2. CRISIL BudgetAnalysis
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3. Contents
Foreword 1
Economy
Highlights 4
Detailed economic analysis 5
Industry
Overall sectoral impact 14
Overall company impact 21
Airports Infrastructure 25
Auto components & Tyres 27
Automobiles 30
Banking and Finance 33
Cement 36
Construction 38
Fertilisers 40
Hotels 43
Household appliances 45
Housing 48
Information technology 50
Media and Entertainment 53
Non-ferrous metals 55
Oil and Gas 58
Paper 61
Petrochemicals 63
Pharmaceuticals 66
Ports 68
Power 70
Roads 72
Steel 74
Sugar 77
Telecom 80
Textile 82
Continued…
I
4. CRISIL BudgetAnalysis
Contents
…continued
Capital markets
Equity market 88
Mutual funds 94
II
5. Foreword
Responsible, for now
Budget 2013-14 has taken forward the fiscal consolidation programme which began in the current fiscal year. It targets
fiscal deficit at 4.8 per cent of GDP in 2013-14 as against the revised estimate of 5.2 per cent for this year. While fiscal
consolidation can hurt growth in the short run, it does create an environment in which the Reserve Bank of India (RBI)
can cut interest rates and provide some support to growth. These steps will also encourage domestic savings, boost the
confidence and expectations of domestic and foreign investors. As budgetary proposals are broadly in line with our
expectations, we retain our pre-budget forecast of 6.4 per cent GDP for 2013-14, which is the midpoint of the GDP
growth range (6.1 to 6.7 per cent) that the budget has assumed.
In the budget, the finance minister has broad-based the thrust areas of infrastructure beyond ports and roads; he has
focused on coal, industrial corridors, national waterways, and rural road construction (PMGSY-II). In addition, urban
infrastructure will receive a boost through the allocation of Rs 14,873 crore for the JNNURM scheme. Other positive
measures for infrastructure include the constitution of a regulatory authority for the road sector and the promise to award
3,000 km of road projects in five states in the first six months of 2013-14. Housing and textiles stand to benefit from
concessions and continuation of the Technology Upgradation Funds Scheme respectively.
The revival of private investment is a key to raise India’s GDP growth, which is estimated to have reached a decadal low
of 5.0 per cent in 2012-13. In order to improve the investment climate, the government has announced an investment
allowance of upto 15.0 per cent of the total investments over Rs 100 crore in plant and machinery during the two years
ending March 2015. But a substantial and sustainable boost to investment sentiment will come only when issues such as
mining rights, land acquisition, environmental clearances are satisfactorily resolved. For sustenance of revenue growth
and ensuring feasibility of medium-term fiscal targets, a sustained lift in GDP growth will be needed as some of the
revenue gains through hike in surcharges will not last beyond 2013-14.
How credible is the fiscal arithmetic and medium-term consolidation programme?
We expect fiscal deficit to settle at 5.0 per cent of GDP against the budget target of 4.8 per cent. We believe the
government is likely to miss the revenue growth target of 23.4 per cent in 2013-14 as disinvestment and spectrum sale
targets are too ambitious.
In the recent past, while both expenditure overshooting and revenue underperformance have been responsible for
higher-than-budgeted fiscal deficits, the latter has contributed more to the fiscal slippage. This year too, the budget is
likely to miss the revenue growth target due to a possible slippage on the disinvestment and spectrum auction targets.
Shocks from unanticipated changes in growth can throw the budgeted revenue estimates out of gear. However, in the
past few years, irrespective of whether growth was higher or lower than expected, the government has consistently
missed the tax revenue targets. This shows poor revenue marksmanship. Some overshooting on the expenditure front
too is likely, particularly on food subsidies if the Food Security Bill is implemented during 2013-14.
1
6. CRISIL BudgetAnalysis
Foreword
The medium-term target of trimming the fiscal deficit to 3 per cent of GDP by 2016-17 relies on healthy growth and a
reduction in the subsidy bill by at least 1 percentage point of GDP. The subsidy roadmap outlined in the budget aims to
cut subsidies to 1.6 per cent of GDP by 2015-16 from 2.6 per cent in 2012-13.
As raising agricultural productivity will take time and concerted effort, the hike in food subsidy may result in upward
pressure on food inflation in the near term. Food inflation was already high at 11.9 per cent in January 2013. It has
averaged 9.3 per cent in the past seven years as compared to 4.3 per cent in the preceding decade. Sadly, despite
certain sporadic efforts, agriculture has not received the attention it deserves in previous budgets and this budget is no
exception.
Overall, while the budget has taken a step towards fiscal discipline as well as announced steps to promote corporate
investment and infrastructure, lasting fiscal discipline will depend on the ability to raise the projected revenue and to stick
to the budgeted expenditure - an arduous task when growth is weak and elections are near.
Dharmakirti Joshi
Chief Economist, CRISIL
2
8. CRISIL BudgetAnalysis
Highlights
• Fiscal deficit for 2012-13 pegged at 5.2 per cent of GDP and estimated at 4.8 per cent for 2013-14.
• Revenue deficit for the current year at 3.9 per cent and for 2013-14 at 3.3 per cent.
• Fiscal deficit to be brought down to 3 per cent, revenue deficit to 1.5 per cent and effective revenue deficit to zero
per cent by 2016-17.
• Plan expenditure in 2013-14 will be 29.4 per cent more than the Revised Estimate of 2012-13.
Infrastructure
• To mobilise funds for investment in infrastructure, the following measures will be taken:
o Encourage Infrastructure Debt Fund (IDF)
o Allow some institutions to raise tax-free bonds up to 50,000 crore (100 per cent more than the current year)
o India Infrastructure Finance Corporation (IIFC), in partnership with ADB, to help infrastructure companies to
access the bond market to tap long-term funds
• States which have completed Pradhan Mantri Gramin Sadak Yojana will be eligible for PMGSY-II, others will
continue with PMGSY-I.
• Rs 14,873 crore allocated to Jawaharlal Nehru Urban Renewal Mission (JNNURM) in budget estimate 2013-14 as
against revised estimate of Rs 7,383 crore.
• Constitute a regulatory authority for the roads sector.
Investment
• 15 per cent investment deduction allowance apart from depreciation for companies investing Rs 100 crore or more
in plant and machinery in April1, 2013 to March 31, 2015.
Savings
• To incentivise greater savings, Rajiv Gandhi Equity Savings Scheme to be liberalised.
• Proposal to launch inflation indexed bonds or inflation indexed national security certificates to protect savings from
inflation.
Financial Sector
• Rs 14,000 crore will be provided to public sector banks for capital infusion in 2013-14.
• Foreign institutional investors will be allowed to participate in exchange-traded currency derivatives.
• FIIs, will be permitted to use their investments in corporate bonds and government securities as collateral to meet
their margin requirements.
Tax proposals
• Slabs and rate for personal income tax unchanged.
• Tax credit of Rs 2,000 to every person with total income up to Rs 5 lakh.
• 10 per cent surcharge on persons (other than complanies) with taxable income exceeding Rs 1 crore.
• Increase in surcharge from 5 to 10 per cent on domestic companies whose taxable income exceeds Rs 10 crores.
• Duty-free limit on gold raised to Rs 50,000 in case of males and Rs 100,000 in case of females.
• Specific excise duty on cigarettes and SUVs increased.
• Proposal for service tax on all air conditioned restaurants.
Subsidies
• Rs 10,000 crore of additional allocation to the Food Security Bill.
