4. Fiscal Consolidation???
• The Fiscal deficit of the Government for FY12 came in at 5.9% as against the budgeted
target of 4.6%. This was primarily caused by a fall in tax revenue collections and an
increase in subsidy bill combined with the shortfall in the divestment targets
• Given the fiscal slippage in FY12, the path of fiscal consolidation has been adversely
affected. However, no substantial reforms to boost the economic growth have been
announced in the budget. The Budget 2012-13 has failed to make the much required
attempt to foster growth by reviving fiscal consolidation.
• The Government has budgeted a fiscal deficit target of 5.1% in FY13. It will achieve this
target by raising its sources of revenue with an increase in excise duty and service tax
across the board. However, its targeted expenditure still remains high. Thus any slippage
in its revenue collection or increase in subsidies would make it difficult to achieve the
targeted fiscal deficit of 5.1% in FY13
• Some of its move to raise the excise duty and service tax combined with the recent
increment in railway freight charges are broadly inflationary. This in turn would
pressurize the Central Bank not to reduce the interest rates which in turn would make a
toll on the economic growth.
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5. What the budget failed to do?
• No timeline announced for the implementation of tax reforms, the Goods and Services
Tax (GST) and the Direct Tax Code (DTC)
• No hike in the foreign direct investment (FDI) limit in some of the sectors like aviation,
insurance and retail
• Failure to contain the market borrowings at the current level.
| 4
7. Key Budget Incentives
• Benefit to the individual tax payer
• Exemption limit for the general category of individual taxpayers enhanced from
Rs.1,80,000 to Rs.2,00,000 giving tax relief of Rs.2,000
• Deduction of up to Rs. 10000from interest from Savings Bank Account
• The 20% tax slab raised from Rs. 8,00,000 to Rs. 10,00,000 resulting in a tax
savings of Rs. 20,000 to the higher income group.
• Deduction of upto Rs.5,000 for preventive health check up
• Introduction of Rajiv Gandhi Equity Savings Scheme for a 50% income tax
deduction to new retail investors, who invest up to Rs. 50,000 directly in equities
and whose annual income is below Rs. 10 lakh.
• Central Excise and Service Tax being harmonized
• Standard rate of excise duty and service tax raised from 10% to 12%
• Service tax levy on all goods except those on the negative list comprising 17 heads
(by and large all service provided by the Government or local authorities)
| 6
8. Key Budget Incentives
• Capital Market Incentives
• Reduction in Securities Transaction Tax (STT) by 20% from 0.125% to 0.1% on
cash delivery transactions
• Introduction of Rajiv Gandhi Equity Savings Scheme for a 50% income tax
deduction to new retail investors to generate additional flow of funds to the equity
markets
• Steps to attract foreign inflows by allowing qualified financial institutions (QFIs) to
access the Indian bond market
• Move to encourage corporates in raising finances abroad
• Rate of withholding tax on interest payments on ECBs reduced from 20% to 5% for
3 years for certain sectors viz Infrastructure, Real Estate, Power sectors
• Allowed ECB to part finance project costs
• Subsidies
• Endeavour to keep subsides under 2% of GDP in FY13. Further bringing it down to
1.75% in FY15
• ‘Food security’ to be fully covered by the Government.
| 7
10. Automobile sector Negative
Announcement Impact Comments
Basic Excise duty hiked to 12 percent from 10
percent
The rise in the excise duty would result in price hikes
Excise duty on large cars increased from 22 Marginally negative for two wheelers, four
across all the segments in the passenger car
percent to 24 percent wheelers and Auto ancillary companies as
industry, which consecutively would dent the demand
the increase was on expected lines
Duty on cars attracting mixed rate of (22% + by some extent
Rs 15,000) increased to an ad valorem rate of
27%
Excise duty on specified parts of hybrid This would promote the manufacture, sale and usage Positive for the manufacturers of hybrid
vehicles reduced from 10% to 6% of such vehicles in India vehicles like Mahindra & Mahindra
Basic custom duty on imported large cars/ The rise in custom duty on imported completely built Negative for MNC car players as well as
MUVs/SUVs whose value exceeds USD 40,000 units of large cars and SUVs will lead to a domestic players like M&M and Tata Motors
per vehicle increased to 75% from 60% considerable rise in prices of luxury cars and UVs
Rs 10,000 is to be charged on building of This would increase the cost of production thereby Negative for Tata Motors, Ashok Leyland
commercial vehicle chassis in addition to the affecting margins and Auto Ancillary companies
applicable ad valorem duty of 3%
Increase in income tax exemption limit from Demand for two wheeler & lower end four wheeler to Positive for Hero Motor Corp, Bajaj Auto,
Rs. 180,000 to Rs. 200,000 be impacted positively with an increase in disposable TVS Motors, Maruti Suzuki, etc
income
Hike in customs duty on bicycles from 10% to This would increase the competitiveness of domestic Positive for Tube Investments
30% and on bicycle parts from 10% to 20% bicycle manufacturers
200% weighted deduction on in-house R&D This will incentivize investment in R&D and Positive for all auto companies.
