Budget Analysis Rel July09
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06th July 2009
2nd Floor, Parijat House, Manjrekar Lane, 1076, Off Dr. E. Moses Road, Acharya Atre Chowk, Near Worli Naka, Worli, Mumbai - 400018
6th July 2009
PROGRESSIVE
AAM ADMI
BUDGET
The Union Budget for FY2009-10 announced by Finance Minister Pranab Mukherjee has turned out to be more of a common mans budget with the core focus being the continuation of efforts to achieve a 9% GDP growth in future while aiming at all round inclusive growth as well as social spending. More specifically this Budget like the Agriculture sector with the overall outlay being increased to Rs 325,000 crs from Rs 2,87,0000 crs last year
earlier ones, has continued to focus on the basic pillars of all round development which include a strong push being given to the Agriculture sector with the overall outlay being increased to Rs 325,000 crs from Rs 2,87,0000 crs last year, followed by a continued focus on the social sector by encouraging public spending on programs for increased capital outlays on Rural Employment, Drinking Water and Mid day meal Schemes, providing primary education via higher budget allocations and increased thrust on the Bharat Nirman programme during FY2009-10. The allocation for Bharat Nirman has been increased by 45 per cent in 2009-10 over B.E. 2008-09. These include allocations under Pradhan Mantri Gram Sadak Yojana (PMGSY) which are up by 59 per cent over B.E. 2008-09 to Rs.12,000 crore in B.E. 200910. Under the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), allocation has increased by 27 per cent to Rs.7,000 crore. Additionally the allocation under the Indira Awaas Yojana (IAY) increased by 63 per cent to Rs.8,800 crore in B.E. 2009-10. The government has also allocated Rs.2,000 crore made for Rural Housing Fund (RHF) in National Housing Bank (NHB) to boost the resource base of NHB for refinance operations in rural housing sector Some of the other large flagship programmes which have been given a continued thrust include the National Rural Employment Guarantee Scheme, Jawaharlal Nehru National Urban Renewal Mission, Accelerated Irrigation Benefit Proggramme apart from ensuring Debt relief to farmers by giving an extention of time by a further period of 6 months. The effective implememtaion of the GST from April 2010 pan india is also a postive step in the right direction clearly spelt out in this budget. With the governments tax revenues falling short of the budgeted targets for FY09 due to
The fiscal deficit as a percentage of GDP is projected at 6.8% compared to 2.5% in BE 2008-09 and 6.2% as per provisional accounts 2008-09.
the continued effects of a global meltdown, Gross tax receipts are budgeted at Rs.6,41,079 crore in BE 2009-10, compared to Rs.6,87,715 crore in BE 2008-09 with non tax revenue receipts likely to be better and are estimated at Rs.1,40,279 crore in BE 2009-10 compared to Rs.95,785 crore in BE 2008-09. The government has estimated that the revenue deficit as a percentage of GDP would be projected at 4.8% compared to 1% in BE 2008-09 and 4.6% as per provisional accounts of 2008-09. The fiscal deficit as a percentage of GDP is projected at 6.8% compared to 2.5% in BE 2008-09 and 6.2% as per provisional accounts 2008-09. For the fiscal 2009-10, with Centre's net tax revenue estimated at Rs 4742bn and Revenue expenditure at Rs10208.4bn, revenue deficit is estimated at 4.8per cent of GDP and fiscal deficit at 6.8% per cent of GDP. To counter the negative impact on exports due to the global financial crisis interest subvention of 2% on pre and post shipment credit for certain employment oriented sectors i.e. Textiles (including handlooms & handicrafts), Carpets, Leather, Gem & Jewellery, Marine products and SMEs has been extended further.
Union Budget Analysis 2009-10
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The government has outlined targets of 6.5% growth for the GDP during FY10 and is targeting agriculture growth at 4% annually in the next few years with investment in infrastructure to account for more than 9% of GDP by 2014. We believe that the GDP growth of between 6-6.5% looks very much possible notwithstanding the positive pick up in export related sectors from the second half of this financial year but any further slippage on the fiscal deficit front from the targeted level of 6.8% this year, could be seen as a negative trigger for the markets ahead.
MARKET EXPECTATIONS UNFULFILLED
NIFTY scaled a HIGH of 4693.20 on 12th JUNE 2009. Since then till the presentation of the Uniion Budget
markets
exhibited
a
CAUTIOUS approach, without any significant directional move.
HOWEVER
REMAINED
The market which was keen awaiting wide ranging announcements ranging from a expected cut in the STT, a cut in Capital gains taxes, and also some big bang announcements on PSU divestments was disappointed that nothing of these actually materialized in the budget. In fact on the negative side MAT rate has been increased to 15% from 10% with some minor benefits like FBT being taken off and individual tax payers also given the benefits of surcharge of 10% being taken away in this budget. Nevertheless corporate tax rates have remained unchanged which is a sliver lining considering the tight financial resource crunch with the government.
TECHNICAL VIEW POST 'BUDGET 2009-10 NIFTY scaled a HIGH of 4693.20 on 12th JUNE 2009. Since then till the presentation of the Uniion Budget markets exhibited a CAUTIOUS approach, without any significant directional move. Markets went into today's Budget with High hopes on Disinvestment programme, aggressive Reforms and Market friendly announcements. But 'build-up' of positions was clearly absent in pre-budget action. The expectations of markets were not met in today's 'socially oriented' budget. Absence of big ticket announcements sent a wave of 'disappointment' among players. The result was a sharp knee-jerk reaction from marketmen. FIIs were seen off-loading aggressively, showing concerns on rising 'fiscal deficit'. Technically speaking 'Support' around 4150 levels of NIFTY is crucial and the 'Risk' in markets will go up substantially if NIFTY slips below the mentioned levels (on closing basis) during the week. Next significant support for NIFTY exists far lower around levels of 3800. We however believe that despite the market disappointment over the budget, the probability of emergence of 'value Buying' at lower levels from domestic Institutions is very High.
CONCLUSION Net Net we believe the Union Budget for 2009-10 has been on expected lines notwithstanding the fact that several big bang announcements related to FDI, Pension Reforms, Education Reforms, Insurance and PSU divestment were eagerly awaited but failed to prominently come up in this budget. As mentioned earlier the primary focus of the government has been to accelerate growth in Infrastructure, ensure all inclusive growth by increasing social spending on several employment generation schemes and ensuring that export oriented sectors are given a helping hand by way of some fiscal concessions until the global economy picks up. While the markets seem to have given a thumbs down to this budget we believe that the Union Budget is not the only the conclusive document which is a means to the end and many more pro market policy announcements from the government on specific business areas is expected to materialize over the next 12-18 months. We hence believe that long term investors should utilize this market opportunity optimally by selectively investing in blue chips for a medium to long term horizon. Union Budget Analysis 2009-10
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CENTRAL GOVERNMENT FINANCES Tax Revenue Union Excise Duties Customs Corporation Tax Income Tax Service Tax Taxes of Union Territories Other taxes & duties Gross Tax Revenue Less: NCCD for financing National Calamity Contigency Fund Less: States' share Centre's Net Tax Revenue [A] Non-Tax Revenue Interest Receipts Dividends & Profits Other Non-Tax Revenue Non-Tax Revenue of Union Territories Total - Non Tax Revenue [B] Total Revenue Receipts [C=A+B] CAPITAL RECEIPTS Recoveries of Loans Misc Capital Receipts Debt receipts to finance fiscal deficits Total Capital Receipts [D] Total Receipts [C+D] NON-PLAN EXPENDITURE Revenue Expenditure Interest Payments Defense Subsidies Grants to State and U.T. Governments Admin & Social Responsibility Total Revenue Non-Plan Expenditure [E] Capital Expenditure Defense Other Non-Plan Capital Outlay Loans to Public Enterprises Others Total Capital Non-Plan Expenditure [F] Total Non Plan Expenditure [G=E+F] PLAN EXPENDITURE Revenue Plan Expenditure Central Plan Central Assistance for State & UT Plans Total Revenue Plan Expenditure [H] Capital Plan Expenditure Central Plan Central Assistance for State & UT Plans Total Capital Plan Expenditure [I] Total Plan Expenditure [J=H+I] Total Expenditure [G+J] Revenue Deficit % of GDP Fiscal Deficit % of GDP Primary Deficit % of GDP