• Petroleum subsidies, at Rs 65000 crore, have been adequately provisioned for.
4
9. Economy analysis
Key messages
• CRISIL Research estimates fiscal deficit at 5 per cent of GDP in 2013-14 as against the budget estimate of 4.8 per
cent. We expect a revenue shortfall since the government’s disinvestment and spectrum auction targets are
ambitious given the past experience.
• To revive infrastructure investments, the budget announced an investment allowance of 15.0 per cent on plant and
machinery and setting up of two new industrial corridors, among other measures. However, fast-tracking procedural
approvals and removing administrative hurdles hold the key.
• The budget relies on one- time increase in tax revenue via surcharges to finance higher expenditure. Since these
one-off gains might not continue beyond 2013-14, the medium term fiscal consolidation looks difficult unless growth
picks up sharply.
Budget – Realistic on growth
Figure 1: Real GDP growth
• CRISIL Research retains its pre-budget outlook
Agriculture Industry Services
3.5% F 5.1% F 7.7% F for India’s GDP at 6.4 per cent in 2013-14. Our
forecast is broadly in line with the budget’s growth
y-o-y%
FY14F 6.4
estimate (6.1 – 6.7 per cent).
FY13AE 5.0 • Drivers of growth as per the budget 2013-14 are
FY 12 6.2 similar to that assumed by us: (i) normal
FY 11 9.3 monsoons, (ii) continued efforts to maintain fiscal
FY 10 8.6 discipline, (iii) removal of bottlenecks in the
FY 09 6.7
mining sector and (iv) recovery in exports. While
the budget has announced steps to raise
FY 08 9.3
corporate and infrastructure investment, speedy
FY 07 9.6
implementation of these policies will be critical to
AE: Advance estimate, F: CRISIL Forecast improve the growth outlook.
Source: Central Statistical Organisation (CSO), CRISIL
Research
5
10. CRISIL BudgetAnalysis
Economy analysis
Figure 2: Extra budgetary measures needed to turn
around private sector investment
% of GDP • The budget seeks to promote private corporate
17.3 investment by (i) speeding up project clearance
through the Cabinet Committee on Investment, (ii)
13.4
12.1 development of new industrial cities and corridors
11.3
10.6
and (iii) the provision for deduction of investment
allowance.
• Private corporate sector investment has fallen
from a high of 17.3 per cent of GDP in 2007-08 to
10.6 per cent during 2011-12. Policy
FY08 FY09 FY10 FY11RE FY12RE
announcements in the budget will have to be
RE: Revised estimate complemented with the removal of procedural and
Source:CSO, CRISIL Research administrative hurdles to boost private
investment.
Figure 3: Boost to infrastructure investment
y-o-y% FY 13 (RE over actual) FY 14 (BE over RE) • The budget announced some measures to revive
39.1
investment in infrastructure such as raising the
29.6 limit for issuance of tax-free infrastructure bonds
27.5
18.7 19.9 21.7 up to Rs.50,000 crore and encouraging
8.5 7.6 8.9 infrastructure debt funds.
• The government proposes to award 3000 km of
roads during the first six months of 2013-14.
-10.3 States which have successfully completed
Ministry of Ministry of Ministry of Ministry of Railways PMGSY-I will now be eligible for PMGSY-II.
Power Shipping Road transport Urban
and highways development Setting up of a regulator for the road sector is
Note:Based on Central Plan Outlay expected to expedite the projects.
Source:Budget documents, CRISIL Research • Allowing additional deduction of Rs 1 lakh on
interest on housing loan of Rs 25 lakh is expected
to spur affordable housing demand in the
economy.
6
11. Economy analysis
Inflation expected at 6.5 per cent
Figure 4: WPI Inflation (average)
y-o-y % • In line with the budget, CRISIL Research expects
12.0 inflation to decline during 2013-14. We expect
10.0
WPI inflation to average 6.5 per cent during
2013-14 due to (i) lower international crude
8.0
prices, (ii) strengthening of the rupee against the
6.5
6.0
dollar and (iii) lower core inflation. However,
4.0
upside risks to inflation could stem from the Food
2.0 Security Bill if implemented.
0.0 • The budget proposes to conatin food inflation
FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY13F FY14F
through investments in agricultural supply chain
F: CRISIL Forecasts and research and development. The budget
Source: Office of Economic Advisor, CRISIL Research allocated Rs. 27049 crore to the Ministry of
Agriculture, an increase of 22 per cent over the
previous year.
Marginal slippage on the fiscal front
Figure 5: Missing the deficit target
% of GDP Budgeted Fiscal Deficit Actual Fiscal Deficit • We believe that the fiscal deficit would slip to 5.0
8.0 per cent of GDP as against 4.8 per cent forecast
7.0 6.4
6.0 5.8 in the budget. This will be largely due to revenue
6.0 5.1 5.2 5.0 F shortfall since we believe that the budget’s target
5.0
of a 23.4 per cent revenue growth is difficut to
4.0
achieve.
3.0
• Given the government’s poor track record of
2.0 2.6
1.0
meeting disinvestment and non-tax revenue
0.0 targets, the budget estimates for 2013-14 appear
FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 RE FY14 BE
ambitious.
RE: Revised Estimate, BE: Budget Estimate,
F: CRISIL Forecasts
Source: Budget Documents, CRISIL Research
7
12. CRISIL BudgetAnalysis
Economy analysis
Mild downside to bond yields
Figure 6: Interest Rates (March-end)
% 10-year G-Sec yield Repo rate
• The budget estimates net market borrowings to
10.0 be Rs. 4,84,000 crore in 2013-14, up from Rs
9.0 4,67,000 crore during 2012-13, which will create
7.7-7.8 an upside pressure on 10-year G-sec yields.
8.0
However, we expect a lowering of the repo rate
7.0
by 50-75 bps during the rest of 2013-14, due to
6.0
lower inflation. This will lower the floor for the G-
5.0 sec rate and soften yields to around 7.7-7.8 per
4.0
cent by March-end 2014.
Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 F Mar-14 F
• Lower yields will help reduce lending rates and
F: CRISIL Forecasts thereby increase credit growth to around 17.0 per
Source: RBI, CRISIL Research cent during 2013-14.
Policy measures to strengthen foreign inflows
Figure 7: Exchange Rate (March-end)
INR/USD • Given India’s high current account deficit, the
54.0 53.0
outlook for the rupee will depend on robust
51-52 capital inflows in 2013-14. Clarity over
52.0 51.0 51.2
implementation of GAAR provisions,
50.0
government’s commitment to maintain fiscal
48.0 discipline and improved policy communication
should boost investor confidence and attract
46.0 45.1
44.7 foreign investments.
44.0 • Allowing FIIs to use their investments in
FY09 FY10 FY11 FY12 FY13 F FY14 F
corporate and government bonds as collateral to
F: CRISIL Forecasts meet their margin requirements will help in
Source: RBI, CRISIL Research bringing foreign inflows into the economy.
• With the capital inflows providing sufficient cover
to the current account deficit (estimated at 3.5 per
cent of GDP in 2013-14), we expect the rupee to
settle around 51-52 by March-end 2014.