extended for a further period of five years encourage new drug development
SOURCE: Capitaline, BMA Research
| 9
11. Automobile sector Negative
Announcement Impact Comments
Interest subvention schemes on short-term Continuation of interest subvention scheme would Positive for auto companies having a rural
crop loans continued at 7% for another one lead to higher farm income with small farmers and presence, such as M&M and Hero Honda
year. Further, additional subvention of 3% thereby push the demand for mid-size and small
will be available for prompt payment tractors
Allocation of Rs. 25,360 crore for NHDP Aggressive investments towards infrastructure Positive for MHCV players like Tata Motors,
proposal development would drive the demand for M&HC ALL, Eicher Motors
Vehicles
Tax on repatriation of dividends from foreign Players having their profit making foreign subdiaries, Positive for companies like Apollo Tyres,
subsidiaries allowed at a lower tax rate of which distribute profits to their holding companies in Tata Motors, Mothersun Sumi
15% as against 30% for one more year India will be benefited from this provision
SOURCE: Capitaline, BMA Research
| 10
12. Banking & Financial Services sector Positive
Announcement Impact Comments
Recapitalization of PSU Banks, RRBs and Capital infusion would help banks in regulatory Positive for PSU banks like SBI, IOB, UBI,
other financial institutions to the tune of Rs compliance and fund business growth BOI etc
15,888 crore
Interest subvention schemes on short-term This is likely improve the payment discipline in the Neutral to positive for PSU banks
crop loans continued at 7% for another one agri segment, which has seen a sharp rise in the
year. Further, additional subvention of 3% NPAs. It will also increase the demand for farm loans
will be available for prompt payment
Saving Bank interest deductible up to This is likely to improve the savings bank deposits for Positive for the overall banking sector
Rs10,000 the banks
Government borrowings marked at Rs 4.79 Since market borrowings will be higher than the Negative for overall banking sector
lakh crore (net) FY2012 borrowings it will add pressure to bond yields
Reduction in withholding tax on interest This will raise demand for low cost funds from some Positive for the infrastructure finance
payment on ECBs from 20% to 5% stressed infrastructure sectors companies like IDFC, REC and PFC.
Rise in overall limit of issuance of tax free Financial Institutions to benefit from cost effective Positive for financial institutions such as
bonds from Rs. 30000 crore last year to Rs. funding avenues NHAI, IRFC, IIFCL, HUDCO, NHB and
60000 crore SIDBI
Introduction of Rajiv Gandhi Equity Savings This will increase the retail participation in equity Positive for the financial services sector
Scheme for a 50% income tax deduction market and improve the depth of the domestic
capital market
Reduction in STT from 0.125 percent to 0.1 This will have a positive impact on the investors and Positive for all brokerage companies
percent on cash delivery transactions increase volumes in the equity market
SOURCE: Capitaline, BMA Research
| 11
13. Capital Goods sector Positive
Announcement Impact Comments
Increased spending on major infrastructure Higher allocation will result in all-round growth for the Positive for the entire sector
projects sector as it will encourage more capital investment
Increased allocation to Defence at Rs. It will revive demand for the sector Positive for BEL, M&M, Tata Motors,
193,407 crore Pipavav Shipyard, BEML, L&T etc
Capital investment in sectors such as Would help in attracting private investment in PPP
fertilizers, telecom towers and oil and gas projects. Steps to ease funding constraints in new
has been made eligible for viability gap project investments would help revive the asset
funding creation cycle through order inflows, thus benefiting
the sector
Power sector to issue tax-free bonds worth These reforms will boost investment in the power and Positive for the entire sector
Rs. 10,000cr for financing projects; ECBs to infrastructure sectors, resulting in a surge in orders
part finance rupee debt of power projects; for the capital goods segment
Customs duty on imported coal to be waived
off
SOURCE: Capitaline, BMA Research
| 12
14. Cement sector Positive
Announcement Impact Comments
Excise duty on cement cleared from mini Largely neutral as the duty hike was already Neutral on cement manufacturers
cement plants in packaged form will be 6% anticipated
plus Rs. 120/tonne; while duty on cement
cleared from other than mini cement plant
will be 12% along plus Rs. 120/tonne. The
duty will be charged on the retail selling price
with an abatement of 30%
Customs duty on coal has been exempted Marginal reduction in the input cost Positive for the cement players like India
Cements, Madras Cement and UltraTech
Cements
Various initiatives like interest subvention of The continued focus of the government on affordable Positive for the industry as a whole
1% and allowing ECB for low cost affordable housing will lead to volume growth for cement
housing projects companies