(Rs bn)
FY09BE
FY09RE
YOY (%)
FY10BE
YOY (%)
1,378.7 1,189.3 2,263.6 1,383.1 644.6 14.5 3.3 6,877.1
1,083.6 1,080.0 2,220.0 1,226.0 650.0 15.9 4.0 6,279.5
(21.4) (9.2) (1.9) (11.4) 0.8 9.6 23.1 (8.7)
1,064.8 980.0 2,567.3 1,128.5 650.0 16.0 4.3 6,410.8
(22.8) (17.6) 13.4 (18.4) 0.8 10.4 30.8 (6.8)
18.0 1,787.7 5,071.5
18.0 1,601.8 4,659.7
(10.4) (8.1)
25.0 1,643.6 4,742.2
38.9 (8.1) (6.5)
191.4 432.0 326.3 8.1 957.8 6,029.3
190.4 397.4 366.8 7.5 962.0 5,621.7
(0.5) (8.0) 12.4 (8.0) 0.4 (6.8)
191.7 497.5 706.0 7.5 1,402.8 6,145.0
0.2 15.2 116.4 (7.4) 46.5 1.9
45.0 101.7 1,332.9 1,479.5 7,508.8
97.0 25.7 3,265.2 3,387.8 9,009.5
115.7 (74.8) 145.0 129.0 20.0
42.3 11.2 4,010.0 4,063.4 10,208.4
(6.0) (89.0) 200.9 174.7 36.0
1,908.1 575.9 714.3 432.9 814.6 4,445.9
1,926.9 736.0 1,292.4 384.2 1,232.9 5,572.5
1.0 27.8 80.9 (11.3) 51.3 25.3
2,255.1 868.8 1,112.8 485.7 1,350.4 6,072.7
18.2 50.8 55.8 12.2 65.8 36.6
480.1 105.7 6.8 36.5 629.1 5,075.0
410.0 136.9 7.7 52.8 607.5 6,180.0
(14.6) 29.6 13.1 44.6 (3.4) 21.8
548.2 210.6 6.4 119.0 884.2 6,956.9
14.2 99.3 (7.0) 225.9 40.5 37.1
1,514.2 583.5 2,097.7
1,716.3 700.2 2,416.6
13.4 20.0 15.2
2,002.9 781.1 2,784.0
32.3 33.9 32.7
285.4 50.8 336.2 2,433.9 7,508.8
325.0 88.1 413.0 2,829.6 9,009.5
13.9 73.3 22.9 16.3 20.0
395.5 72.0 467.5 3,251.5 10,208.4
38.6 41.7 39.1 33.6 36.0
551.8 1.0 1,332.9 (2.5) (575.2) (1.1)
2,412.7 (4.4) 3,265.2 (6.0) 1,338.2 (2.5)
337.2 (540.0) 145.0 140.0 (332.7)
2,827.4 (4.8) 4,010.0 (6.8) 1,754.9 (3.0)
412.3 (580.0) 200.9 172.0 (405.1)
Source: Ministry of Finance, Annual Budget FY2009-10
Union Budget Analysis 2009-10
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ECONOMIC DATA CHARTS Where the Rupee comes from
Where the Rupee goes
Fiscal deficit (Rs bn)
Revenue deficit (Rs bn)
GDP Growth by constituents (%)
Gross savings & capital formation (%) (%) Grossdomestic domestic savings & capital formation
Source: Government of India, Annual Budget FY2009-10
Union Budget Analysis 2009-10
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TAX PR OPOSALS PROPOSALS
Centre’s Tax-GDP ratio has increased to 11.5 per cent in 2008-09 from a low of 9.2 per cent in 2003-04. Share of direct taxes in the Centre’s tax revenues has increased to 56 percent in 2008-09 from 41 percent in 2003-04, reflecting sharp improvement in equity of our tax system. Setting up of a Centralized Processing Centre (CPC) at Bengaluru where all electronically filed returns, and paper returns filed in entire Karnataka, will be processed.
Dir ect Tax es Direct axes
No changes made in the Corporate Tax rates. Exemption limit in personal income tax raised by Rs.15,000 from Rs.2.25 lakh to Rs.2.40 lakh for senior citizens; by Rs.10,000 from Rs.1.80 lakh to Rs.1.90 lakh for women tax payers; and by Rs.10,000 from Rs.1.50 lakh to Rs.1.60 lakh for all other categories of individual taxpayers. Deduction under section 80-DD in respect of maintenance, including medical treatment, of a dependent who is a person with severe disability being raised from the present limit of Rs.75,000 to Rs.1 lakh. Eliminate the surcharge of 10 percent on personal income-tax. Sun-set clauses for exporters under sections 10A and 10B of the Income-tax Act extended for the financial year 2010-11. Fringe Benefit Tax to be abolished. Provisions relating to weighted deduction of 150% on expenditure incurred on in-house R&D to all manufacturing businesses being extended Investment linked tax incentives to be provided. Under this method, all capital expenditure, other than expenditure on land, goodwill and financial instruments will be fully allowable as deduction. Minimum alternate tax increased to 15% from 10% of book profit. The period allowed to carry forward the tax credit under MAT to be extended from 7 years to 10 years. New Pension System (NPS) to continue to be subjected to the Exempt-Exempt- Taxed (EET) method of tax treatment of savings. All purchase and sale of equity shares and derivatives by the NPS Trust will also be exempt from the Securities Transaction Tax. Self employed persons to be enabled to participate in the NPS and to avail of the tax benefits available thereto. Alternative dispute resolution mechanism will be created within the Income Tax Department for the resolution of transfer pricing disputes. Commodity Transaction Tax (CTT) to be abolished. Donations to electoral trusts to be allowed as a 100 percent deduction in the computation of the income of the donor. Deduction under section 80E of the Income-tax Act allowed in respect of interest on loans taken for pursuing higher education in specified fields of study to be extended to cover all fields of study, including vocational studies, pursued after completion of schooling. Anonymous donations received by charitable organisations to the extent of 5 percent of their total income or a sum of Rs.1 lakh, whichever is higher, not to be taxed. Scope of presumptive taxation to be extended to all small businesses with a turnover upto Rs. 40 lakh. All such taxpayers to have option to declare their income from business at the rate of 8 percent of their turnover and simultaneously enjoy exemption from the compliance burden of maintaining books of accounts. As a procedural simplification, they are also to be exempted from advance tax and allowed to pay their entire tax liability from business at the time of filing their return. This new scheme will come into effect from the financial year 2010-11. Tax holiday under section 80-IB(9) of the Income Tax Act to be extended to natural gas. This tax benefit to be available to undertakings in respect of profits derived from the commercial production of mineral oil and natural gas from oil and gas blocks which are awarded under the NELP-VIII round of bidding.
Indir ect Tax es Indirect axes
Proposals on indirect taxes to seek to achieve stable framework by maintaining the overall rate structure for customs and central excise duties as well as service tax.
CUST OMS DUTIES CUSTOMS
Customs duty of 5% to be imposed on Set Top Box for television broadcasting. Customs duty on LCD Panels for manufacture of LCD televisions to be reduced from 10% to 5%. Full exemption from 4% special CVD on parts for manufacture of mobile phones and accessories to be reintroduced for one year.
Union Budget Analysis 2009-10
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List of specified raw materials/inputs imported by manufacturer-exporters of sports goods which are exempt from customs duty, subject to specified conditions, to be expanded by including five additional items. List of specified raw materials and equipment imported by manufacturer-exporters of leather goods, textile products and footwear industry which are fully exempt from customs duty, subject to specified conditions, to be expanded. Customs duty on unworked corals to be reduced from 5% to Nil. Customs duty on 10 specified life saving drugs/vaccine and their bulk drugs to be reduced from 10% to 5% with Nil CVD (by way of excise duty exemption). Customs duty on specified heart devices to be reduced from 7.5% to 5% with Nil CVD (by way of excise duty exemption). Customs duty on permanent magnets for PM synchronous generator above 500 KW to be reduced from 7.5% to 5%. Customs duty on bio-diesel to be reduced from 7.5% to 2.5%. Concessional customs duty of 5% on specified machinery for tea, coffee and rubber plantations to be reintroduced for one year, upto 06.07.2010. Customs duty on 'mechanical harvester' for coffee plantation to be reduced from 7.5% to 5%. CVD on such harvesters has also been reduced from 8% to nil, by way of excise duty exemption. Customs duty on serially numbered gold bars (other than tola bars) and gold coins to be increased from Rs.100 per 10 gram to Rs.200 per 10 gram. Customs duty on other forms of gold to be increased from Rs.250 per 10 gram to Rs.500 per 10 gram. Customs duty on silver to be increased from Rs.500 per Kg. to Rs.1000 per Kg. Customs duty on cotton waste to be reduced from 15% to 10%. Customs duty on wool waste to be reduced from 15% to 10%. Customs duty on rock phosphate to be reduced from 5% to 2%. CVD exemption on Aerial Passenger Ropeway Projects to be withdrawn and will now attract applicable CVD. Customs duty exemption on concrete batching plants of capacity 50 cum per hour or more to be withdrawn. Such plants will now attract customs duty of 7.5%. Customs duty on inflatable rafts, snow-skis, water skis, surf-boats, sail-boards and other water sports equipment to be fully exempted.
