Higher levies may add fuel to fire of inflation

Finance minister Pranab Mukherjee’s budget proposals are expected to end up fanning inflation.
Mukherjee, who has spent most of his second term in North Block grappling with double-digit inflation, has chosen to increase excise and service tax rates by 2 percentage points to raise more resources. But the move will make everything from papads to automobiles more expensive.With the budget indicating that subsidy is going to come down, petrol and diesel prices will go up and increase commuting and transportation cost.
With tension in Iran, crude petroleum prices are already rising and sooner or later, the state-run oil marketing companies will be forced to increase prices. Luckily for the FM, the government still does not measure inflation for services such as telecom and restaurants. Else, the overall number will go up and the average consumer’s difficulties will show up in the data too.
At a post-budget presser, chief economic advisor Kaushik Basu said inflation based on wholesale price index is expected to be around 7% at the end of March and 6.5% in April. The Reserve Bank of India has once again sounded caution on inflation saying the upside risks have risen. The latest data shows that inflation inched up marginally to 6.95% in February.
The government, however, said on Friday that moderating inflation will create condition for the central bank to ease interest rates.
Budget 2012
Budget News 2012