Officially, the year 2015 was remarkable for low prices globally and in India as well, as cheaper oil caused wholesale inflation to fall consecutively for 12 consecutive months.
Average monthly retail inflation too has been less 5% in the last 12 months.
This cool-off, however, may not last long if finance minister Arun Jaitley raises the service tax rate from 14.5% to 16%. Almost all services are now taxed at 14.5%.
There is speculation that the finance minister could raise the service tax as a pre-cursor to the actual roll out the country-wide Goods and Services Tax (GST).
A higher service tax, however, will pinch households. A visit to a gym or a beauty parlour will get costlier. Likewise, telecom services too could get costlier.
This could make getting by get a bit tougher for millions of average middle-class households who now spend nearly half their monthly budget on services. A hike in service tax would push up retail prices of almost all everyday products and services – from restaurant meals and movie tickets to telecom services and DT.
Also, watch out for the fine print in the budget documents that could hurt your grocery bill.
The government, it is being speculated, is likely to raise taxes on a host of daily use items that currently attract excise duties between 2 to 5%. These products include green tea, flavoured milk, cheese, ice-cream, packaged and frozen processed food among others.
There is a strong view within the government that multiple excise duties and exemptions should be eliminated ahead of the actual roll out of GST.
Retail inflation, a gauge to measure changes in shop-end prices, rose to a 17-month high driven by costlier food items, particularly pulses that grew 43.32% in January. India’s retail inflation rose to 5.69% in January.
Inflation has quickened for six consecutive months and inching towards the Reserve Bank of India’s (RBI’s) short-term threshold of 6%.
According to an RBI official, inflation is likely to be around 5.5% for the next two to two-and-a-half months.
Inflation could also rise on growing house rent and greater demand for consumer goods could on the back of the expected seventh pay commission payouts that will likely result in a surge in spending on assets such as houses and cars.