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Common Man will be hit by inflationary part of Budget

The Centre for Monitoring the Indian Economy

The increase in excise and customs duties as also the increase in the fiscal deficit is expected to increase inflationary pressures in the economy. Inflation, as measured by the year-on-year rise in the wholesale price index, has already been creeping upwards since January 1998. This is expected to increase further in the current fiscal year. Inflation was already ruling well above six per cent.

The prices of several items of common consumption in middle and upper classes, such as branded tea, cheese, butter, ghee (clarified butter), meat, spectacle lenses and frames, cigarettes and pan masala would rise in the face of the eight per cent excise slapped on them. Similarly, the cost of professional services such as real estate agents and consultants, architects and interior decorators would go up as these services now attract five per cent service tax.

Transportation is likely to get costlier. The rail budget has already made travel dearer at the end of the last week. Now, this week begins with road travel getting dearer too. The Union Budget has increased the excise duty on motor spirit (petrol) from 20 per cent to 35 per cent. (However, the government later reversed its decision on the excise hike.) Besides, an additional duty is being imposed on petrol at the rate of one rupee per litre to finance road construction. Taxis and rickshaws would now become even dearer.

On the flip side, the common man has been saved an increase in income tax as was feared earlier. Nuclear tests, sanctions et al do not yet, seem to require any belt-tightening. On the contrary, the standard deduction for the salaried income up to Rs 100,000 has been increased by Rs 5,000 from the existing Rs 20,000 to Rs 25,000. Tax free medical reimbursement has been enhanced from Rs 10,000 to Rs 15,000 per annum.

Compulsory primary education and free education till college level for girls will provide a boost in the rural side.

On balance however, these sops are far out-weighed by the inflationary potential of the Budget.

EARLER REPORTS:
Capital markets have missed positive facets of Budget
Budget does little to aid industrial recovery
Budget lacks fiscal discipline

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Budget '98