The TechnoCapitalist

Union Budget 2012 - Who Really Bit The Bullet ?

The real impact of Union Budget 2012 on the individual wallet can only be felt now, as the various Service Tax components and the State Budget measures roll out. Its mostly bad news, except perhaps in one case.

Govindraj Ethiraj
Updated: Apr 9, 2012 07:56:58 PM UTC

Govindraj Ethiraj is former Founder-Editor in Chief of Bloomberg UTV, a 24-hours business news service launched out of Mumbai in 2008. Prior that, he worked with Business Standard newspaper as Editor (New Media). Earlier, he spent five years with television channel CNBC-TV18 where he worked from near start-up point. Before CNBC-TV18, he worked with The Economic Times newspaper as Corporate Editor in Mumbai for five years, looking after the corporate and markets news bureau. He also worked with Business World for three years. He began his career with Business India magazine. He is a Fellow of The Aspen Institute, Colorado. He is presently co-authoring a book on India’s efforts to give over a billion residents a unique, biometric identity - after concluding a short, voluntary stint with the Unique Identification Authority of India (UIDAI) - before returning to full-time journalism shortly.

For a fortnight or so in the run up to Union Budget 2012, presented to the nation on March 16, most analysts, big and small, focussed on that one burning question. Will Union Finance Minister Pranab Mukherjee bite the bullet ?

The reference was to what many of us (in perfect hindsight) had been mildly, though a trifle unintentionally, been brainwashed into focussing on - the state of the nation's fisc. And that big question: will the Government keep pumping out subsidies to buy votes or cut back as was prudent at this stage ?

So the grand answer is the Government did hold back. Mr Mukherjee said in his Budget speech that the Government would endeavour to keep central subsidies under 2 per cent of GDP in 2012-13. Over the next three years, this figure would be further brought down to 1.75 per cent of GDP. He did say that subsidies related to the Food Security Act would be provided for.

Sighs of relief followed. The Government was reining in profligacy. The Finance Minister had bitten the bullet, it appeared. Then the folks slowly began to note that while the Government had indeed slowed down the subsidy train, there were  more taxes for you and me. Ladies & gentlemen, please welcome again: Service Tax.

The Finance Minister said all services would be taxed, except for a negative list of 17 items. After all, we can’t keep boasting we are a predominantly service economy and not pay tax on transactions. But this has also meant a host of services, provided by private sector and by the Government would be under the net. Better still, the service tax rate itself went from 10 to 12%.

If only to quibble a little more on how pervasive a Service Tax is; toll on the majestic Bandra Worli Sea Link in Mumbai also faces one. So, from Rs 75 a round trip, its now Rs 82.5, Rs 7.50 over Rs 75. And I am sure several hundred if not thousands of car owners would join me in wondering whether the Rs 0.50 paise was indeed returned at the toll booth.

My contribution from a daily toll bridge will be approximately Rs 200 per month, Rs 2,400 a year. From various meals in restaurants and sundry other services, add Rs 1,000 – Rs 2,000 more a month or Rs 12,000 to Rs 24,000 a year. Am pretty sure most of us would be paying out similar sums if not more, depending on lifestyle and consumption. But the Finance Minister must be a happy man. He announced that proposals from Service Tax are expected to yield additional revenue of Rs 18,660 crore. I can see how.

So Service Tax is a squeeze. But is that all ? Not quite. What happens as we take into account the various State Budgets which starting coming out only after the Union Budget ? The answer actually is good and bad. Lets look at the good first.

Assume I drive around 40 km a day in a petrol car to work and back. My car will guzzle approximately 4 to 5 litres of petrol a day to ferry me to work and back. Further assuming a conservative 22 days of driving in a month, my monthly consumption is 110 litres. This at current Mumbai prices = Rs 7,700 per month.

Now, neighbour Goa’s Chief Minister Manohar Parrikar has slashed petrol rates to Rs 55 per litre. At Rs 55, my monthly bill there would be Rs 6,050 per month. So that’s a saving of Rs 1,650 per month. And multiplying into 11 months - even assuming a whole whole month of holidays – totals Rs 14,250.

Now, Rs 14,000 of savings annually pretty much balances any negative that the Union Budget 2012 might have done in terms of service tax or higher excise on some goods. For instance, if in the same year, I bought a Maruti Alto 800, I might pay Rs 6,000 or so more. But I’m benefiting because of lower fuel costs. And I already have a minor Income Tax Benefit.

But Goa is an exception. I do live in Maharashtra where things are different. Petrol prices are exactly as they were and the state will charge 2% to 4% more tax on cars sold within the state, depending on whether they are petrol or diesel. LPG cylinders will cost 3% more. Good news compared to the 5% initially proposed in the State budget and then rolled back. So still another Rs 15 per cylinder.

Bottomline: after you've taken all the Union Budget numbers, don't forget to combine it with the State Budgets which only start trickling in later. Only then would you know whether you are really affected. How much and how bad.

So if I was in Goa (increasingly the magical solution to more and more problems in life), the Budget for me is still somewhat balancing out. Anywhere else in India, not quite so. As to who really bit the bullet. What do you think ?

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