Budget 2006 is short-sighted, says CSE

Excise duty cuts on small cars and soft drinks a retrograde step
Can fuel unbridled consumption, leading to a public health and transport crisis

New Delhi, March 1, 2006: Some so-called excise reform initiatives ushered in by the Budget 2006 should be recognised for what they are: short-sighted, retrograde measures, says the Centre for Science and Environment (CSE). By reducing the excise duty on small cars and soft drinks, the Union finance minister, P Chidambaram, has actually chosen to encourage the manufacture and consumption of two key public health threats, feel experts in CSE.

Small cars: carrying on with slow murder
The government's thumbs-up for small cars in the 2006 Union budget is a rude joke on the environment. Even though traffic congestion and poisonous air today mark almost every Indian city and town, Chidambaram has slashed excise on small cars from 24 per cent to 16 per cent: this can lead to an explosion in car numbers, especially in diesel cars that will worsen pollution and congestion in cities already caught in the traffic gridlock. This, when the share of small cars in the total car sales has already increased phenomenally from 54 per cent in 2001-02 to 61 per cent in 2004-05.

The government, on the other hand, has made no efforts to stimulate investments in different mix of public transport systems in cities. "The tax cut on small cars is reprehensible and unjustifiable," says Anumita Roychoudhury, associate director, CSE.

This move threatens to destroy public transport in cities and works against pollution and congestion reduction measures. With the excise cuts on small cars, the total and unfavourable burden of taxes on buses will get more skewed in cities. Already, the annual road tax imposed by state governments is higher for buses than the lifetime tax that cars pay. The World Bank estimates that in India, the total taxes per vehicle kilometre for a bus are three times higher then that for a car. A bus is made to pay more, even though it carries 40 times more passengers than a car but occupies only twice the road space. The finance minister neither has the will nor the vision to correct this distortion.

Policy makers cannot afford to ignore the enormous costs cars impose on society in terms of air pollution, congestion, noise pollution, risk of accidents and locking up of enormous urban space to move a small minority. By not recovering these costs through taxes, the government is actually subsiding the cars of the rich and decimating public transport used by the urban majority and the poor. The only way the cities can be saved from the pollution and congestion mayhem is by using taxes to build public transport. Says Sunita Narain, director, CSE: "The pretext of uniform excise duty cannot be used to lower taxes simply because taxes are also a tool for regulating production and consumption. One expects the finance minister to not act so mechanically and ignore vital health and environmental issues in the budget."

The budget has not considered any fiscal model of funding public transport worldwide, that taxes ownership and usage of personal vehicles to build public transport. The new budget conflicts with the ongoing efforts of the Supreme Court and the Delhi government to decongest roads where private vehicles take up more than 90 per cent of the road space during peak traffic hour.

The weak-kneed argument of the finance minister that the tax cut on small cars will improve fuel efficiency flies in the face of reason: if that was the true intent, the minister would have proposed taxes to promote fuel economy.

The minister's eagerness to "seize the opportunity to make India a hub for the manufacture of small and fuel-efficient cars" is grossly misguided. If indeed private vehicles have to be promoted by the government, the same tax cut should have been given as an incentive to vehicle manufacturers to meet more stringent emission standards. Indian carmakers are gearing up to produce Euro IV cars for the European market, even though India has far more serious air pollution problems than the Europe. The finance minister has once again failed to use fiscal measures to protect public health. The budget is designed to serve the narrow industrial interests even as it further destroys urban quality of life leading to enormous traffic mayhem and a threat to the lives of hundreds of thousands of urban Indians, especially the poor.

Soft drinks: promoting 'eat least' foods
The excise duty on soft drinks has also been reduced from 24 per cent to 16 per cent. In one sweep, the government has undone all the work that the civil society, the judiciary and the political class had accomplished with respect to restraining the consumption of these beverages.

There is a growing concern across the world about the severe health impacts of soft drink consumption, especially on children and adolescents. According to a 2002 World Health Organization (WHO) report, higher consumption of sugar-sweetened soft drinks is directly linked with weight gain and obesity. "It has been estimated that each additional can or glass of sugar-sweetened drink that children consume every day increases their risk of becoming obese by 60 per cent," says the report. The report also provides strong scientific evidence of the fact that the risks of diabetes, cardiovascular diseases and hypertension rise continuously with increasing weight. The report strongly recommends restricting the intake of sugar-sweetened soft drinks for children and adolescents to prevent obesity.

Soft drinks, usually classified under the 'eat least' category in dietary guidelines, are among the most heavily marketed products in the world. Young children are often the target group for the advertising of these products because they exercise a significant influence on the foods bought by parents. The huge expenditure on marketing soft drinks and other 'eat least' choices is considered to be a key factor in the increased consumption. While the reduction in excise duty might not result in cheaper soft drinks (as most manufacturers have claimed), it will certainly encourage the soft drinks industry to invest in better marketing and distribution systems and make their products easily accessible to more consumers. Children, the most vulnerable segment of those guzzling on these drinks, will bear the brunt.

In India, following CSE's expose of the presence of pesticide residues in soft drinks, the Supreme Court and other courts have been listening to and closely examining cases on the health effects of soft drinks. As recently as on February 27, 2006, the Supreme Court directed the Centre to constitute a committee within three weeks to look into the harmful effects of chemical additives in soft drinks. But the government has turned a blind eye to this order and has gone ahead instead to promote unregulated consumption of soft drinks.

The soft drinks industry has, for a long time, lobbied for doing away with the special excise duty which the government had put in place partly to discourage consumption of these beverages. The Union finance minister's decision has given it what it wanted, but at the cost of public health.