Excise duty Excise duty rate on items currently attracting 4% to be raised to 8% with following major exceptions: Specified food items including biscuits, sharbats, cakes and pastries Drugs and pharmaceutical products falling under Chapter 30 Medical equipment Certain varieties of paper, paperboard and articles thereof Paraxylene Power driven pumps for handling water Footwear of RSP exceeding Rs.250 but not exceeding Rs.750 per pair Pressure cookers Vacuum and gas filled bulbs of RSP not exceeding Rs.20 per bulb Compact Fluorescent Lamps Cars for physically handicapped Specific component of excise duty applicable to large cars/utility vehicles of engine capacity 2000 cc and above to be reduced from Rs. 20,000/- per vehicle to Rs.15,000 per vehicle. Excise duty on petrol driven trucks/lorries to be reduced from 20% to 8%. Excise duty on chassis of such trucks/lorries to be reduced from '20% + Rs.10000' to '8% + Rs.10000'. Excise duty on Special Boiling Point spirits to be reduced to 14%. Excise duty on naphtha to be reduced to 14%. Duty paid High Speed Diesel blended with upto 20% bio-diesel to be fully exempted from excise duties. Excise duty of 6% on petrol intended for sale with a brand name to be converted into a specific rate would now attract total excise duty of Rs.14.50 per litre instead of '6% + Rs.13 per litre'. The ad valorem component of excise duty of 6% on diesel intended for sale with a brand name to be converted into a specific rate would now attract total excise duty of Rs.4.75 per litre instead of '6% + Rs.3.25 per litre'. Excise duty on manmade fibre and yarn to be increased from 4% to 8%. Excise duty on PTA and DMT to be increased from 4% to 8%. Excise duty on polyester chips to be increased from 4% to 8%. Excise duty on acrylonitrile to be increased from 4% to 8%. Union Budget Analysis 2009-10
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The scheme of optional excise duty of 4% for pure cotton to be restored. Excise duty for man-made and natural fibres other than pure cotton, to be increased from 4% to 8% under the existing optional scheme. Excise duty exemption to be provided to tops of manmade fibre manufactured from duty paid tow at par with tops manufactured from duty paid staple fibre. Suitable adjustments to be made in the rates of duty applicable to DTA clearances of textile goods. Full exemption from excise duty to be provided on goods of Chapter 68 of Central Excise Tariff manufactured at the site of construction. Excise duty exemption on 'recorded smart cards' and 'recorded proximity cards and tags' to be made optional. EVA compound manufactured on job work for further use in manufacture of footwear to be exempted from excise duty. Benefit of SSI exemption scheme to be extended to printed laminated rolls bearing the brand name of others by excluding this item from the purview of the brand name restriction. On packaged or canned software, excise duty exemption to be provided on the portion of the value which represents the consideration for transfer of the right to use such software. Excise duty on branded articles of jewellery to be reduced from 2% to Nil.
Ser vice tax Service
Service Tax to be imposed on the following services: Service provided in relation to transport of goods by rail Service provided in relation to transport of coastal cargo; and goods through inland water including National Water ways Advice, consultancy or technical assistance provided in the field of law, Cosmetic and plastic surgery service Exemption from service tax being provided to inter-State or intra-State transportation of passengers in a vehicle bearing 'Contract Carriage Permit' with specified conditions. Exemption from service tax being provided to inter-bank purchase and sale of foreign currency between scheduled banks. Two taxable services, namely, 'Transport of goods through road' and 'Commission paid to foreign agents' to be exempted from the levy of service tax, if the exporter is liable to pay service tax on reverse charge basis. However, present cap of 10% on commission agency charges is retained. For other services received by exporters, service tax exemption to be operated through the existing refund mechanism based on self-certification of the documents Export Promotion Councils and the Federation of Indian Export Organizations (FIEO) to be exempt from service tax on the membership and other fees collected by them till 31st March 2010.
Tax proposals on direct taxes to be revenue neutral. On indirect taxes, estimated net gain to be Rs.2,000 crore for a full year.
Union Budget Analysis 2009-10
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SECTOR IMPACT ANALYSIS
Union Budget Analysis 2009-10
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BUDGET IMPACT : POSITIVE
AUTOMOBILES BUDGET HIGHLIGHTS
Excise Duty continues to remain the same.
Increase in agriculture credit target by 13% to Rs.3,25,000 cr from Rs.2,87,000cr in 2008-09
Increase in the provision for the National Highway Development Programme (NHDP) increased by 23 per cent over B.E. 2008-09 in B.E. 2009-10 and allocation for Railways increased from Rs.10,800 crore in Interim B.E. 2009-10 to Rs.15,800 crore in B.E. 2009-10.
IIFCL to refinance 60 per cent of commercial bank loans for PPP projects in critical sectors over the next fifteen to eighteen months involving a total investment of Rs.1,00,000 crore
Allocation under Jawaharlal Nehru National Urban Renewal Mission (JNNURM) stepped up by 87 per cent to Rs.12,887 crore in B.E. 2009-10 over B.E. 2008-09.
Specific components of excise duty applicable to large cars/Utility Vehicles of engine capacity of 2000 cc and above has been reduced from Rs 20000 per vehicle to Rs 15000 per vehicle.
Allocation under Jawaharlal Nehru National Urban Renewal Mission (JNNURM) stepped up by 87 per cent to Rs.12,887 crore in B.E. 2009-10 over B.E. 2008-09...
IMPACT ON THE SECTOR
We expect stocks like Mahindra &
This is a welcome move and will ensure the continuation of healthy volume growth seen in the Automobile market during the last couple of months. Earlier there were expectations that due to revenue constraints, there was a possibility of excise duty being rolled back, which could have impacted the sales momentum recorded till date. We expect both the cars and CV segments to pickup and show gradual improvement in volumes on higher volume offtake seen from large infrastructure investments planned in a big way by the government.
We believe that Increase in farm credit target by 13% to Rs.325000cr would continue to drive demand for tractors and is a positive for companies like M&M. Also increase in provision for the NHDP will increase the highway network in India andis positive for demand growth for commercial vehicles in the long term.
We expect stocks like Mahindra & Mahindra, Maruti Suzuki, Ashok Leyland and Tata Motors to benefit moderately from these measures over the medium term announced in the Union Budget.
Mahindra, Maruti Suzuki, Ashok Leyland and Tata Motors to benefit moderately from these measures over the medium term announced in the Union Budget. ..
Union Budget Analysis 2009-10
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BUDGET IMPACT : NEUTRAL
EDUCATION BUDGET HIGHLIGHTS
No increase in Sarva Shiksha Abhiyan (SSA): In the interim budget in February 2009 government has proposed an allocation of Rs 13000 crore for SSA for 2009-10, there has been no fresh increase in the allocation to SSA.
Allocation in ICT increased to Rs.900 crore
The overall Plan budget for higher education is to be increased by Rs 2,000 crore over Interim B.E. 2009-10.
MAT increased to 15% from 10%: Minimum Alternative Tax (MAT) on book profits is proposed to increase from 10% to 15%, whereas tax credit is allowed to carried forward and set off upto 10th assessments year from earlier 7th assessments year.
Abolitions of FBT: Fringe Benefits Tax (FBT) is proposed to abolish with effect from April 2010.
IMPACT ON THE SECTOR
There not been any big increase in allocation to Education sector for 2009-10 over interim budget presented in February 2009, nevertheless sector continues to be government thrust area for spending and would benefits players' operating in the sectors as a whole.
Increase in MAT to 15% from 10% is likely to increase tax outgo for companies like NIIT, however increase in the number of years for carried forward of tax credit from 7 years to 10 years would offset some impact. No major impact for other players like Educomp and Everonn.
Abolition of FBT is a relief sector, would reduce the operational and compliance issues associated with FBT. Companies having higher ESOPs issues are likely to
No big bang announced for the sector. Already got substantial allocation in interim budget 2009...
benefits more.
Union Budget 2009-10, does not bring any big bang announcements for the education sector as market participants are expecting. Nevertheless, education sector has already got a substantial allocation in the interim budget earlier during the year, coupled with more reforms are outlined in the HRD ministry 100 days
Positive
on
Everonn
Educomp Solutions...
Systems,
plans , which gives more thrust on public private partnerships. We believe as most of the stocks in the education space has already run up sharply in the last three months, which leaves little room for appreciation in the medium term. Nevertheless, we continue to remain positive on the sector for a longer term perspective and recommend investors to enter at lower levels for two years perspective. We remain positive on Everonn Systems, Educomp Solutions.
Union Budget Analysis 2009-10
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BUDGET IMPACT : NEUTRAL
FMCG BUDGET HIGHLIGHTS
The Central Plan expenditure has increased for Rural Development. The NREGA allocation has gone up by Rs.39,100 crore almost 144% up.
Minimum alternate tax increased to 15% from 10% of book profit and carry forward tax credit on minimum alternate tax (MAT) to 10 years vs 7 years.
The Fringe benefit tax (FBT) has been abolished.
IMPACT ON THE SECTOR
Rural sector contributes to a significant portion of FMCG companies spends.
Almost all companies within the FMCG
Governments continued focus on rural sector will improve the rural income which in
space are expected to benefit from the
turn will provide a great boost to the demand in rural areas and thereby increase
focus on rural sector especially
sales. Almost all companies within the FMCG space are expected to benefit from
companies like Dabur and HUL which
this move especially companies like Dabur and HUL which derive more than 45%
derive more than 45% of their revenues
of their revenues from rural areas.
from rural areas.....
On the flipside, FMCG companies falling under MAT will see their bottom-line being hit as the MAT rate has increased by 50% to 15%. To be specific Dabur India and Godrej Consumer Products are currently under MAT that may see an adverse earning impact. However, we believe, FMCG (likely to be benefited from indirect demand coming from rural growth and FBT abolishment ) would remain neutral to the Budget developments.