8
13. Economy analysis
Table 1: Outlook 2013-14
(y-o-y, % growth) 2012-13 F 2013-14 F
GDP (factor cost) 1.8* 3.5
Agriculture 3.1* 5.1
Industry 6.6* 7.7
Services 5.0* 6.4
Other macroeconomic variables
WPI inflation (average) 7.4 6.5
Interest rate (10-year G-sec March-end) 8.0 7.7-7.8
Exchange rate (Rs-$ March end) 53 51-52
Fiscal deficit (% of GDP) 5.2** 5.0
Note: * CSO Advance Estimates, ** Revised Estimate, F- CRISIL forecast
Source: CSO, CRISIL Research
Fiscal Arithmetic?
Figure 8: Share of revenue and expenditure in GDP
% Expenditure Revenue • Revenue shortfall will push the fiscal deficit to 5.0
18.0
per cent of GDP. In recent years, most of the
15.0 fiscal slippage has been more an effect of
revenue shrinking - with actual revenues lower
12.0
than budgeted in the past four out of five years
9.0 (Table 2). Irrespective of the phase of growth, tax
revenues, which form around 80 per cent of total
6.0
2013-14 BE
2012-13 RE
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
revenues, have underperformed.
• Some of the revenue gains through hike in
surcharges will not last beyond 2013-14. Thus
Note: RE: Revised Estimate, BE: Budget Estimate achieving the medium term fiscal targets looks
Source: Budget Documents, CRISIL Research difficult.
9
14. CRISIL BudgetAnalysis
Economy analysis
Table 2 Origins of fiscal slippage
% of GDP FY 09 FY 10 FY 11 FY 12 FY 13 RE
1. Budgeted Fiscal Deficit 2.5 6.8 5.5 4.6 5.1
2. Effect of revenue shrinking (a+b+c+d) 1.9 1.2 -0.1 0.6 0.6
a) Tax revenue 1.6 1.0 0.4 0.4 0.3
b) Non tax revenue 0.1 0.6 -0.7 0.0 0.3
c) Disinvestment 0.1 -0.4 0.3 0.3 0.1
d) Other non debt receipts 0.0 0.0 -0.1 -0.1 0.0
3. Effect of expenditure overshooting (i+ii) 1.6 -1.5 -0.6 0.5 -0.5
4. Actual Fiscal Deficit (1+2+3) 6.0 6.5 4.8 5.7 5.2
RE: Revised Estimates
Source: Budget documents, CRISIL Research
Revenues: High targets, low achievement
Table 3 : Growth in revenue (y-o-y %)
2009-10 2010-11 2011-12 A 2012-13 RE 2013-14 BE • In 2013-14, we expect revenue growth to be
Direct tax 15.0 19.2 12.7 14.6 18.1 lower (Table 3) due to lower proceeds from
Indirect tax -10.0 38.1 11.5 19.5 20.2 disinvestment and spectrum sale.
Non-tax 19.9 88.0 -44.3 6.6 32.8
revenue
Total 10.8 35.9 -4.3 15.4 23.4
Receipts *
(net of
borrow ings)
Note: Total receipts excluding borrow ings and other liabilities
RE: Revised Estimates, BE: Budget Estimates
Source: Budget docum ents, CRISIL Research
Figure 9: Disinvestments consistenly fall short of targets
% of total revenue BE Actual • With its inability to raise tax revenue (Table 2),
6.0 the government has been increasing its
5.0 dependence on sources other than tax revenue,
4.0
such as disinvestment.
• This year’s disinvestment target of Rs 400 billion
3.0
seems difficult to achieve since revival in growth
2.0
is not expected to be as much and likely to hurt
1.0
investor sentiments. In order to achieve the
0.0
FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 target, the government might need to start the
RE BE
process of disinvesting early in the fiscal.
Note: RE – Revised Estimate, BE- Budget Estimate
Source: Budget documents, CRISIL Research
10
15. Economy analysis
Subsidies adequately budgeted
Table 4: Growth in expenditure (y-o-y %) • CRISIL Research expects government
2009-10 2010-11 2011-12 A 2012-13 RE 2013-14 BE expenditure to grow at around 16.4 per cent in
Revenue 14.9 14.1 10.1 10.2 13.7
2013-14, in line with budgetary estimates. Unlike
Expenditure
previous years, petroleum subsidies have been
Capital 25.0 39.0 1.3 5.8 36.6
Expenditure adequately budgeted for. The budget also
Plan 10.2 24.9 8.8 4.1 29.4 accounts for petroleum under-recoveries carried
Expenditure
forward to 2013-14 from the previous year.
Non-Plan 18.5 13.5 9.0 12.3 10.8
• However, an unforeseen increase in global
Expenditure
Total 15.9 16.9 8.9 9.7 16.4 crude oil prices or a discontinuation of phased
Expenditure
deregulation in diesel prices during 2013-14
RE: Revised Estimates, BE: Budget Estimates could raise petroleum subsidies above budgeted
Source: Budget docum ents, CRISIL Research levels. The additional allocation of Rs 10,000
crore for food subsidies under the budget may
not be sufficient if there is an all-India
implementation of the Food Security Bill in
2013-14.
Switching expenditures from revenue to capital account
• The quality of government expenditure as
Figure 10: Ratio of capital to revenue expenditures
measured by the ratio of capital to revenue
Actual Cap Exp/ Rev Exp Budgeted Cap Exp/Rev Exp
0.25 expenditure has suffered in the recent years, and
0.20 is still well below the pre-crisis levels. During
0.20
0.16 2012-13, while revenue expenditure was almost
0.15
0.13 at budgeted levels, the government reduced
0.10 capital expenditure by 18 per cent from its
0.11
0.05
budgeted levels in order to contain the rising
fiscal deficit.
0.00
2004-05 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 • The budget corrects for this partially by raising
to 2007- RE BE
08 growth in capital expenditures to 36.6 per cent
from only 5.8 per cent in 2012-13. However, it is
Note: A - Actuals, RE – Revised Estimate, BE- Budget
critical that the government does not slash capital
Estimate
F – CRISIL Forecast expenditure during the year if revenues fall short
Source: CSO, Budget Documents, CRISIL Research of budgeted levels.
• The government has increased allocation
towards health and family welfare, higher
education and school education & literacy in
2013-14 budget. A continuation of such
investments is necessary for sustainable growth.
11
18. CRISIL BudgetAnalysis
Overall sectoral impact
In the sector level analysis we have not incorporated proposals that are not sector specific such as increase in surcharge on corporate
tax, proposals on dividend distribution tax and investment allowance.
Industry Effect
Airport infrastructure Neutral
Budget 2013-14 offers further concessions to Indian aircraft maintenance providers
The Indian aircraft manufacture, repair and overhaul (MRO) industry is in its nascency. The domestic MRO service
providers usually have a revenue sharing arrangement with airport developers. In order to give a fillip to the industry, a
full exemption from customs duty and countervailing duty for aircraft spares, tyres and testing equipment was proposed
for Indian MRO service providers in the last budget. In Union Budget 2013-14, further concessions for aircraft
maintenance facilities have been proposed. The move is expected to help Indian MROs to become viable and also aid
carriers to reduce aircraft maintenance costs.
Auto components & tyres Neutral
No impact on auto components and tyres
With no change in basic customs duty & excise duty, we do not expect any significant impact on the auto components
and tyres industries. Doubling of SIDBI’s re-financing capabilities will benefit a large number of Tier II and III vendors.
Duty concessions on parts of electric & hybrid vehicles have been extended but its impact will be insignficant, given the
low population of these vehicles in India. Royalty payments to foreign companies will now be taxed at a higher rate, but
will be subject to direct tax avoidance treaties that are already in place. The overall impact of these measures will be ltd.
