If you tax peanuts what will monkeys eat?

Retail inflation has risen to 5.4% in June compared to 5.1% in May, including food prices which rose by 2.88%, while Wholesale Prices fell by 2.4% in June. These are prices compared to prices last year. If WPI is falling why is the consumer paying more year on year. Is it because of rising taxes? Wholesale prices are mainly due to commodities, such as oil, which supply raw materials for factories, so if the input price has fallen then the price paid by the consumer has risen by 2.4 + 5.4, that is 7.8%. With interest rate at 7.25% this gives us a negative real interest rate of -0.3%. The progress of monsoon is uncertain because of an expected El Nino this year so food prices could rise further. Consumer confidence is already weak so rising prices may cut spending even more. If consumers cut spending it reduces demand, which means that sales will be weak. Companies will not invest in new plants or hire more workers unless they are sure of their profit growth. Politicians keep on increasing taxes in the belief that India has vast numbers of middle class people who aspire to a high standard of living, in imitation of the west, so they will continue to spend no matter what the price. A case of monkey see, monkey do, as it were. But in reality there are not as many monkeys as they think. Extreme poverty has declined from 35.4% in 2001 to 19.8% in 2011 but the main rise has been in the low income group, from $2 to $10 per day, which has gone up from 62.9% in 2001 to 76.9% in 2011. Upper middle class, $20-$50 per day, has gone up from 0.3% to 0.6% and high income group is 0.1%. About 3.3% of people earn more than $10 per day, which is around 35 million, double the entire population of Netherlands. The vast majority, a whopping 96.7%, earns less than $10, that is Rs 650 per day, or around Rs 20,000 per month. Which is peanuts. Living in any city, paying rent, school fees, transport and utility charges will cost more than this for a family of four. These people are also vulnerable as any big expenditure, such as a serious illness, will push them into poverty. This may explain why consumer confidence is dipping while indirect tax collections, based on consumption, jumped by 37.5% in April. Politicians keep on increasing taxes so that they can spend on social schemes to buy votes and the more the poor the more votes pennies can buy. And of course they need money to pay themselves, travel in first class comfort and for free medical care for entire families, including grand children. Meanwhile high taxes are pushing out the rich who are relocating to other countries so at some point only the poor will be left. Who will pay taxes then?