Rein in consumption to give govt spending power
Budget 2013should reduce subsidies, raise taxes and go big on job generation and infrastructure investment
Aashish P Somaiyaa
For our own good, I am hoping the budget is tough on us as consumers. Let me remind you of that popular adage–spare the stick and spoil the child or one of those Bollywood dialogues–bachpan mein sahi waqt par ek thappad lagaya hota, toh aaj yeh din na dekhna parta. Some ‘thappads’ have indeed come through in the form of fuel price hikes and the high interest rate regime maintained by the RBI; finally the impact is being felt too in auto sales numbers.
Thanks to the global financial crisis of 2008-09 and the loose fiscal policies followed since, the spending power has moved away from the government and in favour of consumers, leading to the government running up deficit. A prolonged consumption boom should eventually result in spurring corporate growth and economic expansion.
When the government has the spending power, it spends on building roads, ports, bridges and airports raising demand for investments – in capital goods, factories, cement and the like resulting in turn in corporate growth too; when the janta has the spending power, one expects them to consume more, resulting in inflationary trends, and that’s what we did. Inflationary trends are best curtailed by making it difficult to consume–so raise taxes and make it difficult borrow. So there you go, higher interest rates means less spending and more saving, higher excise and customs duties, a wider tax net, increased coverage of services tax and the like.
The good news is that we are all part of this one cyclical counter-balance and one must behave counter-cyclically. When consumption comes down, that also reduces the subsidy burden for the government. When taxes are raised, that improves the fiscal situation of the government and curtails the need for it to borrow and eventually create room for RBI to reduce interest rates. The spending power moving to the government would eventually mean more investments in infrastructure and social sectors like health care and education.
So I pray the budget announces an end to the consumption cycle instead of prolonging the fag end of whatever is left now; and it creates the necessary conditions to spur the next big investment growth cycle. Let the government take away some more spending power from the consumer and create spending power for itself and