Budget Expectations
Showing posts with label Budget. Show all posts
Showing posts with label Budget. Show all posts
Tuesday, February 15, 2011
Saturday, June 27, 2009
Tuesday, March 06, 2007
India's budget
More spending on education and health
India's budget, unveiled on February 28th, was low on structural reform but high on spending that will aid the economy's long-term prospects. The finance minister, P. Chidambaram, has used the backdrop of very strong economic growth to invest heavily in education and health—essential if India is to make use of the much-talked-about "demographic dividend" of a young and growing labour force. He also plans to invest heavily in rural infrastructure, which again bodes well for long-term development. With worries over inflation grabbing the headlines, the budget also includes some anti-inflationary measures--although the budget is in no way counter-cyclical as these measures will be outweighed by higher public spending. Nonetheless, although the finance minister could certainly have done more to tackle the fiscal deficit, rein in inflation and promote economic reform, he has done nothing that will derail the current high-growth story. The old adage, "If it is not broken, don't fix it," largely applies.Government spending in the new budget is to increase by 21% to Rs6.81trn (US$154bn), while the government expects its revenue to rise to Rs4.86trn, also up 21%. Including non-debt capital receipts of Rs432bn, this should leave a central fiscal deficit of Rs1.51trn, equivalent to 3.3% of GDP, according to the government's projections. This outcome, if achieved, would be a marked improvement on the government's estimate of 3.7% for fiscal 2006/07. It would also be vastly better than the levels of around 6% of GDP recorded five or six years ago, indicating the encouraging progress India has made in tackling its fiscal problems. That said, the new budget still allocates Rs1.59trn to servicing the interest on its debt—almost a quarter of total government spending—indicating there is more work to be done on fiscal consolidation. Paying interest on government debt limits the room for spending on more productive purposes.
Focus on social spending
In the case of this budget, the term "productive" largely means spending money on agriculture, education and health. If the budget has a unifying theme, it is in what Mr Chidambaram describes as "faster and more inclusive growth". This means creating the conditions to allow more of the population, and not only the urban middle classes, to benefit from the country's rapid economic growth. Although the budget still aims to improve the fiscal position, Mr Chidambaram has largely chosen to spend the expected windfall from rapid growth on social programmes rather than on reducing the deficit and public debt further.
As such, the budget raises total expenditure on education by 34.2% to Rs324bn (US$7.3bn), and that on health and family welfare by 21.9% to Rs153bn. In the Economist Intelligence Unit's view, this is one of the most positive features of the budget, as if implemented properly (always a big if) these measures have the potential to alleviate some of the worst effects of poverty and boost India's long-term economic prospects.
Also prominent—and welcome, in our view—is the budget's focus on the ailing agricultural sector. The government aims to raise average annual growth in the farm sector from an average of 2.3% in the past five years to 4% by 2011/12, the end of its 11th five-year plan. The budget raises substantially allocations for several flagship programmes. The biggest of them, Bharat Nirman, a massive rural-infrastructure programme, is to get 31.6% more funds, bringing spending to Rs246bn. The budget also increases credit to the farm sector by 29%, to Rs2.25trn (US$51bn).
The focus on agriculture has two dimensions. The first is political. The Congress party, which heads the United Progressive Alliance (UPA) coalition government, has to be seen to be doing enough to raise the raise the living standards of the poor to ensure future electoral success. Secondly, the government's aim to raise annual economic growth to 10% by 2011/12 crucially depends on higher growth in the farm sector. Agriculture accounts for around 18% of Indian output, but its importance to the economy is even higher because of its impact on rural incomes and consumption; about two-thirds of India's labour force is employed in the farm sector.
Not so good for business?
The budget has disappointed businesses and stockmarket investors, as it does not cut the corporate tax rate, raises the dividend distribution tax from 12.5% to 15%, and makes employee stock options taxable as fringe benefits. This latter measure is expected to hit information technology (IT) companies. So, too, will a new budget measure that subjects firms in this sector to a "minimum alternate tax", which will increase their effective tax rate.