Union Budget Analysis 2009-10
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BUDGET IMPACT : POSITIVE
INFRASTRUCTURE BUDGET HIGHLIGHTS
Allocation to National Highways Authority of India (NHAI) for the National Highway Development Programme (NHDP) increased by 23 % over 200809 in 2009-10...
IIFCL to refinance 60 % of commercial bank loans for PPP projects in critical sectors over the next 15 to 18 months.
Allocation to National Highways Authority of India (NHAI) for the National Highway Development Programme (NHDP) increased by 23 % over 2008-09 in 2009-10 (BE) and allocation for Railways increased from Rs.10,800crore (Interim 2009-10) to Rs.15,800cr in 2009-10 (BE).
Allocation under Jawaharlal Nehru National Urban Renewal Mission (JNNURM) stepped up by 87 % to Rs.12887cr in 2009-10 (BE) over 2008-09 (BE). Allocation for housing and provision of basic amenities to urban poor enhanced to Rs.3973cr in 2009-10 (BE). This includes provision for Rajiv Awas Yojana (RAY), a new scheme announced.
Provision for the project BRIMSTOWA initiated in 2007 and funded through Central Assistance to address the problem of flooding in Mumbai, enhanced from Rs.200crore (Interim 2009-10) to Rs.500crore in (2009-10 BE).
Allocation for Bharat Nirman increased by 45 per cent in 2009-10 over B.E. 2008-09.
Allocation under Indira Awaas Yojana (IAY) increased by 63 per cent to Rs.8,800 crore in B.E. 2009-10.
Allocation of Rs.2,000 crore made for Rural Housing Fund (RHF) in National Housing Bank (NHB) to boost the resource base of NHB for refinance operations in rural housing sector.
IMPACT ON THE SECTOR
Higher allocation to Infrastructure sector will benefit Infrastructure players in the long run and the government measures will help these infrastructure companies to finance their projects with ease. Cost of funds to be reduced due to availability of funds made through IIFCL.
Increased order book expected from NHAI and Railways which would benefit companies like Reliance Infra, Gammon India, Nagarjuna Constructions, IVRCL,etc.
Union Budget Analysis 2009-10
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BUDGET IMPACT :POSITIVE
INFORMATION TECHNOLOGY BUDGET HIGHLIGHTS
One year Extension in Sunset clause till FY11: Government has proposed one more year extension in the tax benefits U/S 10A and 10B for STPI till FY 2010-11 (earlier it was till FY10).
Removal of FBT a big positive for the sector...
MAT increased to 15% from 10%: Minimum Alternative Tax (MAT) on book profits is proposed to increase from 10% to 15%, whereas tax credit is allowed to carried forward and set off upto 10th assessments year from earlier 7th assessments year.
Amendment in SEZ policy U/S 10AA: SEZ turnover is proposed to compute with reference to turnover of particular undertaking, as opposed to earlier provision of computation of profits as a total turnover of the assessee.
Abolitions of FBT: Fringe Benefits Tax (FBT) is proposed to abolish with effect from April 2010.
IMPACT ON THE SECTOR
One year extension U/S 10(A)/(B) is a welcome relief for the IT industry, however its comes short of industry expectations of 2 year extension. Nevertheless, it would likely to benefits more to companies in mid-tier than the larger companies like Infosys, HCL Technologies.
Increase in MAT to 15% from 10% is likely to increase tax outgo for smaller and Midtier IT companies , however increase in the number of years for carried forward of tax credit from 7 years to 10 years would offset some impact. Marginal impact for larger IT companies.
Would benefit large IT companies, having substantial exposure in SEZs.
Abolition of FBT is a huge relief for the IT sector, would reduce the operational and compliance issues associated with FBT. Companies having higher ESOPs issues are likely to benefits more.
We expect with extension of STPI benefits would impact the earning for FY11 by 1%-5%, remain positive on Infosys , TCS and Glodyne ...
Union Budget Analysis 2009-10
We believe most of the good news is already discounted in the stock prices. We continue to remain cautious on the sector and expect a correction in the medium term. We expect with extension of STPI benefits would impact the earning for FY11 by 1%-5%. We continue to remain positive on Infosys , TCS and Glodyne .
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BUDGET IMPACT : NEUTRAL
MEDIA AND ENTERTAINMENT BUDGET HIGHLIGHTS
Stimulus package extended: Stimulus package for print media companies comprising waiver of 15% agency commission on DAVP advertisements and 10% increase in DAVP rates to be paid as a special relief on loss of revenue in non governmental advertisements has extended from 30th June 2009 to 31st December 2009.
Abolitions of FBT: Fringe Benefits Tax (FBT) is proposed to abolish with effect from April 2010.
A non event for the Media Sector....
Customs duty of 5% to be imposed on Set Top Box
IMPACT ON THE SECTOR
Extension on stimulus package for six months would have marginal positive impact for Print media companies like HT media and Jagran Prakashan.
Abolition of FBT would reduce the operational and compliance issues associated with FBT. Companies having higher ESOPs issues are likely to benefits more.
Introduction of 5% custom duty on Set Top boxes would have marginal negative impact on the WWIL and Dish TV, as the price of Set Top box will increase, however it is likely to pass over to the end customers.
There is no mention of FDI policy for Media sectors in the union budget, which is a big disappointment for sector. On the other hand, there is no stimulus package for Media sector apart from Print media. Nevertheless, we believe print media and broadcasting will likely see revival in next 12 months. We continue to remain positive on ZEEL and ZEE News.
Union Budget Analysis 2009-10
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BUDGET IMPACT : NEUTRAL
METALS BUDGET HIGHLIGHTS
Increased allocation for Highways & Railways: A 23% increase in allocations for National Highway development programme and about 50% increase for Railways is a positive for Steel Industry as a whole.
Enhanced allocations for Urban Infrastructure: 87% increase in the allocations under JNNURM will be partially beneficial to Steel industry as a whole.
Enhanced funds for Rural housing will help the companies having deeper
Escalation of allocation for Bharat Nirman: 45% escalation in the allocations for Bharat Nirman omens good for Steel Industry.
penetration in rural market, viz. JSW Steel which has exposure to flat products used in rural markets...
Special Allocation of Rs.2000 Cr for Rural Housing Fund: Efforts to boost the resource base of National Housing Bank for refinancing operations in rural housing sector by allocating Rs 2000 Cr is good for Steel sector esp. the ones in that have good penetration in rural sector.
IMPACT ON THE SECTOR
Finance Minister has maintained a status-quo on the duty structure for Steel and Iron ore. Hence, no effect would be seen on the companies' bottom line in the Steel & mining sector for the current financial year.
Enhanced funds for Rural housing will help the companies having deeper penetration in rural market, viz. JSW Steel which has exposure to flat products used in rural markets.
Union Budget Analysis 2009-10
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BUDGET IMPACT :NEGATIVE
PHARMACEUTICALS BUDGET HIGHLIGHTS
Increased allocation towards National Rural Health Mission by Rs.2,057 crore over and above Rs.12,070 crore provided in the Interim Budget.
Custom duty on influenza vaccine and nine specified life saving drugs used for the treatment of breast cancer, hepatitis-B, rheumatic arthritis etc. and on bulk drugs used for the manufacture of such drugs has been reduced from 10% to 5% and they
Also, Customs duty on two specified life saving devices used in treatment of heart conditions like - artificial heart reduced from 7.5% to 5% and these devices will be fully exempt from excise duty and CVD.
FBT has been abolished but the Minimum Alternate Tax (MAT) rate is raised from 10% of book profit to 15%
The Fringe benefit tax (FBT) has been abolished but the Minimum Alternate Tax (MAT) rate is raised from 10% of book profit to 15% of book profit.
of book profit...
With the amendment in IT section - 10AA(7), the entire profit of business units operating from SEZs would be exempted from taxes, whereas earlier the business units' profits were exempted proportionately to their export turnover.
IMPACT ON THE SECTOR
Though the increased allocation of funds towards Healthcare sector and abolishment of FBT is positive for Indian Pharma, the 50% increase in FBT from 10% of book profit to 15% comes as a big blow for most of Indian Pharma companies operating under MAT in the near term. It would be negative for companies including - Sun Pharma, Dishman, Cadila and Biocon.
However, the amendment in IT section - 10AA(7) that provides 100% profit exemption effective from FY2011 for business units operating from SEZs could prove to be a positive development for Indian Pharma in longer term. Divis Laboratories and Biocon are visible beneficiaries of the said development, as they currently operates from their SEZs. Also, few more domestic pharma peers like - Dishman, Cipla, Jubilant Organosys, Cadila Healthcare etc are setting their SEZs
Overall we believe the rising MAT would play a lead role and have adverse impact on Indian Pharma in near term...
Union Budget Analysis 2009-10
The reduction in custom duty on discussed life saving drugs and devices may impact MNCs (like Aventis, GlaxoSmithkline etc) positively. Overall we believe the rising MAT would play a lead role and have a adverse impact on Indian Pharma in near term.