Allocation towards PMGSY has been Increased allocation towards infrastructure projects is Positive for the industry as a whole
increased by 20% to Rs. 24,000 crore positive for the cement players
Allocation for Road Transport and Highways Increased allocation towards infrastructure projects is Positive for the industry as a whole
for road development increased by 14% to positive for the cement players
Rs. 25,360 crore
SOURCE: Capitaline, BMA Research
| 13
15. FMCG sector Neutral
Announcement Impact Comments
Increase in standard excise duty from 10% to Minimal impact as most FMCG companies have low Negative for HUL and Asian Paints as a
12% single-digit excise payouts as their facilities are higher proportion of their sales come from
located in excise-free zones excisable facilities
Increase in allocation to NRLM by over 34 per This will lead to an increased demand for FMCG Positive for FMCG companies whose 30-
cent to Rs. 3,915 crore and to Employment products from the rural population 50% of total revenues comes from rural
Generation programme by 23 per cent to Rs. India
1,276 crore
Tax on repatriation of dividends from foreign Players having their profit making foreign subdiaries, Positive for FMCG companies, which
subsidiaries allowed at a lower tax rate of which distribute profits to their holding companies in receive dividend from their foreign
15% as against 30% for one more year India will be benefited from this provision subsidiaries
Increase in Tax Slabs Higher disposable income in the hands of consumers Positive for the entire sector
will be positive to FMCG and consumer durable
industry
Customs duty on titanium dioxide reduced to It will improve the operating margins of the paint Positive for Asian Paints, Berger Paints,
7.5% from 10% industry as the raw material is imported Kansai Nerolac, Akzo Nobel etc
Increase of excise duty by 10% on cigarettes This will result in an increase in duty. However, Neutral for the players like ITC, VST
players with strong pricing power can pass on the Industries, Godfrey Phillips
duty hike through further price hikes in its cigarette
portfolio
SOURCE: Capitaline, BMA Research
| 14
16. Construction & Infrastructure sector Positive
Announcement Impact Comments
Allocation to tax free bond for financing This will help in meeting the long-term needs of the Positive for the entire infrastructure sector.
infrastructure projects doubled from Rs. sector and will boost infrastructure development in
30,000 crore to Rs. 60,000 crore railways, ports, housing and highways development
Infrastructure spending to go up to Rs 50 This will result in larger number of new orders getting Positive for the entire infrastructure sector.
lakh crore during 12th period five year plan announced resulting in a robust order book of the L&T to be the major beneficiary
construction companies
VGF scheme extended to irrigation, capital It will push large projects under these sectors and will Positive for Ramky Infra, IVRCL, RCF,
investment in fertiliser sector, oil and gas help in attracting higher private investment into the Chambal fertilizer, GAIL, Bharti Airtel, IDEA,
pipelines, telecommunication towers etc sector GTL Infra etc
Boost infrastructure development in railways, Better highways would aid efficient and timely Positive for IL&FS Transport, IRB Infra,
ports, housing and highways development delivery of cargo for road logistics Players IVRCL Infra, etc
ECB for capital expenditure on the This move will encourage public private partnerships Positive for IL&FS Transport, IRB Infra,L&T,
maintenance and operations of toll systems in road construction projects NCC,etc
for roads and highways
Increase in allocation by 13% of Rs. 14,242 This will help in building the rural infrastructure and Positive for companies like Pratibha
crore to AIBP; Further focus to mobilize will be beneficial for the entire construction sector Industries, Unity Infra, Ramky, IVRCL,
funds, in Irrigation and Water Resources; NCC, SPML Infra, etc
Allocation of Rs. 14000 crore towards rural
drinking water and sanitation; 20% increase
in allocation to PMGSY to Rs24,000 crore
Reduction in the rate of withholding tax on Will lower the interest outgo on ECBs thus effectively Positive for the entire sector
interest payments on ECBs from 20% to 5% reducing the cost of debts
for three years in sectors like power; airlines;
roads & bridges; ports and shipyards;
affordable housing; fertilisers; and dams
SOURCE: Capitaline, BMA Research
| 15
17. Real Estate sector Positive
Announcement Impact Comments
Allowed to raise money through ECBs for low Easier access to funds at a lower rate of interest Positive for Parsvnath, Puravankara, Sobha
cost affordable housing projects Developers and other Small developers
Reduction in withholding tax on interest This should lower the borrowing cost of developers
payments on ECBs from 20% to 5% for three raising money through ECBs for the construction of
years for affordable housing affordable houses
Service tax rate increased from 10% to 12% This would result in an increase in the cost to the end Negative for the entire sector
user as the cost of development will go up