Automobiles Neutral
Marginally negative for utility vehicles; neutral for other segments
With excise duty being hiked to 30 per cent from 27 per cent, demand for non-taxi sports utility vehicles with engine
capacity above 1500 cc (and more than 4,000 mm long; ground clearance of over 170 mm), will be marginally impacted.
Demand for luxury cars (priced over $40,000 and/or engine capacity exceeding 3000 cc for petrol cars and 2500 cc for
diesel cars) will be hit, with basic customs duty being hiked to 100 per cent from 75 per cent. An increase in basic custom
duty to 75 per cent from 60 per cent will impact sales of motorcycles with engine capacity of 800 cc or more. However,
these high-end vehicles constitute a miniscule portion of the overall sales for the industry. The purchase of 10,000 buses
under the JNNURM and a reduction in excise duty on truck chassis to 13 per cent will benefit commercial vehicle sales.
Banking Positive
Recapitalisation of PSBs and boost to housing finance
The Union Budget proposes to provide Rs 140 billion as capital support to all public sector banks (PSBs) in 2013-14. The
government also stated its intent to help PSBs comply with Basel III regulations.For 2013-14, banks have been directed
to lend Rs 7,000 billion to the agri sector – an increase of 21.7 per cent over the target for 2012-13. Farmers who avail of
farm loans from PSBs and repay in a timely manner get loans at subsidised rates. They will now be able to access this
credit facility from private banks as well. We believe this move will help private banks increase lending to this segment.
The clear focus on giving a boost to the housing market is also positive for financiers. An additional tax deduction of Rs
100,000 on interest paid towards home loans up to Rs 25 lakh availed in 2013-14 for first home buyers (over and above
the existing Rs 1,50,000 deduction) has been introduced for 2013-14, to give a boost to the affordable housing segment.
This additional deduction can be claimed over a period of 2 years. In addition, an amount of Rs 20 billion has been
allocated towards a proposed Urban Housing Fund to be set up by the NHB.
Continued…
14
19. Overall sectoral impact
…continued
Industry Effect
Cement Neutral
Hike in freight costs to offset the benefits arising from the boost to housing and infrastructure
The Union Budget 2013-14 has proposed many schemes to boost infrastructure and housing segments. This is expected
to prop up cement demand. However, this upside is likely to be offset by the increase in freight costs for cement
is
companies, due to the proposed hike in railway freight. The Railway Budget 2013 14 has proposed a fuel adjustment
2013-
component linked revision of freight rates.
Construction Positive
Measures to boost investments in roads, urban infrastructure
2013-
Issue of tax-free bonds raised by government agencies for infrastructure sectors has once again been allowed in 2013
14 up to a total limit of Rs 500 billion. This will provide additional funds to various infrastructure sectors such as roads,
ports and power.
In the roads sector, the budget proposes to set up an independent regulatory authority. In the medium term, this could
help in reducing delays and fast-tracking the implementation of road projects. Further, the Pradhan Mantri Gram Sadak
Yojana (PMGSY) II has been announced, which could boost investments in rural roads.
Allocation towards the JNNURM programme (Jawahar Lal Nehru National Urban Renewal Mission) has been doubled in
2013-14 over the previous year. This will boost spending on ongoing and upcoming urban infrastructure projects. In
addition, allocation to the Ministry of Drinking Water and Sanitation has been increased by 17 per cent in 2013-14,
driving investment, particularly in water supply and sanitation.
Fertilisers Neutral
y-o-y
Fertiliser subsidy for 2013-14 to remain unchanged y
In 2013-14, the government’s fertiliser subsidy is expected to stay constant at last year’s level of Rs 659 billion, although
the demand for complex fertilisers is likely to improve. This is because nutrient-based subsidy (NBS) on complex
fertilisers is likely to be reduced, as international prices soften. The increase in budgeted subsidy of Rs 10 billion on
indigenous urea for 2013-14 implies that the government is not expected to hike retail urea prices during the year.
government
high-cost naphtha/fuel oil
Further, unavailability of incremental domestic natural gas will force plants converting from high
feedstock to import gas at relatively higher spot prices.
continued…
15
20. CRISIL BudgetAnalysis
Overall sectoral impact
…continued
Industry Effect
Hotels Neutral
Neutral impact on hotel industry
Impact of the Budget on the premium segment hotel industry is neutral. As of July 2012, only air-conditioned restaurants
that served liquor were levied a service tax at 12.36 per cent, with an abatement of 60 per cent (net service tax of 4.95
per cent). In the Union Budget of 2013-14, it has been proposed to include all air-conditioned restaurants, including those
which do not serve liquor, under the service tax net. This proposal is not expected to impact demand as the service tax
will be passed on to consumers.
Household appliances Neutral
No impact on household appliances industry
The Budget had no specific proposal pertaining to the household appliances industry. A tax credit of Rs 2,000 for a
person with income upto Rs 5 lakh per annum, introduced in the Union Budget 2013-14, will result in higher disposable
income in the hands of people in the lowest tax bracket. But, this is unlikely to translate into any meaningful impact on
the industry.
Housing Positive
Measures to tackle housing shortage
First-time home buyers taking a loan of up to Rs 25 lakh in 2013-14 can avail of an additional interest deduction of Rs 1
lakh in the first year, over and above the existing Rs 1.5 lakh benefit. This is likely to boost new home sales.
Allocation towards Rural Housing Fund has been increased by 50 per cent to Rs 6,000 crore for 2013-14. A Rs 2,000-
crore Urban Housing Fund by the National Housing Bank is also being proposed. These steps will boost fund availability
and address the overall housing shortage.
However, service tax abatement for premium apartments (with a carpet area of 2,000 sq ft or above and/or valued at Rs
1 crore or more) has been reduced to 70 per cent from 75 per cent. While this would result in an increase of 0.6 per cent
in the effective service tax rate, the impact on demand is expected to be negligible.
Information technology Neutral
No significant impact on the IT sector
The Budget does not have any specific proposals for the IT sector. Focus on education and skill development is a
structurally long-term positive for the sector. The increase in surcharge from 5 per cent to 10 per cent for companies with
taxable income higher than Rs 100 million will increase the effective MAT levied to 21 per cent, from the current 20 per
cent. The additional surcharge will be applicable only for the financial year 2013-14.
continued…
16
21. Overall sectoral impact
…continued
Industry Effect
Media & entertainment Neutral
Budget to not impact sector significantly
set-top
The Budget impact on the media & entertainment sector would be neutral. The increase in customs duty on set
boxes (STBs) to 10 per cent from 5 per cent would increase subscriber acquisition costs of direct -to-home operators and
multi-system operators in the short term, as most STBs are still imported and the entire cost increase may not be passed
are
on to subscribers. At a sector level, this is not expected to have a significant impact. Meanwhile, the government stated
its intent to auction 839 FM stations in 294 more cities in 2013-14, thereby covering all cities with a population of more
than 0.1 million with private FM radio services.
Non-ferrous metals Neutral
Negligible impact
The 10 per cent export duty levied on bauxite will help improve its domestic availability. However, the impact will be
negligible as India exports less than 5 per cent of its production. In 2011, 0.4 mn tonnes of bauxite (2 per cent of
production) were exported.
Excise duty of 4 per cent has been levied on silver obtained from smelting zinc or lead, to bring the rate on par with the
duty levied on silver obtained from copper ores and concentrates. As the sale of by products such as silver typically
by-
accounts for a mere 5-10 per cent of a zinc manufacturer’s revenues, the impact of the increase in excise duty is
expected to be negligible.