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Union Budget Analysis 2009-10
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6th July 2009
PROGRESSIVE
AAM ADMI
BUDGET
The Union Budget for FY2009-10 announced by Finance Minister Pranab Mukherjee has turned out to be more of a common mans budget with the core focus being the continuation of efforts to achieve a 9% GDP growth in future while aiming at all round inclusive growth as well as social spending. More specifically this Budget like the Agriculture sector with the overall outlay being increased to Rs 325,000 crs from Rs 2,87,0000 crs last year
earlier ones, has continued to focus on the basic pillars of all round development which include a strong push being given to the Agriculture sector with the overall outlay being increased to Rs 325,000 crs from Rs 2,87,0000 crs last year, followed by a continued focus on the social sector by encouraging public spending on programs for increased capital outlays on Rural Employment, Drinking Water and Mid day meal Schemes, providing primary education via higher budget allocations and increased thrust on the Bharat Nirman programme during FY2009-10. The allocation for Bharat Nirman has been increased by 45 per cent in 2009-10 over B.E. 2008-09. These include allocations under Pradhan Mantri Gram Sadak Yojana (PMGSY) which are up by 59 per cent over B.E. 2008-09 to Rs.12,000 crore in B.E. 200910. Under the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), allocation has increased by 27 per cent to Rs.7,000 crore. Additionally the allocation under the Indira Awaas Yojana (IAY) increased by 63 per cent to Rs.8,800 crore in B.E. 2009-10. The government has also allocated Rs.2,000 crore made for Rural Housing Fund (RHF) in National Housing Bank (NHB) to boost the resource base of NHB for refinance operations in rural housing sector Some of the other large flagship programmes which have been given a continued thrust include the National Rural Employment Guarantee Scheme, Jawaharlal Nehru National Urban Renewal Mission, Accelerated Irrigation Benefit Proggramme apart from ensuring Debt relief to farmers by giving an extention of time by a further period of 6 months. The effective implememtaion of the GST from April 2010 pan india is also a postive step in the right direction clearly spelt out in this budget. With the governments tax revenues falling short of the budgeted targets for FY09 due to
The fiscal deficit as a percentage of GDP is projected at 6.8% compared to 2.5% in BE 2008-09 and 6.2% as per provisional accounts 2008-09.
the continued effects of a global meltdown, Gross tax receipts are budgeted at Rs.6,41,079 crore in BE 2009-10, compared to Rs.6,87,715 crore in BE 2008-09 with non tax revenue receipts likely to be better and are estimated at Rs.1,40,279 crore in BE 2009-10 compared to Rs.95,785 crore in BE 2008-09. The government has estimated that the revenue deficit as a percentage of GDP would be projected at 4.8% compared to 1% in BE 2008-09 and 4.6% as per provisional accounts of 2008-09. The fiscal deficit as a percentage of GDP is projected at 6.8% compared to 2.5% in BE 2008-09 and 6.2% as per provisional accounts 2008-09. For the fiscal 2009-10, with Centre's net tax revenue estimated at Rs 4742bn and Revenue expenditure at Rs10208.4bn, revenue deficit is estimated at 4.8per cent of GDP and fiscal deficit at 6.8% per cent of GDP. To counter the negative impact on exports due to the global financial crisis interest subvention of 2% on pre and post shipment credit for certain employment oriented sectors i.e. Textiles (including handlooms & handicrafts), Carpets, Leather, Gem & Jewellery, Marine products and SMEs has been extended further.
Union Budget Analysis 2009-10
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The government has outlined targets of 6.5% growth for the GDP during FY10 and is targeting agriculture growth at 4% annually in the next few years with investment in infrastructure to account for more than 9% of GDP by 2014. We believe that the GDP growth of between 6-6.5% looks very much possible notwithstanding the positive pick up in export related sectors from the second half of this financial year but any further slippage on the fiscal deficit front from the targeted level of 6.8% this year, could be seen as a negative trigger for the markets ahead.
MARKET EXPECTATIONS UNFULFILLED
NIFTY scaled a HIGH of 4693.20 on 12th JUNE 2009. Since then till the presentation of the Uniion Budget
markets
exhibited
a
CAUTIOUS approach, without any significant directional move.
HOWEVER
REMAINED
The market which was keen awaiting wide ranging announcements ranging from a expected cut in the STT, a cut in Capital gains taxes, and also some big bang announcements on PSU divestments was disappointed that nothing of these actually materialized in the budget. In fact on the negative side MAT rate has been increased to 15% from 10% with some minor benefits like FBT being taken off and individual tax payers also given the benefits of surcharge of 10% being taken away in this budget. Nevertheless corporate tax rates have remained unchanged which is a sliver lining considering the tight financial resource crunch with the government.
TECHNICAL VIEW POST 'BUDGET 2009-10 NIFTY scaled a HIGH of 4693.20 on 12th JUNE 2009. Since then till the presentation of the Uniion Budget markets exhibited a CAUTIOUS approach, without any significant directional move. Markets went into today's Budget with High hopes on Disinvestment programme, aggressive Reforms and Market friendly announcements. But 'build-up' of positions was clearly absent in pre-budget action. The expectations of markets were not met in today's 'socially oriented' budget. Absence of big ticket announcements sent a wave of 'disappointment' among players. The result was a sharp knee-jerk reaction from marketmen. FIIs were seen off-loading aggressively, showing concerns on rising 'fiscal deficit'. Technically speaking 'Support' around 4150 levels of NIFTY is crucial and the 'Risk' in markets will go up substantially if NIFTY slips below the mentioned levels (on closing basis) during the week. Next significant support for NIFTY exists far lower around levels of 3800. We however believe that despite the market disappointment over the budget, the probability of emergence of 'value Buying' at lower levels from domestic Institutions is very High.
CONCLUSION Net Net we believe the Union Budget for 2009-10 has been on expected lines notwithstanding the fact that several big bang announcements related to FDI, Pension Reforms, Education Reforms, Insurance and PSU divestment were eagerly awaited but failed to prominently come up in this budget. As mentioned earlier the primary focus of the government has been to accelerate growth in Infrastructure, ensure all inclusive growth by increasing social spending on several employment generation schemes and ensuring that export oriented sectors are given a helping hand by way of some fiscal concessions until the global economy picks up. While the markets seem to have given a thumbs down to this budget we believe that the Union Budget is not the only the conclusive document which is a means to the end and many more pro market policy announcements from the government on specific business areas is expected to materialize over the next 12-18 months. We hence believe that long term investors should utilize this market opportunity optimally by selectively investing in blue chips for a medium to long term horizon. Union Budget Analysis 2009-10
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CENTRAL GOVERNMENT FINANCES Tax Revenue Union Excise Duties Customs Corporation Tax Income Tax Service Tax Taxes of Union Territories Other taxes & duties Gross Tax Revenue Less: NCCD for financing National Calamity Contigency Fund Less: States' share Centre's Net Tax Revenue [A] Non-Tax Revenue Interest Receipts Dividends & Profits Other Non-Tax Revenue Non-Tax Revenue of Union Territories Total - Non Tax Revenue [B] Total Revenue Receipts [C=A+B] CAPITAL RECEIPTS Recoveries of Loans Misc Capital Receipts Debt receipts to finance fiscal deficits Total Capital Receipts [D] Total Receipts [C+D] NON-PLAN EXPENDITURE Revenue Expenditure Interest Payments Defense Subsidies Grants to State and U.T. Governments Admin & Social Responsibility Total Revenue Non-Plan Expenditure [E] Capital Expenditure Defense Other Non-Plan Capital Outlay Loans to Public Enterprises Others Total Capital Non-Plan Expenditure [F] Total Non Plan Expenditure [G=E+F] PLAN EXPENDITURE Revenue Plan Expenditure Central Plan Central Assistance for State & UT Plans Total Revenue Plan Expenditure [H] Capital Plan Expenditure Central Plan Central Assistance for State & UT Plans Total Capital Plan Expenditure [I] Total Plan Expenditure [J=H+I] Total Expenditure [G+J] Revenue Deficit % of GDP Fiscal Deficit % of GDP Primary Deficit % of GDP
