Union Budget 2011: What’s Costly and What’s Cheaper?

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Pranab Mukherjee has so far presented 6 budgets for India. Needless to say, he is a pro in rolling out the budgetary exercise. In fact, a budget is nothing but balancing of two sides of the accounting calculations skillfully.

Simply put, you can say that a budgetary exercise is akin to manipulating the weighing scale – where you take goodies with two hands and give away with one hand. However, the general public image of such an act should such that – you’ve taken with one hand and balanced by doling out equally with the other hand.

While Pranab’da has announced tax-relief of Rs.2000 for all categories of tax-payers in his direct tax proposals, the positive effect has been off-set by recovering his losses from the indirect taxes on various goods and services.

budget-2011

What’s Expensive?

Air Travel – The journey gets farther!

The finance minister has said in no uncertain terms in his budget speech that domestic air travel will be more expensive by Rs.50 and international travel to be dearer by Rs.250 on account of levy of service tax.

If you’re thinking that this is a very marginal tax on your prevailing flight costs, think twice! The above rate revision is only for the economy class fares. On travel by higher classes, it will be 10% flat extra levy.

FM’s likely Message: Travel frequently through our loss-making Railways.

Hotels & Restaurants – Skip good food and life!

The FM has made sure that he taxes the fine luxuries of life and passes a chunk out of it to the poorer section. This reminds me of the old-regime dacoits who used to loot the rich people and pass on the benefits to the under-privileged.

Hotel accommodation, in excess of declared tariff of Rs.1000 per day, and service provided by air-conditioned restaurants-cum-bars has been brought under the service tax net. The effective burden will be around 3% of the restaurant bill amount. So, you can look for family restaurants, if you want to skip this extra burden.

FM’s likely Message: Excessive liquor is injurious to health.

Branded Clothes – Don’t get Provogued!

The message from the Bengali babu is clear Gandhian in approach. Wear normal clothes, no need to go for branded ones when we have so much of undressed poverty. Though, cotton sector will continue to remain in the 4% CENVAT bracket.

Finance minister says that as part of base expansion, he proposes to levy 10% excise duty on branded garments as well as increases confessional central excise duty to 5%.

FM’s likely Message: Get the shirt stitched with your long-forgotten local tailor.

Crude Oil – Change undesired!

The country’s custodian of financial matters refused to tinker with the customs and excise duties on petroleum products. This comes at a time when the global crude oil prices have ballooned on account of the political crisis in the Middle-East.

The FM left the customs duty on crude oil unchanged at 5%, and that on petrol and diesel untouched at 7.5%. Undoubtedly, this ambiguity in the fuel-cost management has left the OMCs bleeding what with petrol prices remaining under-priced by Rs.2.25 a litre and diesel losses standing at little over Rs.10 per litre.

FM’s likely Message: Such hiccups ought to remain in coalition politics.

Stationery – Need to sharpen the ink!

On one hand, the government wants to render education as a universal right across the country. But, contrastingly, he taxes the stationery items used by school children – such as text-books, note-books, ball pen ink, geometry boxes, pencil, sharpeners and whatever you can think about.

All the above items which were earlier exempt from excise duty have now been brought under the levy of 1% CENVAT credit facility. Moreover, even the paper used in printing the text-books and note-books will attract excise duty now.

FM’s likely Message: Read and write, but with blunt pencils.

What’s Cheap?

Mobile Phones – Keep Chatting!

The recent fuss revolving around cheap mobile phones and connections certainly seems to have raised awareness amongst the government on how universal and important the wireless communication has become.

The FM has extended the concession regime for the components that goes into manufacture of mobile handsets for one more year. In fact, not just phones; even other electronic items such as refrigerators and LED lights have become cheaper in this budget.

FM’s likely Message: Please talk more and bailout our ailing telecom sector!

Hybrid Vehicles – Going fuel-efficient way!

Overall speaking, the Union Budget 2011 has been a positive one for the automobile sector. The government has retained excise duty at 10% on all small cars, two wheelers and three wheelers.

Apart from that, FM has expressed desire to launch National Mission for hybrid and electric vehicles. He has also halved the excise duty to 5% on hybrid kits for conversion of vehicles running on fossil fuels to hybrid category.

FM’s likely Message: We can’t raise diesel prices, so please shift to green vehicles.

Housing Loans – Living with the Society!

Pranab’da has provided 1% interest subsidy on home loans of upto Rs.15 lakh against the current levels of Rs.10 lakh. This means that the sops are gradually moving towards the more realistic, low-cost housing prices of upto Rs.25 lakh range.

Thus, the loans for affordable home category have got cheaper. But, it would be more of Tier 2 and 3 cities which will be more beneficial of these low-cost housing schemes. In metro cities, it is hard to find houses below Rs.25 lakh range.

FM’s likely Message: It’s only for poor people, not middle class population.

Sanitary Napkins & Diapers – Wipe your stuff well!

A survey says that 68% of Indian rural women can’t afford sanitary napkins. The FM has reduced the excise duty on sanitary napkins, baby and clinical diapers to 1% from 10% in the Union Budget 2011.

So, are you satisfied with the balancing act of Pranab’da?

(PS. All the above listed on-liner ‘FM’s likely Message’ are only pun intended)

  1. Raja Sims Dutta says

    What happens to Fujifilm? Actually I want to buy a Fujifim s1800 Digital camera, costs Rs.11,999 in now…………if I wait a little, is there’s any chance of falling price on this product (its currently on offer: battery charger, 8GB card is free) or will increase future? Should I buy the camera now or in April??? reply please

  2. Madhav Shivpuri says

    Viral, Great and informative writeup. Thanks. I am additionally interested in learning about the impact to NRI’s.

    1. Viral says

      Madhav,

      With great pain, I’ve to tell you that there is nothing positive for NRIs in this Union Budget 2011. As far as I remember, you had raised the same query related to the Budget impact on NRIs, but there was nothing in it last time as well.

      However, I would like to draw to your attention 2 points related to NRIs.

      1) Airline fares are likely to go up with additional service tax levy.
      2) From next fiscal year (2012-13), there is a proposed change under the DTC regime with respect to residency definition for Indian citizens to be shortened from prevailing 180 days to 60 days stay in India.

      Once the above proposal turns into law from the next fiscal, it will reduce the maximum period allowed for NRIs to return to India for a prolonged vacation.

      1. Madhav Shivpuri says

        Hi Viral,

        Thanks for pointing that out. In fact #2 is significant. I wonder if it is 60 days stay in a single tax year? That is a really tight for many people… not for me as I get max 15-20days a year in India. However as this restriction gets tighter and tighter, NRI’s would be hard-pressed to retain Indian passports and instead change their nationality where possible. As such I don’t see any benefits offered to NRI’s but just dished out step-motherly treatment from the Govt.

        1. Viral says

          Hello Madhav,

          Indeed, #2 is not only significant but also a game-changer.The proposed regulation might not impact younger NRIs like you. But, it might have serious consequences for senior citizen NRIs who live overseas, and would like to get back to their motherland without losing their NRI status.

          It might also affect those consultant businessmen who have met their financial goals and would like to return to India for the remaining period.

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