Let me share a small but significant episode. I used to buy an imported protein supplement for one of my family members as he was into bodybuilding for a competition.
I used to pay a uniform price for the protein supplement all the time till the dealer pre-informed me about the price hike of the commodity from next month. He gave a unique reason for the price hike.
The said brand of the protein supplement won’t be imported anymore as the company was going to manufacture it in India under ‘Make in India’ programme.
Logically, the price should drop if the product is made in India by the foreign company. But it was not so. Under the ‘Make in India’ initiative, the host of taxes have increased the input cost of the product. By virtue of these taxes, the price of the product went up by over 20%.
I think the story is self-explanatory. It’s the high percentage of taxation on products, be it fuel, vehicles, essential food items or any other consumer item, which has been proving spine-breaking for common people. Needless to mention that joblessness and loss of income stream during the ongoing COVID crisis have added more miseries to the households to stay financially afloat.
The kind of adverse impact which the pandemic-induced lockdowns have unleashed on almost all the economic sectors is now summing up during the budget time as wish lists are continuously pouring in from various sectors for a relief.
Remarkably, the ministry of parliamentary affairs on January 14 announced that the budget session will start from January 31. The first half will run from January 31 to February 11. The second half will be from March 14 to April 8. On February 1, the budget will be presented in Lok Sabha before being tabled in Rajya Sabha.
Indian Inc has been facing the heat of ‘record percentage of taxation’ during the period of COVID crisis which has unprecedentedly escalated their input costs to an extent that they are forced to pass on the burden to the consumers.
The spine-breaking prices have already pushed the consumers on back foot and they mostly shop essentials. This situation has made the demand side of the economy sluggish. In fact, we can see imbalance in the demand-supply curve
Most of the spoilsport is driven by the skyrocketing fuel tax. The government used the fuel to generate revenue shortfalls and fund the covid-relief packages, like vaccination etc.
Even as the government in November 2021 reduced excise duty on petrol and diesel by 15 to 30 percent of the hikes undertaken in February 2021 to negotiate the inflationary pressure, the consumers still continue to face the heat as prices of essential commodities and also non-essentials refuse to die down.
The hike in fuel prices is not something that has happened for the first time. The governments in the past too have used fuel to generate revenue for spending on public welfare measures.
However, the virus-induced pandemic was unprecedented in nature and caused a massive economic crisis in all sectors of the economy. The government was pushed into huge spending on health and other welfare measures to pull its people out of the Covid-induced crisis. As the government was already pedaling on the path of generating huge revenue through taxes on fuel, it further strengthened its grip on the oil and used it to raise funds for the massive unforeseen expenditure.
Remarkably, the Union Oil Minister Hardeep Singh Puri candidly stated that cutting taxes to soften record high petrol and diesel prices was equivalent to ‘axing one’s own feet’. He made an honest disclosure that such levies funded government schemes to provide free COVID-19 vaccines, meals and cooking gas to millions amid the pandemic.
Rising prices of essential commodities and other products is contrary to the given situation where wage deflation and increasing joblessness have pushed (and continue to push) households into distress. The skyrocketing prices of even some basic vegetables like Potato and Onion, essentially known as staple food items of the economically poor section, have miserably hit the kitchen budget of households.
For a common consumer, managing potatoes in their meals has become a big deal for poor and even lower middle class households. A comparative analysis of data by the consumer affairs ministry shows that in average wholesale prices, potato prices have gone up by over 100% and onions witnessed an increase of almost 50% in the past one year.
The kind of uncontrolled price rise witnessed in essential items and kitchen staples is emerging as a major worry for household budgets. Precisely, food items like onions and potatoes are fast getting out of reach for poor and even lower middle class. So the situation suggests whether COVID-19 continues to baffle medical scientists or ends, all is not going to be well with kitchen budgets in the coming times.
Even as the government has appreciably taken several steps to give relief to the poor like free distribution of grains to ration card holders, in the continued price inflationary pressure along with wage deflation and increased joblessness, such measures fall short of solving the worries of common households. Notably, the price rise in essential commodities is always severely damaging in nature as lower strata take hits on their spine.
In the given situation and amid a host of expectations by the Indian Inc and other stakeholders, it would be a never-seen-before challenge for the union finance minister, Nirmala Sitharaman, to accommodate most of the listed demands.
The Budget 2022 comes amidst the Omicron-driven third pandemic wave. Here the economists say that the government’s tax projections have to take into account the developments expected at least over the next one year. If fuel prices continue to rise and stoke inflation, the government faces another year of demands to reduce excise rates further. To be precise, spine-breaking pricing of commodities – both essentials and non-essential – is not going to end soon.
And the most important thing is that whatever goes up, never comes down. In this situation the consumers should not look at the budget for relief. It may provide relief on one front, but will load you with more responsibilities in terms of taxes on the other front. At the moment, when the behavior of the virus is still unpredictable, it would be better for the common man to control spending.
The families are in a rush to own a car or a two wheeler or both. The scenario is such that every member pursues a dream to have his own car. For this, banks have been playing a major role as they have tailored auto loan schemes to woo even lower middle class section to avail loan for purchase of a car or a two wheeler. The depreciation of the rupee coupled with the huge burden of taxes has impacted the automobile sector. Input costs have risen and there are companies using imported components which have to bear more costs. Some companies will have to pay higher royalty to foreign parent firms and some have foreign currency loans.
Precisely, consumers have to cut down their expenses. Let them control their purchasing power which digital financial products have vested with them. There are certain purchases, which can be postponed. They can even cut down the use of cars or two wheelers to save money on fuel.
Most of the online shopping is not based on necessity. There are online commerce sites which sell products in dollars. They need to shelve their craze of online shopping, neutralize the buying of non-essential items for the moment and save for a rainy day.
Meanwhile, the government needs to ensure that potatoes and onions don’t slip out of the hands of poor and lower middle class section as rich man’s food only. It should remain inexpensive as it used to be in an era of ‘bolay meray lips, I love uncle chips!
(The views are of the author & not the institution he works for)
Disclaimer: The views and opinions expressed in this article are the personal opinions of the author.
The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.
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