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S. Muralidhar

THE Budget 2002-03 will stretch the average Indian household income like never before. Even as the Budget lacks in measures that could incentivise increased savings, it is simultaneously applying increased cost pressure on family income. How will the Budget affect your spending and how far will your money go?

If you belong to the 285-million strong middle-class Mr Yashwant Sinha referred to in his Budget as being bigger than the size of the American population, then brace yourself for higher taxes, higher fuel costs and — because of the reduction in interest rates on small savings — lower interest income from an even lower share of savings.

Unfortunately, for those who believe the inflation numbers, the effect of this Budget will again be misleading. What Mr Sinha will manage to show is a far lower impact on the Consumer Price Index, compared to the actual pressure on household incomes.

Mirage of lower fuel costs

The one rupee cut in petrol prices, to be effected from April 1 this year, is not much to rejoice about. The Finance Minister has room to further manoeuvre downward the price of petrol and diesel, but has chosen to pass on just a one rupee cut in petrol and a 50 paise cut in diesel, only the second time in recent history. This cut has to be viewed in the light of the fact that Mr Sinha has actually taken away more than he has given, if the hike in LPG prices is factored in.

With no direct incentives to the automobile industry, the prices of neither two wheelers nor four wheelers are likely to go down. Another unkind cut is the hike in excise duty on compressed natural gas (CNG). Car buyers, taxi operators and other public transport in Delhi and Mumbai, who invested additionally in installing a CNG kit, costing upwards of Rs 30,000 per car and upwards of Rs 3 lakh for vans and buses, will find the price differential between diesel and CNG now becoming wafer thin.

Direct and indirect imposition

The biggest knock households will receive will be from the new tax measures Mr Sinha has introduced. As if the surcharge of five per cent on individual income-tax was not enough, the salaried tax-payer will face a double-whammy from the halving of tax relief given under Section 88 of the I-Tax Act (see related story on page 6). So, in spite of their best efforts at generating more savings, the salaried class, at least those with a taxable income of over Rs 1.5 lakh, will be forced to pay much more as taxes.

But, the Finance Minister has not spared even those in the so-called lower middle class. He has indirectly increased the tax burden on households by widening the service tax base.

The five per cent service tax, which is by nature passed on to the user or subscriber of the service, has been extended to include ten new service providers. So, you will soon be paying more for beauty treatment at the neighbourhood parlour, for booking tickets through a travel agent, for joining or renewing your health club membership, for cable connections, cleaning clothes at the dry cleaners and subscribing to a life insurance policy.

Poor-unfriendly?

For all his professed `poor-friendly' policies, Mr Sinha has still not managed to avoid anomalies. A number of products used by the poor and the lower middle-class have been taxed more. The following items will cost more — candles, toothbrushes, postage, kerosene, pulses, Black and White TVs, electric bulbs below Rs 20 per unit, imitation jewellery, glass kitchenware, watches and clocks below Rs 500 each, confectionery, switches fuses and plugs and sanitaryware.

Now, look at what will be cheaper post-Budget: Imported liquor, cosmetics and toiletries, readymade garments, cell phones, furskin, artificial furs (what with Hollywood celebrities endorsing them), Yachts, Helicopters and arms and ammunition. This Budget will dampen the morale of the middle-class, not to speak of the poorer sections. If the Finance Minister thought that increased spending by this segment will revitalise the manufacturing sector, he may be in for a nasty surprise.

If anything, the average salaried employee is bound to tighten his purse strings.

Mr Sinha has not widened the tax base, he has widened the base of taxes for the middle class.

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