The Hindu Business Line : Levy taxes but give us stability, fairness and peace

Story so far: At a nearby pharmacy, I meet an elderly couple I am familiar with. The grandpa rues that his interest income is not enough these days, and the grandma complains that expenses keep increasing, even to meet the bare minimum needs. A question that I almost want to ask them is whether they are curtailing their medicine intake on account of price increases. But, even as they cheerfully, and slowly move away, I ponder about the adverse impact of inflation on pensioners who depend on interest receipts.

Episode 161

It was with the woes of the senior citizens that I had wrapped my previous episode. "Thanks for expressing certain concerns," writes Thomas Kalluthra. "Now that inflation is rising, it will be perfectly justified if the Central Government reinstates the 10 per cent bonus given at maturity, in respect of the monthly interest scheme at the post office. Many pensioners depend on this scheme for their existence." Hope the powers that be are listening in.

"It is a fact that in an inflationary economy, retired persons are the worst affected. While some of them might have invested their savings wisely, majority of them would have spent their savings on various unavoidable things, including medical expenses. Some of them may be receiving pensions, while many may not. Inflation is always perceived to be more than what is declared," says Krithivasan. I too feel so, often!

"With micro and nuclear families on the rise, the elderly are the worst affected. Economics tells us that there should be an incentive to save and interest rates should be higher than the inflation rate. Unless inflation is stable and within a band and interest rates are in alignment with the inflation rate, the seniors will continue to suffer." Worrying, Krithivasan.

The concerns of the senior citizens have to be addressed, as their numbers are on the rise due to longevity and advancements in health technology, says R. Thesinghrajan, Sr Development Officer, LIC, Ooty.

"Interest income may not match the growing inflation. It is time that the Government, with public-private participation, designed a pension scheme under the recently formed Pension Regulatory Authority, keeping the inflation factor in mind. It must also help in providing subsidised and good healthcare to the people as private medical treatment is very costly. Problems faced by Japan because of an increase in greying population can be an eye-opener to us. The disintegration of the joint-family system and the growing nuclear family system necessitates taking care of the financial and health needs of the elderly."

"A lot of people are being affected due to the rising inflation; pensioners certainly are one amongst them," says C. Prahalad, Consulting & Enterprise Solutions, Satyam Computer Services Ltd. "We keep hearing about measures to curb inflation, a few measures have already been taken. However, the measures, take time to translate into benefits. The Finance Minister in recent interviews has said that he is looking at fiscal, monetary and supply measures to curb/control inflation. However the fact remains that the prices of most commodities/brands have soared. Under these circumstances, pensioners with interest income are forced to contain their expenditure even on essential items. There are families who had switched from morning coffee to tea, because tea seemed relatively cheaper. Now if many switch to tea, there would soon be a huge demand for the commodity, resulting in its prices going up.

There was time when vegetables were very costly and, hence, people cut down on their consumption of sabzi and opted for dal instead. Now this led to the prices of pulses spiralling. In the short term, the supply cannot be met with the existing infrastructure. It takes time to set up the infrastructure required to influence supply. In the interim, we can think of importing pulses/essential items and cater to the demand.

Fiscal and monetary measures function with a lag. Moreover, with the money in hand, if one is not even able to purchase essential commodities, who would consider investing even if the interest rates are high? So, in the short term, the Government should look at measures of ensuring immediate supplies in the form of importing essential items to cater to the demand.

In the long term, measures must be taken to ensure unconstrained supplies. Monetary measures will help only if people are capable of investing. In the current scenario, people anticipate even further price rises and, hence, increasing interest rates on deposits might not help, as the disposable income is just enough for sustenance. But right now, the reason for worry is the prices of essential commodities affecting the pensioners, aged and the poor. One solution the Government can think of is to fix some floor and ceiling prices for all the items that comprise the WPI/CPI, so that people are not unduly affected by inflation. In the short term, this appears to be a good measure. In the medium term, imports may have to be resorted to, and in the long term sufficient infrastructure must be put in place to cater to the demand.

Sometimes, I feel the Government is making a right move towards drug price control. At the end of the day, if healthcare and commodities are not affordable what difference does it make if the economy grows at single digit rates or double-digit rates. Let us not pride ourselves too much that we are a growing economy. That would be just a myopic view."

Forceful points, Prahalad. Wonder if our top economists have any answers to these issues.

"These are hard times for pensioners," reads a posting by TVS Manyam on the blog. "Ironically this problem is more acute in places where the IT crowd is most visible, such as Bangalore, Hyderabad and Pune — all previously pensioners' favourite destinations. Even with its IT progress, Chennai seems less affected. Pensioners in places such as Kolkata, Bhubaneswar, Madurai, Tiruchi and Vijayawada, where the IT presence is less, are better off than their counterparts in the IT hubs. With falling interest rates it is a double whammy." An IT twist to the tale.

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On previous episodes

"I am surprised over bankers' agitation on outsourcing as the same bankers are happy when their kin get outsourcing jobs. Is it not a kind of hypocrisy?" asks V. Ramasamy, reacting to an earlier episode on outsourcing of banking operations.

"I read `Knowledge economy spills out in public places'. It was so interesting," compliments Srivatsan Bala. Thanks. Mail in your criticisms, too!

"I would like to share my views on ideas for unemployed youth," comes forth Devisetty Manojna. "We know that unemployed youth spend most of their time in libraries, playing carroms or biking. They indulge in these activities to attain a higher degree of proficiency. They should be sponsored by NGOs or such other organisations, helping them to take part in competitions and inculcating interest in areas they are interested in. This will help the unemployed youth get jobs in a field of their liking." Good!

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Taxes vs peace

At the end of a particularly taxing day, I had to attend a meeting that discussed the hottest topic around: Budget expectations. Every speaker had some demand or the other, though it was highly unlikely that the Finance Minister would factor in all these wishes into his Budget at the end of the month. After the meeting, I decided to visit my old friend Veena, my batch-mate in college.

A content housewife, I found her busy preparing dinner when I reached her house. We had umpteen topics to discuss, while I helped her with cutting vegetables, and she attended to the oven. "What do you expect from the Budget?" I asked Veena.

I thought she would complain about prices and taxes. But no, she surprised me by saying, "I am ready to pay more taxes if I can get in return stability and fairness... so that we can raise our families in peace."

True, I thought. It is better to be normally wealthy in a country without corruption and disturbances, than to be comparatively richer in a society that has only failing institutions to boast of. Peace that ensures a proper environment for the next generation is far more valuable than the petty sops that Budgets often dole out. As with families, so with business too, I thought.

The Government can levy taxes on businesses but should give them stability, fairness and peace. Because unpredictability can be vexing. Possible? Send in your thoughts by Friday.

SWATI_CA@HOTMAIL.COM

Blog at: http://Swati-CA.blogspot.com

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