(Rs bn)
FY09BE
FY09RE
YOY (%)
FY10BE
YOY (%)
1,378.7 1,189.3 2,263.6 1,383.1 644.6 14.5 3.3 6,877.1
1,083.6 1,080.0 2,220.0 1,226.0 650.0 15.9 4.0 6,279.5
(21.4) (9.2) (1.9) (11.4) 0.8 9.6 23.1 (8.7)
1,064.8 980.0 2,567.3 1,128.5 650.0 16.0 4.3 6,410.8
(22.8) (17.6) 13.4 (18.4) 0.8 10.4 30.8 (6.8)
18.0 1,787.7 5,071.5
18.0 1,601.8 4,659.7
(10.4) (8.1)
25.0 1,643.6 4,742.2
38.9 (8.1) (6.5)
191.4 432.0 326.3 8.1 957.8 6,029.3
190.4 397.4 366.8 7.5 962.0 5,621.7
(0.5) (8.0) 12.4 (8.0) 0.4 (6.8)
191.7 497.5 706.0 7.5 1,402.8 6,145.0
0.2 15.2 116.4 (7.4) 46.5 1.9
45.0 101.7 1,332.9 1,479.5 7,508.8
97.0 25.7 3,265.2 3,387.8 9,009.5
115.7 (74.8) 145.0 129.0 20.0
42.3 11.2 4,010.0 4,063.4 10,208.4
(6.0) (89.0) 200.9 174.7 36.0
1,908.1 575.9 714.3 432.9 814.6 4,445.9
1,926.9 736.0 1,292.4 384.2 1,232.9 5,572.5
1.0 27.8 80.9 (11.3) 51.3 25.3
2,255.1 868.8 1,112.8 485.7 1,350.4 6,072.7
18.2 50.8 55.8 12.2 65.8 36.6
480.1 105.7 6.8 36.5 629.1 5,075.0
410.0 136.9 7.7 52.8 607.5 6,180.0
(14.6) 29.6 13.1 44.6 (3.4) 21.8
548.2 210.6 6.4 119.0 884.2 6,956.9
14.2 99.3 (7.0) 225.9 40.5 37.1
1,514.2 583.5 2,097.7
1,716.3 700.2 2,416.6
13.4 20.0 15.2
2,002.9 781.1 2,784.0
32.3 33.9 32.7
285.4 50.8 336.2 2,433.9 7,508.8
325.0 88.1 413.0 2,829.6 9,009.5
13.9 73.3 22.9 16.3 20.0
395.5 72.0 467.5 3,251.5 10,208.4
38.6 41.7 39.1 33.6 36.0
551.8 1.0 1,332.9 (2.5) (575.2) (1.1)
2,412.7 (4.4) 3,265.2 (6.0) 1,338.2 (2.5)
337.2 (540.0) 145.0 140.0 (332.7)
2,827.4 (4.8) 4,010.0 (6.8) 1,754.9 (3.0)
412.3 (580.0) 200.9 172.0 (405.1)
Source: Ministry of Finance, Annual Budget FY2009-10
Union Budget Analysis 2009-10
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ECONOMIC DATA CHARTS Where the Rupee comes from
Where the Rupee goes
Fiscal deficit (Rs bn)
Revenue deficit (Rs bn)
GDP Growth by constituents (%)
Gross savings & capital formation (%) (%) Grossdomestic domestic savings & capital formation
Source: Government of India, Annual Budget FY2009-10
Union Budget Analysis 2009-10
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TAX PR OPOSALS PROPOSALS
Centre’s Tax-GDP ratio has increased to 11.5 per cent in 2008-09 from a low of 9.2 per cent in 2003-04. Share of direct taxes in the Centre’s tax revenues has increased to 56 percent in 2008-09 from 41 percent in 2003-04, reflecting sharp improvement in equity of our tax system. Setting up of a Centralized Processing Centre (CPC) at Bengaluru where all electronically filed returns, and paper returns filed in entire Karnataka, will be processed.
Dir ect Tax es Direct axes
No changes made in the Corporate Tax rates. Exemption limit in personal income tax raised by Rs.15,000 from Rs.2.25 lakh to Rs.2.40 lakh for senior citizens; by Rs.10,000 from Rs.1.80 lakh to Rs.1.90 lakh for women tax payers; and by Rs.10,000 from Rs.1.50 lakh to Rs.1.60 lakh for all other categories of individual taxpayers. Deduction under section 80-DD in respect of maintenance, including medical treatment, of a dependent who is a person with severe disability being raised from the present limit of Rs.75,000 to Rs.1 lakh. Eliminate the surcharge of 10 percent on personal income-tax. Sun-set clauses for exporters under sections 10A and 10B of the Income-tax Act extended for the financial year 2010-11. Fringe Benefit Tax to be abolished. Provisions relating to weighted deduction of 150% on expenditure incurred on in-house R&D to all manufacturing businesses being extended Investment linked tax incentives to be provided. Under this method, all capital expenditure, other than expenditure on land, goodwill and financial instruments will be fully allowable as deduction. Minimum alternate tax increased to 15% from 10% of book profit. The period allowed to carry forward the tax credit under MAT to be extended from 7 years to 10 years. New Pension System (NPS) to continue to be subjected to the Exempt-Exempt- Taxed (EET) method of tax treatment of savings. All purchase and sale of equity shares and derivatives by the NPS Trust will also be exempt from the Securities Transaction Tax. Self employed persons to be enabled to participate in the NPS and to avail of the tax benefits available thereto. Alternative dispute resolution mechanism will be created within the Income Tax Department for the resolution of transfer pricing disputes. Commodity Transaction Tax (CTT) to be abolished. Donations to electoral trusts to be allowed as a 100 percent deduction in the computation of the income of the donor. Deduction under section 80E of the Income-tax Act allowed in respect of interest on loans taken for pursuing higher education in specified fields of study to be extended to cover all fields of study, including vocational studies, pursued after completion of schooling. Anonymous donations received by charitable organisations to the extent of 5 percent of their total income or a sum of Rs.1 lakh, whichever is higher, not to be taxed. Scope of presumptive taxation to be extended to all small businesses with a turnover upto Rs. 40 lakh. All such taxpayers to have option to declare their income from business at the rate of 8 percent of their turnover and simultaneously enjoy exemption from the compliance burden of maintaining books of accounts. As a procedural simplification, they are also to be exempted from advance tax and allowed to pay their entire tax liability from business at the time of filing their return. This new scheme will come into effect from the financial year 2010-11. Tax holiday under section 80-IB(9) of the Income Tax Act to be extended to natural gas. This tax benefit to be available to undertakings in respect of profits derived from the commercial production of mineral oil and natural gas from oil and gas blocks which are awarded under the NELP-VIII round of bidding.
Indir ect Tax es Indirect axes
Proposals on indirect taxes to seek to achieve stable framework by maintaining the overall rate structure for customs and central excise duties as well as service tax.
CUST OMS DUTIES CUSTOMS
Customs duty of 5% to be imposed on Set Top Box for television broadcasting. Customs duty on LCD Panels for manufacture of LCD televisions to be reduced from 10% to 5%. Full exemption from 4% special CVD on parts for manufacture of mobile phones and accessories to be reintroduced for one year.
Union Budget Analysis 2009-10
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List of specified raw materials/inputs imported by manufacturer-exporters of sports goods which are exempt from customs duty, subject to specified conditions, to be expanded by including five additional items. List of specified raw materials and equipment imported by manufacturer-exporters of leather goods, textile products and footwear industry which are fully exempt from customs duty, subject to specified conditions, to be expanded. Customs duty on unworked corals to be reduced from 5% to Nil. Customs duty on 10 specified life saving drugs/vaccine and their bulk drugs to be reduced from 10% to 5% with Nil CVD (by way of excise duty exemption). Customs duty on specified heart devices to be reduced from 7.5% to 5% with Nil CVD (by way of excise duty exemption). Customs duty on permanent magnets for PM synchronous generator above 500 KW to be reduced from 7.5% to 5%. Customs duty on bio-diesel to be reduced from 7.5% to 2.5%. Concessional customs duty of 5% on specified machinery for tea, coffee and rubber plantations to be reintroduced for one year, upto 06.07.2010. Customs duty on 'mechanical harvester' for coffee plantation to be reduced from 7.5% to 5%. CVD on such harvesters has also been reduced from 8% to nil, by way of excise duty exemption. Customs duty on serially numbered gold bars (other than tola bars) and gold coins to be increased from Rs.100 per 10 gram to Rs.200 per 10 gram. Customs duty on other forms of gold to be increased from Rs.250 per 10 gram to Rs.500 per 10 gram. Customs duty on silver to be increased from Rs.500 per Kg. to Rs.1000 per Kg. Customs duty on cotton waste to be reduced from 15% to 10%. Customs duty on wool waste to be reduced from 15% to 10%. Customs duty on rock phosphate to be reduced from 5% to 2%. CVD exemption on Aerial Passenger Ropeway Projects to be withdrawn and will now attract applicable CVD. Customs duty exemption on concrete batching plants of capacity 50 cum per hour or more to be withdrawn. Such plants will now attract customs duty of 7.5%. Customs duty on inflatable rafts, snow-skis, water skis, surf-boats, sail-boards and other water sports equipment to be fully exempted.
