VAT hike will push up prices

Last Updated 05 March 2010, 18:26 IST

Once the flood of problems including the rebellion in his Cabinet and party receded, it was expected that in his second budget as Chief Minister he would take bold and positive steps for development of infrastructure including roads, energy generation and provision for drinking water. There was expectation that there would be substantial allocation towards the development of the social sector.
But, revenue mobilisation has suffered in the State, arguably on account of the economic slowdown. 

As can be seen from the table  (above) the growth of receipts has been slow in the last couple of years. The total receipts would have been particularly low but for grants from the central government and non-tax revenue.
The total state tax revenue increased from Rs 19,504 crores in 2005-06 to Rs 27,218 crores 2007-08.

This means that the total revenue increased by more than Rs 7,700 crores in three years. In the last two years, the total state tax revenue has gone up only by 2120 crores. For the second consecutive year now, collection has fallen short of expectation.
In the current year, the proportion of State taxes mobilised to estimated amount was 89.7 per cent.

The failure to step up the revenues in the State will naturally have an adverse impact on development expenditure. Given that total State tax revenue is short of expectations, much of the revenue would have to be spent on two departments - Education and Health - not so much because of investment on these two vital sectors, but because of committed spending on salaries.
The common man would suffer on account of an increase in VAT and the inflationary tendencies that this would have. An increase of VAT from 4% to 5% on all goods (except rice, wheat, paddy, etc.) and 12.5% to 13.5% would lead to a general increase in the prices.

All this means bad news to aam admi.
Thus, there is nothing much for the common man in this budget. Can we blame this on economic slowdown?
(The author is HoD, Centre for Decentralisation & Development, Institue for Social & Economic Change)


(Published 05 March 2010, 18:26 IST)

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