Oil and gas Positive
Change in exploration policy to be marginally positive
The proposed change in the exploration policy to revenue sharing from profit sharing for exploration and development
policy
contracts is marginally positive for upstream companies, as this is expected to remove any ambiguity related to the
ascertaining of costs related to exploration and development, and will avoid delays in approvals from the regulatory
authority. This policy will be applicable for the blocks that will be awarded henceforth, and the benefits will accrue over
the long term. Furthermore, clearances will be provided to awarded but stalled NELP blocks. The government also
NELP
incentivise
declared a review of the current natural gas pricing policy, which is positive for the sector, as it is expected to incentivi
exploration investments. Additionally, a shale gas policy is expected to be announced in 2013 -14. However, this would
improve domestic natural gas production only over the long term.
Paper Neutral
Increase in education spending to help sustain demand for Writing & Printing paper
The government has proposed a 19 per cent increase in spending on education in 2013
education 2013-14. This will help sustain
demand for Creamwove paper, which is primarily used in the manufacture of textbooks, notebooks and other education
stationery. Creamwove paper accounts for 17 per cent of paper and paperboard demand.
continued…
17
22. CRISIL BudgetAnalysis
Overall sectoral impact
…continued
Industry Effect
Petrochemicals Neutral
No impact on the industry
The overall impact on the domestic petrochemicals industry is neutral as no major changes have been announced and
excise duty and customs duties remain unchanged. Companies that have expansion plans or invest above Rs 1 billion
over the next two financial years may benefit from the introduction of 15 per cent investment allowance for plant and
machinery.
Pharmaceuticals Neutral
No dosage prescribed
The overall impact on the Indian pharmaceuticals industry is neutral with no changes announced in the excise or
customs duties on formulations or bulk drugs.
Ports Neutral
Announcement of new ports in a period of overcapacity
The proposal to develop a new major port each in Sagar, West Bengal, and in Andhra Pradesh will add 100 million
tonnes of capacity. Further, a new outer harbour in the V.O. Chidambaranar port in Tamil Nadu through PPP will add
another 42 million tonnes of capacity. Both these measures will lead to an increase in port capacities in a phased manner
over a period of 5-6 years. There are limited benefits for private players as traffic at ports continue to register moderate
growth and overall capacity utilisation rates are expected to decline. Allocation of funds in the form of tax-free
infrastructure bonds and low-cost infrastructure debt funds is expected to marginally benefit the sector by facilitating
availability of funds for port projects.
Power Positive
Sunset clause extension and incentives for renewable energy to benefit power sector
Extension of the sunset clause by one year, to avail the 10-year tax holiday, would benefit 18-20 GW of capacities
expected to be commissioned in 2013-14. Funding availability for the sector will improve with issuance of tax-free bonds
of Rs 500 billion and credit enhancement through IIFCL. Additionally, the proposal to adopt a PPP framework for coal
production will improve domestic coal supply in the long term.
Customs duty on imported coal, which was previously exempt, has been increased to 2 per cent, while CVD has been
increased by 1 per cent. Further, as per the Railway Budget 2013-14, freight rates have been hiked by 5.8 per cent.
Consequently, generation costs would increase by 2-3 paise per unit for domestic coal-based power projects. However,
for imported coal-based power projects, generation costs are expected to increase by 5-6 paise per unit.
Investments in wind energy, which nearly halved in 2012-13 due to withdrawal of benefits, are expected to increase
significantly due to reinstatement of generation-based incentive (GBI), with an outlay of Rs 8 billion. Further, capacity
additions in solar power are expected to increase, with interest subvention for a period of five years by IREDA, through
the National Clean Energy Fund.
continued…
18
23. Overall sectoral impact
…continued
Industry Effect
Roads & highways Positive
Budget addresses funding concerns and delays
2013-14 up to a
The government has allowed the issue of tax-free bonds to fund infrastructure sectors once again in 2013
total limit of Rs 50,000 crore. This is expected to provide additional funds to the National Highways Authority of India
(NHAI) for executing national highway projects. We believe that it will allow NHAI to award contracts o n EPC basis.
Another positive for the roads sector is the proposal to set up an independent regulatory authority. In the medium term,
this could help in reducing delays and fastracking the implementation of road projects.
After the substantial completion of the Pradhan Mantri Gram Sadak Yojana (PMGSY), the PMGSY – II has been
introduced, which will provide a boost to rural road development. This is expected to benefit the small local road
contractors.
Steel Neutral
Neutral impact for the steel industry
There are no major announcements for the steel industry. Hence, the overall impact on the sector is neutral. The
proposed schemes providing a boost to the infrastructure and housing segments are likely to give a fillip to demand for
steel in the long run.
Sugar Neutral
No impact on industry
There is no impact of the Budget on the domestic sugar industry.
continued…
19
24. CRISIL BudgetAnalysis
Overall sectoral impact
…continued
Industry Effect
Telecom Neutral
Neutral impact on the sector
The Budget would have a neutral impact on the telecom sector. The excise duty on mobile phones, with retail price
greater than Rs 2,000, has been hiked to 6 per cent, from 1 per cent. This will not significantly impact domestic
manufacturers since most of their phones sold are basic feature phones priced below this level. A large proportion of
high-end smartphones are imported.
Textiles Positive
TUFS extension, removal of excise duty on readymade garments beneficial
The Budget is positive for the sector as the Technology Upgradation Fund Scheme (TUFS) has been extended and the
excise duty on readymade garments has been abolished. TUFS, which is essential to attract investments into the sector,
has been extended for the 12th Five-Year Plan, with an investment target of Rs 1,510 billion as compared to Rs 1,506
billion under the 11th Five-Year Plan. For 2013-14, budgetary allocation under the TUFS has been increased to Rs 24
billion from Rs 22 billion in 2012-13. Additionally, the excise duty of 3.6 per cent (12 per cent of 30 per cent of the
maximum retail price) on readymade garments, which was mandatory last year, has been removed. Garment
manufacturers are expected to see an improvement in margins despite partially passing on the benefit to end-users.