Excise duty Excise duty rate on items currently attracting 4% to be raised to 8% with following major exceptions: Specified food items including biscuits, sharbats, cakes and pastries Drugs and pharmaceutical products falling under Chapter 30 Medical equipment Certain varieties of paper, paperboard and articles thereof Paraxylene Power driven pumps for handling water Footwear of RSP exceeding Rs.250 but not exceeding Rs.750 per pair Pressure cookers Vacuum and gas filled bulbs of RSP not exceeding Rs.20 per bulb Compact Fluorescent Lamps Cars for physically handicapped Specific component of excise duty applicable to large cars/utility vehicles of engine capacity 2000 cc and above to be reduced from Rs. 20,000/- per vehicle to Rs.15,000 per vehicle. Excise duty on petrol driven trucks/lorries to be reduced from 20% to 8%. Excise duty on chassis of such trucks/lorries to be reduced from '20% + Rs.10000' to '8% + Rs.10000'. Excise duty on Special Boiling Point spirits to be reduced to 14%. Excise duty on naphtha to be reduced to 14%. Duty paid High Speed Diesel blended with upto 20% bio-diesel to be fully exempted from excise duties. Excise duty of 6% on petrol intended for sale with a brand name to be converted into a specific rate would now attract total excise duty of Rs.14.50 per litre instead of '6% + Rs.13 per litre'. The ad valorem component of excise duty of 6% on diesel intended for sale with a brand name to be converted into a specific rate would now attract total excise duty of Rs.4.75 per litre instead of '6% + Rs.3.25 per litre'. Excise duty on manmade fibre and yarn to be increased from 4% to 8%. Excise duty on PTA and DMT to be increased from 4% to 8%. Excise duty on polyester chips to be increased from 4% to 8%. Excise duty on acrylonitrile to be increased from 4% to 8%. Union Budget Analysis 2009-10
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The scheme of optional excise duty of 4% for pure cotton to be restored. Excise duty for man-made and natural fibres other than pure cotton, to be increased from 4% to 8% under the existing optional scheme. Excise duty exemption to be provided to tops of manmade fibre manufactured from duty paid tow at par with tops manufactured from duty paid staple fibre. Suitable adjustments to be made in the rates of duty applicable to DTA clearances of textile goods. Full exemption from excise duty to be provided on goods of Chapter 68 of Central Excise Tariff manufactured at the site of construction. Excise duty exemption on 'recorded smart cards' and 'recorded proximity cards and tags' to be made optional. EVA compound manufactured on job work for further use in manufacture of footwear to be exempted from excise duty. Benefit of SSI exemption scheme to be extended to printed laminated rolls bearing the brand name of others by excluding this item from the purview of the brand name restriction. On packaged or canned software, excise duty exemption to be provided on the portion of the value which represents the consideration for transfer of the right to use such software. Excise duty on branded articles of jewellery to be reduced from 2% to Nil.
Ser vice tax Service
Service Tax to be imposed on the following services: Service provided in relation to transport of goods by rail Service provided in relation to transport of coastal cargo; and goods through inland water including National Water ways Advice, consultancy or technical assistance provided in the field of law, Cosmetic and plastic surgery service Exemption from service tax being provided to inter-State or intra-State transportation of passengers in a vehicle bearing 'Contract Carriage Permit' with specified conditions. Exemption from service tax being provided to inter-bank purchase and sale of foreign currency between scheduled banks. Two taxable services, namely, 'Transport of goods through road' and 'Commission paid to foreign agents' to be exempted from the levy of service tax, if the exporter is liable to pay service tax on reverse charge basis. However, present cap of 10% on commission agency charges is retained. For other services received by exporters, service tax exemption to be operated through the existing refund mechanism based on self-certification of the documents Export Promotion Councils and the Federation of Indian Export Organizations (FIEO) to be exempt from service tax on the membership and other fees collected by them till 31st March 2010.
Tax proposals on direct taxes to be revenue neutral. On indirect taxes, estimated net gain to be Rs.2,000 crore for a full year.
Union Budget Analysis 2009-10
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SECTOR IMPACT ANALYSIS
Union Budget Analysis 2009-10
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6th July 2009
BUDGET IMPACT : POSITIVE
AUTOMOBILES BUDGET HIGHLIGHTS
Excise Duty continues to remain the same.
Increase in agriculture credit target by 13% to Rs.3,25,000 cr from Rs.2,87,000cr in 2008-09
Increase in the provision for the National Highway Development Programme (NHDP) increased by 23 per cent over B.E. 2008-09 in B.E. 2009-10 and allocation for Railways increased from Rs.10,800 crore in Interim B.E. 2009-10 to Rs.15,800 crore in B.E. 2009-10.
IIFCL to refinance 60 per cent of commercial bank loans for PPP projects in critical sectors over the next fifteen to eighteen months involving a total investment of Rs.1,00,000 crore
Allocation under Jawaharlal Nehru National Urban Renewal Mission (JNNURM) stepped up by 87 per cent to Rs.12,887 crore in B.E. 2009-10 over B.E. 2008-09.
Specific components of excise duty applicable to large cars/Utility Vehicles of engine capacity of 2000 cc and above has been reduced from Rs 20000 per vehicle to Rs 15000 per vehicle.
Allocation under Jawaharlal Nehru National Urban Renewal Mission (JNNURM) stepped up by 87 per cent to Rs.12,887 crore in B.E. 2009-10 over B.E. 2008-09...
IMPACT ON THE SECTOR
We expect stocks like Mahindra &
This is a welcome move and will ensure the continuation of healthy volume growth seen in the Automobile market during the last couple of months. Earlier there were expectations that due to revenue constraints, there was a possibility of excise duty being rolled back, which could have impacted the sales momentum recorded till date. We expect both the cars and CV segments to pickup and show gradual improvement in volumes on higher volume offtake seen from large infrastructure investments planned in a big way by the government.
We believe that Increase in farm credit target by 13% to Rs.325000cr would continue to drive demand for tractors and is a positive for companies like M&M. Also increase in provision for the NHDP will increase the highway network in India andis positive for demand growth for commercial vehicles in the long term.
We expect stocks like Mahindra & Mahindra, Maruti Suzuki, Ashok Leyland and Tata Motors to benefit moderately from these measures over the medium term announced in the Union Budget.
Mahindra, Maruti Suzuki, Ashok Leyland and Tata Motors to benefit moderately from these measures over the medium term announced in the Union Budget. ..
Union Budget Analysis 2009-10
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6th July 2009
BUDGET IMPACT : NEUTRAL
EDUCATION BUDGET HIGHLIGHTS
No increase in Sarva Shiksha Abhiyan (SSA): In the interim budget in February 2009 government has proposed an allocation of Rs 13000 crore for SSA for 2009-10, there has been no fresh increase in the allocation to SSA.
Allocation in ICT increased to Rs.900 crore
The overall Plan budget for higher education is to be increased by Rs 2,000 crore over Interim B.E. 2009-10.
MAT increased to 15% from 10%: Minimum Alternative Tax (MAT) on book profits is proposed to increase from 10% to 15%, whereas tax credit is allowed to carried forward and set off upto 10th assessments year from earlier 7th assessments year.
Abolitions of FBT: Fringe Benefits Tax (FBT) is proposed to abolish with effect from April 2010.
IMPACT ON THE SECTOR
There not been any big increase in allocation to Education sector for 2009-10 over interim budget presented in February 2009, nevertheless sector continues to be government thrust area for spending and would benefits players' operating in the sectors as a whole.
Increase in MAT to 15% from 10% is likely to increase tax outgo for companies like NIIT, however increase in the number of years for carried forward of tax credit from 7 years to 10 years would offset some impact. No major impact for other players like Educomp and Everonn.
Abolition of FBT is a relief sector, would reduce the operational and compliance issues associated with FBT. Companies having higher ESOPs issues are likely to
No big bang announced for the sector. Already got substantial allocation in interim budget 2009...
benefits more.
Union Budget 2009-10, does not bring any big bang announcements for the education sector as market participants are expecting. Nevertheless, education sector has already got a substantial allocation in the interim budget earlier during the year, coupled with more reforms are outlined in the HRD ministry 100 days
Positive
on
Everonn
Educomp Solutions...
Systems,
plans , which gives more thrust on public private partnerships. We believe as most of the stocks in the education space has already run up sharply in the last three months, which leaves little room for appreciation in the medium term. Nevertheless, we continue to remain positive on the sector for a longer term perspective and recommend investors to enter at lower levels for two years perspective. We remain positive on Everonn Systems, Educomp Solutions.
Union Budget Analysis 2009-10
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6th July 2009
BUDGET IMPACT : NEUTRAL
FMCG BUDGET HIGHLIGHTS
The Central Plan expenditure has increased for Rural Development. The NREGA allocation has gone up by Rs.39,100 crore almost 144% up.
Minimum alternate tax increased to 15% from 10% of book profit and carry forward tax credit on minimum alternate tax (MAT) to 10 years vs 7 years.
The Fringe benefit tax (FBT) has been abolished.
IMPACT ON THE SECTOR
Rural sector contributes to a significant portion of FMCG companies spends.
Almost all companies within the FMCG
Governments continued focus on rural sector will improve the rural income which in
space are expected to benefit from the
turn will provide a great boost to the demand in rural areas and thereby increase
focus on rural sector especially
sales. Almost all companies within the FMCG space are expected to benefit from
companies like Dabur and HUL which
this move especially companies like Dabur and HUL which derive more than 45%
derive more than 45% of their revenues
of their revenues from rural areas.
from rural areas.....
On the flipside, FMCG companies falling under MAT will see their bottom-line being hit as the MAT rate has increased by 50% to 15%. To be specific Dabur India and Godrej Consumer Products are currently under MAT that may see an adverse earning impact. However, we believe, FMCG (likely to be benefited from indirect demand coming from rural growth and FBT abolishment ) would remain neutral to the Budget developments.
