployment.
All said and done, the FM refuses to admit that spending on Govt. expenditure has only gotten worse with each successive budget of his and preferred to lay the blame on a shortfall in collection of revenues. His contention that a cut in taxes will boost consumer spending is to be taken with a pinch of salt because of the bizzare mindset of the average Indian. In the ultimate analysis, some of the measures announced by him might very well be for the good of the economy in the long run but considering the incapability of the Government to actually translate their words and promises into action serious doubts persist about their success. One thing, however, is for sure. It is the average Indian common man who has to bear the brunt of all measures taken in the name of reforms, progress and growth. That makes me wonder if he’ll even be around to enjoy the fruits of his sacrifices.