20
25. Overall company impact
Company Impact Industry
ACC Ltd. Cement
Adani Power Ltd. Power
Aditya Birla Nuvo Ltd. Textiles
Alok Industries Ltd. Textiles
Ambuja Cements Ltd. Cement
Amtek Auto Ltd. Auto Components & Tyres
Andhra Pradesh Paper Mills Ltd Paper
Arvind Mills Ltd. Textiles
Ashok Leyland Ltd. Automobiles
Bajaj Auto Ltd. Automobiles
Bajaj Hindustan Ltd. Sugar
Balaji Telefilms Ltd . Media & Entertainment
Ballarpur Industries Ltd. Paper
Balrampur Chini Mills Ltd. Sugar
Bannari Amman Sugars Ltd. Sugar
Bharat Forge Ltd. Auto Components & Tyres
Bharti Airtel Ltd. Telecom
Bhushan Steel Ltd. Steel
Bosch Ltd. Auto Components & Tyres
Cairn India Ltd. Oil & Gas
Chambal Fertilisers & Chemicals Ltd. Fertiliser
Chemplast Sanmar Ltd. Petrochemicals
Cipla Ltd. Pharmaceuticals
Coromandel Fertilisers Ltd. Fertiliser
Dish TV India Ltd. Media & Entertainment
DLF Ltd. Housing
Dr Reddy's Laboratories Ltd. Pharmaceuticals
EID Parry Ltd. Sugar
EIH Ltd. Hotels
Entertainment Network India Ltd. Media & Entertainment
Essar Steel Ltd . Steel
Exide Industries Ltd. Auto Components & Tyres
Finolex Industries Ltd. Petrochemicals
Firstsource Solutions Ltd. Information technology
Continued…
21
26. CRISIL BudgetAnalysis
Overall company impact
…continued
Company Impact Industry
Gammon India Ltd. Roads/Construction
Glenmark Pharmaceuticals Ltd. Pharmaceuticals
GMR Infrastructure Ltd. Airports
Gokaldas Exports Ltd. Textiles
Grasim Industries Ltd. Textiles
Gujarat Pipavav Ltd. Ports
Gujarat State Fertilisers Company Ltd. Fertiliser
GVK Power and Infrastructure Ltd. Airports
Hathway Cable & Datacom Ltd. Media & Entertainment
HCL Technologies Ltd. Information technology
HDFC Bank Ltd. Banking
Housing Development and Infrastructure Ltd. Housing
Hero Motocorp Ltd. Automobiles
Hindalco Industries Ltd. Non-Ferrous Metals
Hindustan Construction Co Ltd. Roads/Construction
Hindustan Copper Ltd. Non-Ferrous Metals
Hindustan Organic Chemicals Ltd. Commodity Chemicals
Hindustan Zinc Ltd. Non-Ferrous Metals
Hotel Leelaventure Ltd. Hotels
HT Media Ltd. Media & Entertainment
ICICI Bank Ltd. Banking
Idea Cellular Ltd. Telecom
IG Petrochemicals Ltd. Commodity Chemicals
India Cements Ltd. Cement
Indian Hotels Company Ltd. Hotels
Indo Rama Synthetics (India) Ltd. Textiles
Infosys Ltd. Information technology
IRB Infrastructure Developers Ltd. Roads/Construction
IL&FS Transportation Networks (India) Ltd Roads/Construction
IVRCL Infrastructures & Projects Ltd. Roads/Construction
JBF Industries Ltd. Textiles
JK Paper Ltd. Paper
JSW Energy Ltd. Power
JSW Steel Ltd. Steel
Larsen & Toubro Ltd. Roads/Construction
Mahindra & Mahindra Ltd. Automobiles
continued…
22
27. Overall company impact
…continued
Company Impact Industry
Maruti Suzuki Ltd. Automobiles
MIRC Electronics Ltd. Household appliances
Mahanagar Telephone Nigam Ltd. Telecom
Mundra Airport and SEZ Ltd. Ports
Nagarjuna International Ltd. Fertiliser
National Aluminium Company Ltd. Non-Ferrous Metals
National Fertilisers Ltd. Fertiliser
National Thermal Power Corporation Ltd. Power
Oil and Natural Gas Corporation Ltd. Oil & Gas
Oil India Ltd. Oil & Gas
Orient Green Power Ltd. Power
Oriental Hotels Ltd. Hotels
Parsvnath Developers Ltd. Housing
Phillips Carbon Black Ltd. Commodity Chemicals
Punjab National Bank Ltd. Banking
PVR Ltd. Media & Entertainment
Ranbaxy Laboratories Ltd. Pharmaceuticals
Rashtriya Chemicals and Fertilisers Ltd. Fertiliser
Raymond Ltd. Textiles
Reliance Communications Ltd. Telecom
Reliance Industries Ltd. Oil & Gas
Reliance Power Ltd. Power
Seshasayee Paper and Boards Ltd. Paper
Shree Cement Ltd. Cement
Shree Renuka Sugars Ltd. Sugar
Sobha Developers Ltd. Housing
Sona Koyo Steering Systems Ltd. Auto Components & Tyres
State Bank of India Ltd. Banking
Steel Authority of India Ltd Steel
Sterlite Industries (India) Ltd Non-Ferrous Metals
Sun Pharmaceutical Industries Ltd Pharmaceuticals
Sun TV Ltd Media & Entertainment
Sundaram Fasteners Ltd. Auto Components & Tyres
continued…
23
28. CRISIL BudgetAnalysis
Overall company impact
…continued
Company Impact Industry
Supreme Petrochem Ltd. Petrochemicals
Suzlon Energy Ltd. Power
Taj GVK Hotels & Resorts Ltd. Hotels
Tamil Nadu Newsprint and Papers Ltd. Paper
Tamil Nadu Petroproducts Ltd. Commodity Chemicals
Tata Communications Ltd. Telecom
Tata Motors Ltd. Automobiles
Tata Power Company Ltd. Power
Tata Steel Ltd. Steel
Tata Consultancy Services Ltd. Information technology
Thirumalai Chemicals Ltd. Commodity Chemicals
UltraTech Cement Ltd. Cement
Unitech Ltd. Housing
Vardhaman Textiles Ltd. Textiles
Videocon Industries Ltd. Household appliances
Welspun India Ltd. Textiles
Whirlpool of India Ltd. Household appliances
Wipro Ltd. Information technology
Zee Entertainment Enterprises Ltd. Media & Entertainment
Zuari Industries Ltd. Fertiliser
24
29. Airport Infrastructure
Indian airports: Negative passenger and freight traffic growth
India`s domestic air passenger traffic is estimated to have declined by about 6 per cent y-o-y during April-November
2012. This is in sharp contrast to the almost double-digit growth recorded in domestic traffic since the advent of low
cost carriers five years ago. Kingfisher Airlines’ exit due to financial turmoil and subsequent consolidation in the
industry has led to lower competiton and a steep increase in ticket prices in 2012-13. Higher ticket prices in turn
impacted demand growth, aggravated by the slowdown in the economy. We expect domestic passenger traffic to
grow at a muted 3-5 per cent y-o-y in 2013-14.
India's international passenger traffic however, grew by a mere 2.8 per cent y-o-y during April-November 2012 as
Indian carriers are still in a position to add capacities unlike international carriers who have more or less exhausted
seat quotas available to them under bilateral treaties. We expect international passenger traffic in India to grow at a
muted 3-4 per cent y-o-y in 2013-14.
Due to the slowdown in the global and domestic economies, domestic and international freight traffic fell by 4.7 per
cent and 1.6 per cent y-o-y, respectively during April-November 2012. Freight traffic is expected to grow marginally
during 2013-14.
In 2012-13, CRISIL Research estimates investments of Rs 50-60 billion to flow into the sector, majority of which
would be accounted for by the completion of the Mumbai and Bengaluru international airports. CRISIL Research
expects investments of Rs 290-310 billion to materialise between 2012-13 and 2016-17.
The Airports Economic Regulatory Authority recently mitigated the uncertainty on regulatory issues, approving
methodology for determining aeronautical tariffs and its measure of allowing a significant hike in the aeronautical
tariff charged by DIAL and MIAL. With these, the financials of these airports are expected to improve.
25
30. CRISIL BudgetAnalysis
Airport Infrastructure
Aircraft maintenance to get concessions
Company Impact Impact factors
GMR Infrastructure Ltd A
GVK Infrastructure Ltd A
Note:
1) GMR Infrastructure Ltd’s subsidiary companies, Delhi International Airport Ltd (DIAL) and
GMR Hyderabad International Airport Limited (GHIAL), operate airports in Delhi and
Hyderabad, respectively. Revenues from the airports business contributed
52 per cent of its consolidated income in 2011-12.