Union Budget Analysis 2009-10
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6th July 2009
BUDGET IMPACT : POSITIVE
INFRASTRUCTURE BUDGET HIGHLIGHTS
Allocation to National Highways Authority of India (NHAI) for the National Highway Development Programme (NHDP) increased by 23 % over 200809 in 2009-10...
IIFCL to refinance 60 % of commercial bank loans for PPP projects in critical sectors over the next 15 to 18 months.
Allocation to National Highways Authority of India (NHAI) for the National Highway Development Programme (NHDP) increased by 23 % over 2008-09 in 2009-10 (BE) and allocation for Railways increased from Rs.10,800crore (Interim 2009-10) to Rs.15,800cr in 2009-10 (BE).
Allocation under Jawaharlal Nehru National Urban Renewal Mission (JNNURM) stepped up by 87 % to Rs.12887cr in 2009-10 (BE) over 2008-09 (BE). Allocation for housing and provision of basic amenities to urban poor enhanced to Rs.3973cr in 2009-10 (BE). This includes provision for Rajiv Awas Yojana (RAY), a new scheme announced.
Provision for the project BRIMSTOWA initiated in 2007 and funded through Central Assistance to address the problem of flooding in Mumbai, enhanced from Rs.200crore (Interim 2009-10) to Rs.500crore in (2009-10 BE).
Allocation for Bharat Nirman increased by 45 per cent in 2009-10 over B.E. 2008-09.
Allocation under Indira Awaas Yojana (IAY) increased by 63 per cent to Rs.8,800 crore in B.E. 2009-10.
Allocation of Rs.2,000 crore made for Rural Housing Fund (RHF) in National Housing Bank (NHB) to boost the resource base of NHB for refinance operations in rural housing sector.
IMPACT ON THE SECTOR
Higher allocation to Infrastructure sector will benefit Infrastructure players in the long run and the government measures will help these infrastructure companies to finance their projects with ease. Cost of funds to be reduced due to availability of funds made through IIFCL.
Increased order book expected from NHAI and Railways which would benefit companies like Reliance Infra, Gammon India, Nagarjuna Constructions, IVRCL,etc.
Union Budget Analysis 2009-10
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BUDGET IMPACT :POSITIVE
INFORMATION TECHNOLOGY BUDGET HIGHLIGHTS
One year Extension in Sunset clause till FY11: Government has proposed one more year extension in the tax benefits U/S 10A and 10B for STPI till FY 2010-11 (earlier it was till FY10).
Removal of FBT a big positive for the sector...
MAT increased to 15% from 10%: Minimum Alternative Tax (MAT) on book profits is proposed to increase from 10% to 15%, whereas tax credit is allowed to carried forward and set off upto 10th assessments year from earlier 7th assessments year.
Amendment in SEZ policy U/S 10AA: SEZ turnover is proposed to compute with reference to turnover of particular undertaking, as opposed to earlier provision of computation of profits as a total turnover of the assessee.
Abolitions of FBT: Fringe Benefits Tax (FBT) is proposed to abolish with effect from April 2010.
IMPACT ON THE SECTOR
One year extension U/S 10(A)/(B) is a welcome relief for the IT industry, however its comes short of industry expectations of 2 year extension. Nevertheless, it would likely to benefits more to companies in mid-tier than the larger companies like Infosys, HCL Technologies.
Increase in MAT to 15% from 10% is likely to increase tax outgo for smaller and Midtier IT companies , however increase in the number of years for carried forward of tax credit from 7 years to 10 years would offset some impact. Marginal impact for larger IT companies.
Would benefit large IT companies, having substantial exposure in SEZs.
Abolition of FBT is a huge relief for the IT sector, would reduce the operational and compliance issues associated with FBT. Companies having higher ESOPs issues are likely to benefits more.
We expect with extension of STPI benefits would impact the earning for FY11 by 1%-5%, remain positive on Infosys , TCS and Glodyne ...
Union Budget Analysis 2009-10
We believe most of the good news is already discounted in the stock prices. We continue to remain cautious on the sector and expect a correction in the medium term. We expect with extension of STPI benefits would impact the earning for FY11 by 1%-5%. We continue to remain positive on Infosys , TCS and Glodyne .
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6th July 2009
BUDGET IMPACT : NEUTRAL
MEDIA AND ENTERTAINMENT BUDGET HIGHLIGHTS
Stimulus package extended: Stimulus package for print media companies comprising waiver of 15% agency commission on DAVP advertisements and 10% increase in DAVP rates to be paid as a special relief on loss of revenue in non governmental advertisements has extended from 30th June 2009 to 31st December 2009.
Abolitions of FBT: Fringe Benefits Tax (FBT) is proposed to abolish with effect from April 2010.
A non event for the Media Sector....
Customs duty of 5% to be imposed on Set Top Box
IMPACT ON THE SECTOR
Extension on stimulus package for six months would have marginal positive impact for Print media companies like HT media and Jagran Prakashan.
Abolition of FBT would reduce the operational and compliance issues associated with FBT. Companies having higher ESOPs issues are likely to benefits more.
Introduction of 5% custom duty on Set Top boxes would have marginal negative impact on the WWIL and Dish TV, as the price of Set Top box will increase, however it is likely to pass over to the end customers.
There is no mention of FDI policy for Media sectors in the union budget, which is a big disappointment for sector. On the other hand, there is no stimulus package for Media sector apart from Print media. Nevertheless, we believe print media and broadcasting will likely see revival in next 12 months. We continue to remain positive on ZEEL and ZEE News.
Union Budget Analysis 2009-10
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6th July 2009
BUDGET IMPACT : NEUTRAL
METALS BUDGET HIGHLIGHTS
Increased allocation for Highways & Railways: A 23% increase in allocations for National Highway development programme and about 50% increase for Railways is a positive for Steel Industry as a whole.
Enhanced allocations for Urban Infrastructure: 87% increase in the allocations under JNNURM will be partially beneficial to Steel industry as a whole.
Enhanced funds for Rural housing will help the companies having deeper
Escalation of allocation for Bharat Nirman: 45% escalation in the allocations for Bharat Nirman omens good for Steel Industry.
penetration in rural market, viz. JSW Steel which has exposure to flat products used in rural markets...
Special Allocation of Rs.2000 Cr for Rural Housing Fund: Efforts to boost the resource base of National Housing Bank for refinancing operations in rural housing sector by allocating Rs 2000 Cr is good for Steel sector esp. the ones in that have good penetration in rural sector.
IMPACT ON THE SECTOR
Finance Minister has maintained a status-quo on the duty structure for Steel and Iron ore. Hence, no effect would be seen on the companies' bottom line in the Steel & mining sector for the current financial year.
Enhanced funds for Rural housing will help the companies having deeper penetration in rural market, viz. JSW Steel which has exposure to flat products used in rural markets.
Union Budget Analysis 2009-10
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BUDGET IMPACT :NEGATIVE
PHARMACEUTICALS BUDGET HIGHLIGHTS
Increased allocation towards National Rural Health Mission by Rs.2,057 crore over and above Rs.12,070 crore provided in the Interim Budget.
Custom duty on influenza vaccine and nine specified life saving drugs used for the treatment of breast cancer, hepatitis-B, rheumatic arthritis etc. and on bulk drugs used for the manufacture of such drugs has been reduced from 10% to 5% and they
Also, Customs duty on two specified life saving devices used in treatment of heart conditions like - artificial heart reduced from 7.5% to 5% and these devices will be fully exempt from excise duty and CVD.
FBT has been abolished but the Minimum Alternate Tax (MAT) rate is raised from 10% of book profit to 15%
The Fringe benefit tax (FBT) has been abolished but the Minimum Alternate Tax (MAT) rate is raised from 10% of book profit to 15% of book profit.
of book profit...
With the amendment in IT section - 10AA(7), the entire profit of business units operating from SEZs would be exempted from taxes, whereas earlier the business units' profits were exempted proportionately to their export turnover.
IMPACT ON THE SECTOR
Though the increased allocation of funds towards Healthcare sector and abolishment of FBT is positive for Indian Pharma, the 50% increase in FBT from 10% of book profit to 15% comes as a big blow for most of Indian Pharma companies operating under MAT in the near term. It would be negative for companies including - Sun Pharma, Dishman, Cadila and Biocon.
However, the amendment in IT section - 10AA(7) that provides 100% profit exemption effective from FY2011 for business units operating from SEZs could prove to be a positive development for Indian Pharma in longer term. Divis Laboratories and Biocon are visible beneficiaries of the said development, as they currently operates from their SEZs. Also, few more domestic pharma peers like - Dishman, Cipla, Jubilant Organosys, Cadila Healthcare etc are setting their SEZs
Overall we believe the rising MAT would play a lead role and have adverse impact on Indian Pharma in near term...
Union Budget Analysis 2009-10
The reduction in custom duty on discussed life saving drugs and devices may impact MNCs (like Aventis, GlaxoSmithkline etc) positively. Overall we believe the rising MAT would play a lead role and have a adverse impact on Indian Pharma in near term.
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Union Budget Analysis 2009-10
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