Like most Indians my age or older, I have hazy memories from my childhood of there being one day in the year when prices used to rise. My parents would get up in the morning and go through the newspapers listing out all the things that would henceforth be more expensive. As a child, I had this vague impression that the government decided how much one had to pay for things and once a year, it raised most prices. When I grew up, I realised that that this vague impression was quite correct, at least for that era. The budget was the day of the year when prices rose. And the month or so leading up to the budget was the time when things vanished from the market as traders hoarded good in anticipation of price increases. Also, year-after-year, the highest price increases on budget day were in something called 'luxury goods'. But that didn't really matter because very few of us could have bought those luxury goods at the unincreased prices either. Ah, those were the days-those wonderful days before the economic reforms ruined the country.
Anyhow, that was then and this is now. Since that historic day when Dr. Manmohan Singh rose to make his first budget speech, we've all had new expectations from the Union Budget. Budget day is when things change. New opportunities are created, and new directions opened up for businesses. Or at least, that's the theory. Actually, even that's not true anymore. We see a lot of budget hype around us nowadays. We'll have huge headlines and hours of talk by us experts, we'll have dozens of innocent bystanders being waylaid by TV reporters who will thrust microphones into their faces in the hope of extracting the aam aadmi's opinion. But mostly, it's all a somewhat desperate attempt to create news where there isn't much. Since 1991, there has been only one truly historic budget, and perhaps three or four significant ones from various finance ministers. Let's face it, for many years now budgets are mostly about adjusting and trimming and tinkering. That said, the current finance minister has demonstrated a considerable capacity for generating surprises, some pleasant and some unpleasant.
This year, the FM has a lot more tax revenues than were expected and there's a string of elections coming up. The conventional wisdom is that we'll have the sort of budget that is generally described as populist. That is supposed to include, among other things, reduced direct taxes at the lower end. I personally think that if the government is prepared to reduce direct tax revenues in the lower slabs then a stronger incentive to save more should be part of the plan. I've been watching, saving and investing behaviour for years and I've always observed that most salaried people, especially in the first and second tax slabs, save only whatever is being directly encouraged by the tax laws. Like it or not, there's very little discretionary saving that happens. Perhaps the government should use some of the bonanza in its coffers to raise the limit of the tax-saving investments that are allowed from the current Rs 1 lakh. The fact is that with inflation, this limit effectively becomes lower every year. If the government wants to be fair (and I'm saying fair, not generous), there's no reason why the income tax slabs as well as the tax-savings limits should not be linked in an automatic fashion to inflation. That would be something that makes many voters very kindly disposed towards the UPA government.