2) GVK Power and Infrastructure Ltd has its subsidiary companies,
Mumbai International Airport Ltd (MIAL) and Bengaluru International Airport
Ltd (BIAL), operating in Mumbai and Bengaluru, respectively.
Revenues from the airport business contributed 86 per cent of its
consolidated income in 2011-12.
3) The above impact applies to the airports business of these two companies.
Source: CRISIL Research
Impact factors
A. The Indian aircraft manufacture, repair and overhaul (MRO) industry is at a nascent stage. More than 90 per cent of
the estimated $700 million that Indian carriers annually spend on MRO is spent outside the country (South East
Asia, Middle East or Europe). Therefore, in order to give a fillip to the industry, in the last budget, a full exemption
from customs duty and countervailing duty for aircraft spares, tyres and testing equipment was proposed for the
Indian MRO service providers. In the Union Budget 2013-14, further concessions for aircraft maintenance facilities
have been proposed. They are:
• At present, basic customs duty exemption is available to parts and testing equipments for maintenance, repair
and overhaul of aircrafts. This exemption is now being further extended to include more parts.
• Time period for consumption/installation of parts and testing equipments imported for MRO of aircrafts by units
engaged in such activities is being extended from 3 months to 1 year.
• The move is expected to help carriers reduce aircraft maintenance costs and help MRO units in India (GMR
Infrastructure Ltd, which runs a facility in Hyderabad, and Air India Ltd, which has such units in Mumbai and
Delhi) become viable.
26
31. Auto components & tyres
Auto components: Modest recovery in growth; margin pressure to abate in 2013-14
Auto component production is estimated to grow by 5-7 per cent y-o-y in 2012-13 vis-à-vis a 14 per cent growth in
2011-12 due to slowing vehicle production growth across segments, particularly medium and heavy commercial
vehicles (30 per cent of overall demand), and slower exports.
In 2013-14, auto component production is expected to improve in line with OEM prospects, particularly within the CV
segment. OEM demand is expected to grow by 9-11 per cent during the year. Growth in replacement production will
remain stable at 6-8 per cent. Growth in exports would remain capped at 7-9 per cent owing to uncertainties over EU
destination markets (30-35 per cent of exports) even as prospects for the US market (20-25 per cent of exports)
seem healthy.
While basic raw material costs (accounting for 60-65 per cent of total raw material cost) have remained flat y-o-y
during April-December 2012, lower utilisation levels and higher conversion costs of labour and power have kept
operating margins under pressure. Operating margins are estimated to fall by 120-170 bps y-o-y to 12.3-12.8 per
cent for 2012-13. While input prices are expected to remain flat in 2013-14 along with an improvement in utilisation
levels, margin improvement is likely to be constrained at under 50 bps given the continued weak pricing environment
during the first half of 2013-14.
Industry RoCE is estimated to decline by 400-500 bps in 2012-13 owing to pressure on operating margins. RoCE is
expected to remain at current levels of 13-14 per cent in 2013-14, even as margins improve slightly with
commissioning of incremental capacities.
Tyres: Operating margins to remain flat in 2013-14
The tyre industry’s revenues are estimated to grow by 9-11 per cent y-o-y in 2012-13, led by an increase in tyre
prices during 2011-12. Domestic demand is expected to grow by 0-3 per cent due to lower freight availability and
tepid growth in vehicle sales. In 2013-14, we forecast revenues to grow by 6-8 per cent in line with a growth in sales.
Operating margins are estimated to improve by 200 bps in 2012-13 due to easing input cost and growth in
realisations. Margins are likely to stay flat in 2013-14, as input prices continue to remain stable.
Prices of natural rubber (35-40 per cent of the raw material cost) are projected to decline by 12-15 per cent in 2012-
13 after growing by 80 per cent between 2009-10 and 2011-12. We expect natural rubber prices to remain flat or
decline marginally in 2013-14.
In 2012-13, industry RoCE is estimated to improve by 300-400 bps, led by improvement in profitability and lower
capital investments. In 2013-14, we expect RoCE to improve marginally due to lower capital investments.
27
32. CRISIL BudgetAnalysis
Auto components & tyres
Auto parts: Tariffs
(per cent) Customs Excise
2012-13 2013-14 2012-13 2013-14
Engine and engine parts 7.7 7.7 12.4 12.4
Drive transmission, steering, suspension, braking 10.3 10.3 12.4 12.4
parts,silencer, exhaust pipes and radiators
1
Electrical parts 7.7 7.7 12.4 12.4
Raw materials for auto components 7.7 7.7 12.4 12.4
1
Customs duty for air conditioner machine parts is at 10.3%
Notes
1) Raw materials for auto components include galvanised plate (GP)/galvanised coil (GC) steel, hot rolled (HR)
steel, aluminium, copper and lead.
2) Duty-free imports from Thailand are allowed for engine parts, helical springs, ball bearings, lighting
equipment and gear boxes under the Free Trade Agreement.
Source: CRISIL Research
Tyres: Tariffs, prices and landed costs
Tariffs (per cent) Prices (Feb 2013) Landed costs (Rs/tonne)
Customs Excise Domestic International Pre- Post-
2012-13 2013-14 2012-13 2013-14 (Rs/tonne) ($/tonne) budget budget
New tyres 10.3 10.3 10.3 10.3 - - - -
Used/retreaded tyres
Truck and bus 10.3 10.3 10.3 10.3 - - - -
Car cross ply/ 10.3 10.3 10.3 10.3 - - - -
Radials
Raw materials for tyres
Natural rubber 20.0 20.0 (Note 1) (Note 1) 156,974 3,246 223,760 223,760
SBR (1502) 10.3 10.3 10.3 10.3 n.a. 2,300 136,363 136,363
PBR (1220) 10.3 10.3 10.3 10.3 155,000 2,550 153,732 153,732
NTC fabric 10.3 10.3 10.3 10.3 n.a. n.a. n.a. n.a.
Carbon black 5.2 5.2 10.3 10.3 n.a. n.a. n.a. n.a.
(N330)
NTC: Nylon tyre cord; PBR: Polybutadiene rubber; SBR: Styrene butadiene rubber
n.a.: Not available
Notes
1) For natural rubber, there is a cess of Rs 2 per kg in lieu of excise duty with effect from September 1, 2011.
2) Customs duty on natural rubber will be charged at 20% or Rs 20 per kg, whichever is lower, from April 2011.
3) China and South Korea enjoy a preferential customs duty of 8.6% on tyres under the Asia-Pacific
Trade Agreement.
4) New tyres include the following categories: Truck and bus, light truck, car (cross ply and radial), tractor front,
tractor rear, tractor trailor, moped, scooter and motorcycle.
5) An additional countervailing duty of 4% is levied on raw materials except for NTCF
6) Prices and landed cost are average rates for February 2013.
Source: CRISIL Research
28
33. Auto components & tyres
Budget 2013 to have neutral impact on auto component and tyre manufacturers
Auto components: Company impact
Company Impact Impact factors
Bharat Forge Ltd -
Bosch Ltd A
Amtek Auto Ltd -
Sona Koyo Steering Systems Ltd A
Sundaram Fasteners Ltd -
Exide Industries Ltd A
Source: CRISIL Research
Impact factors
A. Tax on royalty payments to foreign companies has been increased. But this is unlikely to have a significant impact
as Indian auto component and tyre manufacturers generally pay under 2 per cent royalty to companies based in
countries with favourable treatment under Double Tax Avoidance Agreements.