Because of IT's emblematic status as one of the economy's most dynamic sectors and its importance to the global outsourcing industry, Indian technology firms have typically enjoyed substantial tax exemptions. Although one could justifiably argue that many IT firms are profitable enough to absorb a heavier tax burden—particularly given the need for India to widen its tax base—overall we regard this as a negative feature of the budget. The competitiveness of Indian IT companies is crucial to the country's continued appeal to foreign business. More generally for business, a 2% education "cess" on all taxes is to rise to 3%—good for the government's development objectives outlined above, but not so good for corporate profits.
Despite this, the budget is by no means disastrous for business. Indian firms in many sectors will continue to enjoy a variety of exemptions and other tax breaks that lower their effective tax burdens--indeed, the government claims the effective rate of tax rate actually paid by companies is only 19.2%. Small businesses with a taxable income of Rs10m or less will benefit from the removal of a surcharge on income tax. And the basic rate of corporate income tax has been left unchanged at 30%, although the increase in the education cess lifts its effective rate (before exemptions) to almost 34% from 33.66%. On balance, the budget's position on corporate tax is probably a reasonable compromise for all concerned: the corporate sector can at least console itself with the knowledge that the main income tax rate has not risen further; while from a fiscal point of view it is useful for the government's revenues that tax has not been cut to appease business. India's share of budget revenue to GDP is one of the lowest in Asia, at barely 13%, and the government needs all the revenue it can muster. A tax cut would also have potentially added to inflationary pressures.
Lower duties
Inflation remains a major macroeconomic concern, and one that carries political risks for the UPA coalition as well. The budget includes some notable anti-inflationary measures. It reduces the peak rate of import duty for non-agricultural products from 12.5% to 10%, a move that will help to limit import-led inflation. It cuts customs duties on various items, including plastics, chemicals, fibres and yarn. It also cuts excise duties on petrol and diesel.
Reform-lite
If the budget takes a distinctly long-term view in its focus on education and farming, it largely omits bold structural economic reforms in areas such as privatisation, the labour market and the retail sector. Nor does it seek to remove foreign direct investment caps in insurance and banking.
Of course, this is unsurprising given the reality of coalition politics. The government's economic-reform agenda has often met resistance from the leftist parties on which it relies for political support. The Left Front is partly behind the government's focus on social spending. For example, the budget extends the National Rural Employment Guarantee Scheme (NREGS), a public-works programme introduced under the Congress-led UPA government and supported by the Left Front, from 200 to 330 districts. The budget allocates Rs120bn to the NREGS.
Liberalising reforms are likely to become even more politically unpalatable to the Congress-led coalition as the general election, which must be held by May 2009, gradually approaches. In this context, the 2007/08 budget just announced was arguably the government's best chance before the next election to implement major change. Next year's budget and, if an election has not taken place by then, the following year's will be more heavily overshadowed by pre-election considerations. While the term "inclusive" is certainly an apt description of the government's budget, "missed opportunity" is another phrase that arguably applies.
Sunday, March 04, 2007
IVRCL: Buy Nagarjuna Construction: Buy
Investors looking for exposure in the infrastructure space can consider the stocks of IVRCL Infrastructures and Projects, and Nagarjuna Construction. The thrust on irrigation and water management in the recent Budget augurs well for the companies, as both are strong in this space.
Buy with a two/three-year perspective. While stocks in the sector have returned manifold gains over the past few years, the re-rating story is unlikely to repeat itself in the near future. Hence, investors need to moderate their returns expectations.
Complementing strategies
Although both the companies operate in similar business segments, we believe they can complement each other well. While IVRCL continues its thrust on water projects and is likely to emerge a key beneficiary, Nagarjuna's relatively more diversified portfolio is likely to offer cushion against slowdown in any one segment.
Further, any risks from IVRCL's more aggressive alliance and acquisition-led strategy is likely to be offset by Nagarjuna's organic growth approach.
At the current market price, IVRCL and Nagarjuna trade at 17 times and 13 times respectively, their expected earnings for FY-08. This is after adjusting for tax implications consequent to the withdrawal of Section 80 IA benefits for infrastructure cash contracts. The premium for IVRCL appears justified, given the possible unlocking of value on the listing of its real-estate subsidiary and the potential in the power transmission segment.