Extension of 1% interest subvention on Such incentives would spur up the demand for Positive for all realty companies catering to
housing loan upto Rs 15 lacs where the cost residential projects and continue to benefit this segment, mainly in tier II and III cities
of the house does not exceed Rs 25 lacs developers having low-cost affordable housing
projects
Increase in the investment-linked deduction This would help stimulate more investments in the
of capital expenditure on low-cost housing to mass housing segment
150% from 100%
Increase in income-tax slab Higher disposable income in the hands of consumers Positive for the entire sector
will lead to increased demand for the entire sector
SOURCE: Capitaline, BMA Research
| 16
18. Oil & Gas sector Negative
Announcement Impact Comments
Increase in cess on Crude petroleum oil Will increase the cost of production, thereby Negative for Oil Exploring companies like
produced in India from Rs. 2500/ metric tonne impacting margins Cairn India, Reliance, ONGC, Oil India etc
to Rs 4500/ metric tonne
Estimated fuel subsidy for FY2013 set at Rs. The subsidy estimate of Rs43,580 crore (for Negative for the PSU upstream companies
43,580 crore as against 50% of the total government) could be less than 50% of the total like ONGC, Oil India and Gail
under-recoveries earlier under-recoveries in FY2013. Hence it may increase
the burden of the PSU upstream companies and also
affect marginally the OMCs
Oil & Gas pipeline infrastructure eligible for The proposal would act like a catalyst thereby Positive for GAIL, GSPL, IGL
“viability gap funding” increasing investments into the pipeline infrastructure
Removal of 5 per cent custom duty on LNG This will benefit importers of LNG including power, Marginally Positive for Petronet LNG, Gail
imports sponge iron and fertilizer Companies etc
SOURCE: Capitaline, BMA Research
| 17
19. Pharmaceuticals sector Positive
Announcement Impact Comments
Increase in Service tax from 10% to 12% This would make the healthcare services more Negative for the entire sector
costlier
200% weighted reduction in in-house R&D This will incentivize investment in R&D and Positive for Dr. Reddy’s, Biocon, SPARC,
extended for a further period of five years encourage new drug development Piramal Life, Sciences, Ranbaxy
MAT announced for partnership units Negative for companies that have partnership unit, as Negative for Sunpharma, Cadila Healthcare
it would result in higher tax outflow
Allocation for NRHM proposed to be This will strengthen the rural health infrastructure Positive for all pharmaceutical companies
increased from by 15% to Rs. 20,822cr
Exemption from income tax of upto Rs. 5,000 Exemption for check-up expense will help healthcare Positive for all pharmaceutical companies
spent on preventive health check-up services
Proposal to continue to allow repatriation of Most of the frontline players have their profit making Positive for all pharmaceutical companies,
dividends from foreign subsidiaries of Indian foreign subsidiaries, which distribute profits to their mainly Indian companies, as they generate
companies at a lower tax rate of 15% up to holding companies in India. These companies will be the highest revenue from export markets
March 2013 benefited from this provision
SOURCE: Capitaline, BMA Research
| 18
20. Utilities sector Positive
Announcement Impact Comments
Waiver of basic custom duty on coal This will benefit the companies with imported coal Positive for NTPC, Adani Power, Tata
based projects Power, JSW Energy, GMR Infra, GVK
Power and NPCIL
Allowing External Commercial Borrowings The private and public power producers can avail Positive for the sector
(ECB) to part finance Rupee debt of existing benefit of comparatively cheaper ECB loans to
power projects and cut in withholding tax on reduce overall financing costs
ECBs
Sunset clause for claiming 100% deduction of The extension of 80IA sunset clause offers Positive for the sector
profits for 10 years extended by another one opportunity for power developers to commission
year power plants in the next year and avail the benefit.
The benefit of 20% additional depreciation to benefit
power producers with competitive based power
projects
CIL advised to sign fuel supply agreements, It brings comfort of fuel availability for independent Positive for companies like CESC, Lanco
with power plants that have entered into power producers Infra, Reliance Power, Adani Power,
long-term PPAs with DISCOMs and would get Indiabulls Power ,NTPC
commissioned on or before March 31, 2015
Exemption of Custom duty on plant and Positive impact on the sector struggling due to high Positive for the entire sector
equipment required to set up solar thermal prices of imported fuel
projects and a concessional CVD of 1% to
steam coal for a period of two years till March
2014; full customs duty exemption for natural
gas and LNG
Tax free bonds of Rs. 10000 crore to be It would help to improve funding for the sector Positive for the whole power sector
allowed for financing Power sector in 2012-13
SOURCE: Capitaline, BMA Research
| 19
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Nidhi Kedia || Research Analyst ||nidhi.kedia@bmastock.com
March 19, 2012