B. SIDBI’s re-financing capabilities have been doubled to Rs 100 billion per annum. This will help SMEs which make up
the majority of auto component manufacturers.
29
34. CRISIL BudgetAnalysis
Automobiles
Demand growth to recover, margins to be improve slightly in 2013-14
Lower freight availability and a rise in fuel cost impacted transporters’ profitability in 2012-13. We therefore expect
MHCV truck sales to decline by about 25 per cent in 2012-13. LCV sales growth is also likely to be limited to 15-17
per cent (over a 30 per cent growth in 2011-12), as private consumption growth slows the most in a decade. Overall,
we expect CV sales to marginally decline in 2012-13.
Slower growth in incomes, fuel price hikes and high interest rates continued to impact car sales in 2012-13. We
therefore expect growth in car sales to remain flat during the year despite a tepid growth of 2 per cent recorded in
2011-12. However, utility vehicle (UV) sales are likely to continue growing by 38-40 per cent, led by new model
launches and increased preference for diesel vehicles. Overall, passenger vehicle sales are estimated to grow by 8-
10 per cent in 2012-13.
Growth in two-wheeler sales is expected to moderate to 3-5 per cent in 2012-13, following two years of healthy
growth. Slower growth in farm incomes and higher fuel prices have impacted motorcycle sales during the fiscal.
However, scooter sales are estimated to grow by 15-17 per cent, aided by new model launches and expansion of
capacity by leading manufacturers which addressed pent up demand.
In 2013-14, with GDP growth expected to be higher, concerns over income growth are also likely to ease. Moreover,
an expected decline of 8-10 per cent in in petrol prices will drive a recovery in small car sales, which in turn will aid a
9-11 per cent growth in passenger vehicle sales. Higher rural incomes owing to normal monsoons will also drive up
two-wheeler sales by 9-11 per cent. However, MHCV sales growth is expected to lag GDP growth and remain weak
at 5-7 per cent (despite a low base), until transporters’ utilisation levels improve. LCV sales will however continue to
grow by 14-16 per cent.
Operating margins of automobile manufacturers are estimated to decline sharply in 2012-13 due to lower capacity
utilisation and firm input cost. However, in 2013-14, margins are likely to slightly improve as prices of raw materials
like steel decline and sales volumes recover.
30
35. Automobiles
Automobiles: Tariffs
(per cent) Customs Excise
2012-13 2013-14 2012-13 2013-14
1
New cars
#
-Completely knocked down units (CKD) 10.3 10.3 - -
-Semi-knocked down units (SKD) 61.8 61.8 - -
-Completely built units (CBU) 61.8 61.8^^ - -
2
-Specified small cars - - 12.4 12.4
3
-Other than specified small cars - - 24.7* 24.7*
Utility vehicles 61.8 61.8 24.7 24.7**
^
Two-wheelers 61.8 61.8 12.4 12.4
@ @
Trucks (LCVs and MHCVs) 10.3 10.3 12.4 12.4
@ @
Buses (LCVs and MHCVs) 10.3 10.3 12.4 12.4
Tractors 10.3 10.3 - -
Steel items 7.7 7.7 12.4 12.4
Pig iron 5.2 5.2 12.4 12.4
Engine and engine parts
- Four-wheelers 7.7 7.7 12.4 12.4
- Two-wheelers 7.7 7.7 12.4 12.4
Drive transmission, steering, suspension, braking
parts,silencer, exhaust pipes and radiators
- Four-wheelers 10.3 10.3 12.4 12.4
- Two-wheelers 10.3 10.3 12.4 12.4
4
Electrical parts 7.7 7.7 12.4 12.4
LCV: Light commercial vehicles; MHCV: Medium and heavy commercial vehicles
1
All Hybrid cars and cars based on fuel cell or Hydrogen cell technologies enjoy
concessional excise duty of 4 per cent
2
Specified small cars include cars with length not exceeding 4,000 mm and engine
capacity not exceeding 1,200 cc for petrol cars and 1,500 cc for diesel cars.
3
Others will include cars with length exceeding 4,000 mm and
engine capacity not exceeding 1,200 cc for petrol cars and 1,500 cc for diesel cars.
4
Customs duty for air conditioner machine parts is at 10.3 per cent
@Tax of 13.4 per cent or 25.8 per cent is applicable on transactions where only commercial vehicles
chassis is sold
* Additional duty of 3 per cent will be charged on cars and utility vehicles exceeding
length of 4000 mm and which are of 1500 cc and above
**Duty for utility vehicles with engine capacity exceeding 1500 cc length exceeding 4000 mm and
having ground clearance of 170 mm is 30.9 per cent
# CKD for vehicles with pre assembled engine and transmission parts is 30 per cent
^Customs duty on motorcycles with engine capacity of 800 cc or more
has been increased from 61.8 per cent to 77.3 per cent
^^Customs duty on CBUs priced (CIF) over $40,000, with engine capacity exceeding
3000cc for petrol-run vehicles, 2500 cc for diesel-run vehicles, is 103 per cent
Source: CRISIL Research
31
36. CRISIL BudgetAnalysis
Automobiles
Budget marginally negative for utility vehicles; neutral for other segments
Company Impact Impact factors
Maruti Suzuki Ltd -
Tata Motors Ltd A, B, C, D
Ashok Leyland Ltd B,D
Bajaj Auto Ltd E
Hero Motocorp Ltd E
Mahindra & Mahindra Ltd B, E
Note: Company list is classified as per sector classification
Source: CRISIL Research
Impact factors
A. Demand for high-end imported luxury cars (with CIF value exceeding $40,000 and an engine capacity of over 3000
cc for petrol-run vehicles and 2500 cc for diesel-run vehicles) will be impacted as the basic customs duty has been
raised to 100 per cent from 75 per cent. Similarly, sales of motorcycles (with an engine capacity of 800 cc or more)
will be impacted by an increase in the basic customs duty to 75 per cent from 60 per cent. However, these high-end
vehicles constitute a miniscule portion of the industry’s overall sales.
B. The excise duty on cars, two-wheelers and commercial vehicles remains unchanged at 12 per cent. Demand for
non-taxi sports utility vehicles (defined as a motor vehicle of length exceeding 4,000 mm and having a ground
clearance of 170 mm and above) with an engine capacity above 1500 cc, will be marginally affected by the increase
in excise duty to 30 per cent from 27 per cent. Sales of such vehicles, which account for 10-12 per cent of total
domestic passenger vehicle sales, grew by about 16 per cent during April 2012 to January 2013. A reduction in
excise duty on truck chassis to 13 per cent from 15 per cent will marginally benefit commercial vehicle sales.
C. Surcharge of 10 per cent on annual incomes exceeding Rs 1 crore could marginally impact demand for luxury
vehicles. Currently, these vehicles account for less than 3-4 per cent of industry sales.
D. An increase in allocation under JNNURM will aid purchase of 10,000 buses and will benefit bus manufacturers.
E. Extension of interest rate subvention to farmers, focus on rural development schemes like the Mahatma Gandhi
National Rural Employment Gurantee Act (MGNREGA), Pradhan Mantri Gram Sadak Yojana (PMGSY) and Indira
Awaas Yojana (IAY), coupled with a 22 per cent increase in agri-credit allocation to Rs 7,000 billion is expected to
have a marginally positive impact on sales of tractors and two-wheelers.
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