A high growth story
IVRCL's net profits have grown at about 50 per cent over the past five years on an annualised basis. This high growth has been achieved by the company's ability to quickly ramp up its business in roads, power and recently real-estate without losing focus on its core strength — water-based projects. Its controlling stake in Hindustan Dorr Oliver has not only turned around the latter's business, but also strengthened IVRCL's own water and environment solutions division. Further, IVRCL's tie-up with Nefasa of Spain for the Chennai water desalination plant (commencement of which has been delayed) is likely to give it technical qualification, once completed, for industrial and urban waste treatment projects.
The water and irrigation segment generated 52 per cent of IVRCL's total revenues in FY-06. With the added impetus to irrigation projects and the Urban Renewal Mission (86 per cent of the spending related to water infrastructure) in the latest Budget, IVRCL, armed with the requisite technology, is likely to emerge a prime beneficiary.
New businesses hold potential
Spotting opportunity in the power space, IVRCL has forayed into the transmission business. This nascent division has grown six times in the past two years, although from a low base.
A rural electrification project and a sub-station for Alstom Projects are being executed. The company's plans to set up a manufacturing facility in Nagpur to achieve backward integration may improve operating profit margins in the long run.
The listing of the company's real-estate subsidiary, IVR Prime Urban, may see some unlocking of value, given that the company is quickly ramping up activity in the realty space.
With an order-book of Rs 7,800 crore (five times the FY-06 revenue), the earnings visibility remains high for IVRCL, given that it has demonstrated strong execution capabilities in the past.
A well-laid road
Nagarjuna Construction, while diversifying its business segments, has spread its wings to the overseas markets. An office in Dubai and a subsidiary in Muscat have led to the company bagging over Rs 800 crore worth of water and road projects in Oman. Unlike IVRCL, which has used the acquisition strategy, Nagarjuna has so far set up its own subsidiaries to foray into new areas. NCC Infra Holdings and NCC Urban Infrastructure, which undertake public-private partnership projects and real-estate development respectively, have emerged an effective de-risking strategy.
While Nagarjuna's stronghold is water projects, only about 20 per cent of the current order book of Rs 7,000 crore constitutes such schemes with about 40 per cent in transportation. We believe the increased activity in the road segment is a conscious attempt by the company to ramp up volumes. A 50 per cent compounded annual growth in revenue over the last three years appears to have come about through increased proportion of road projects. Given the company's strength in water projects, it can always bid for more such projects in future.
Risks
Both IVRCL and Nagarjuna's management have come out with numbers on the impact of the withdrawal of Section 80 IA tax benefits on their bottomline. The impact appears insignificant given the companies' strong fundamentals and business potential in the infrastructure space.
Further, both the companies are moving away from being cash contractors, toward build-own-operate transfer (BOT and BOOT) players. While this model is successful in the road sector, it is being now taken forward to hydro-related projects and power sector. The SPVs operating such projects will continue to enjoy the tax incentives. However, there are other risks. The increase in the excise duty on cement, will affect construction players. Price escalation clauses wherever available are likely to offer some protection. Given this situation, we do not expect the current OPM (between 9-10 per cent) to improve.
With increasing activity by both the companies in the realty space, the risks related to price fluctuations in land and buildings will have to be factored in. Further, equity expansion, if any, especially for Nagarjuna, can cause earnings dilution in the short term. We, however, maintain that equity expansion is a necessary evil for construction companies to bid for projects and maintain growth.
Five points someone overlooked
We have been short-changed in the Budget, says India Inc. The corporate sector is like a strong oak tree while the agriculture sector is like a plant which has to be nursed, said Mr P. Chidambaram in defence, implying that the former does not need support any longer. "We have done nothing to hurt the growth story," he says.
Corporate India's grouse is that most of its suggestions have not been considered by Mr Chidambaram even as he proposed such not-so-friendly measures as higher education cess, application of the Minimum Alternate Tax on IT companies, extension of the Fringe Benefit Tax on employee stock options and increase in the dividend distribution tax to 15 per cent.
Focus on agriculture is fine, and with two-thirds of the population depending on it for their livelihood it is also probably necessary. But tending to the plant does not necessarily exclude caring for the oak because it is the latter that is generating the resources to help the former.
Here are five proposals which, had they been considered by the Finance Minister, might have balanced the Budget better between industry and agriculture. They would have certainly pleased India Inc. and the best part is that these measures are either revenue neutral or would have had but a minor impact on revenue. So, here are those proposals that were not to be:
excise duty on cars
The passenger car industry had suggested a reduction in the excise duty on all categories of cars and utility vehicles to 16 per cent. At present, except small cars conforming to a specified definition on size and engine capacity, all other vehicles suffer 24 per cent excise. Paan masala is the only other product to suffer a similar excise duty!
Mr Chidambaram could have considered the suggestion favourably given last year's experience, when sales of small cars shot up following the reduction in their excise duty.
Small-car sales zoomed 31 per cent when the overall car industry grew 23 per cent in April-January this fiscal. Incidentally, the growth rate for small cars for the whole of 2005-06 was half that.
The beneficial effect is clearly visible here with the increase in sales compensating for the revenue loss from duty reduction. Who knows, a reduction in duty on all cars this year could have stimulated sales in a similar manner. The auto industry is a major employer and contributes 5 per cent to GDP now. The trickle-down effect to the component sector in terms of investment and employment would have been tremendous. Did Mr Chidambaram miss something here?
Focus on tourism infrastructure
Tourism is an industry that is largely neglected especially given the potential in the country. As anyone who has travelled to any of the major cities recently would tell you, it is just impossible to get good hotel rooms for even a night's stay. Occupancy levels are at 100 per cent and most good hotels boast of a waiting list of guests.
How can tourism prosper in such conditions? While the hotel industry had asked for infrastructure status, Mr Chidambaram could have at least considered extending the five-year tax holiday that he has granted to new hotels coming up in the Capital and surrounding areas, to all over the country. Tourism is probably the next big thing waiting to happen and a couple of concessions to the sector would have gone a long way in promoting its growth.
Duty structure for petroleum products
The petroleum industry is riddled with tax conundrums and Mr Chidambaram has just made a peripheral attempt at solving them by reducing excise duty on petrol and diesel to 6 per cent.
He could have tried his hand at reforms by shifting to specific duties and abolishing the ad valorem component on the two products. This would have been an equitable measure as in the ad valorem mechanism the consumer pays more as duty when oil prices move up.
Customs duty on petrol and diesel, currently at 7.5 per cent, could also have been reduced to the same level as that of crude oil at 5 per cent.
There are no imports of petrol and diesel whatsoever and there are no revenue implications for the Government by reducing the duty. There is also no strong argument for extending protection to domestic refiners who are anyway efficient.
A dual-pricing system for cooking gas and kerosene could also have been attempted, as there is no reason why the thriving middle-class ought to enjoy subsidy on the two products.
Such a measure proposing subsidised prices only for the poor and deserving would have sent out a very strong signal on the Government's commitment to reform even as it would have reduced the subsidy burden significantly. But it was not to be.
Promoting savings
Last year, Mr Chidambaram had included bank deposits with a five-year term under Section 80C of the Income-Tax Act subject to the overall limit of Rs 1,00,000. Given the backdrop of rising inflation and the need to promote savings, he could have considered reducing the term for such deposits to three years.
As a further aggressive measure to promote savings, the Finance Minister could have considered re-introduction of Section 80 L, which used to offer a deduction of up to Rs 10,000 on interest from deposits.
Abolishing DDT for holding companies
This was a strong demand from India Inc. and in the interests of equity ought to have been considered by Mr Chidambaram.
At present, dividends suffer tax twice when they emanate from a holding company and pass on eventually to shareholders of the subsidiary or vice versa.
The holding company has to pay tax on dividend distributed by it to its shareholders, though such dividend is being paid out of its own dividend earnings from its subsidiaries which have already paid the tax.
The increase in DDT to 15 per cent would have gone down better if Mr Chidambaram had fine-tuned this aspect of holding-subsidiary company dividends.
Shareholders of a number of companies, particularly in sectors such as power where it is required to float independent subsidiaries for every project, would have benefited from this move.
Taking the sop out of ESOPs
Those of you waiting to make a quick buck on exercising your ESOPs (employee stock option plans) may have to share some of your profits with the taxman. Under the new rules proposed in the Budget, ESOPs will now be treated as fringe benefit and taxed accordingly. However, more clarity on such aspects as determination of the value of ESOPs, the rate for FBT etc. is awaited.
PAN made THE sole identification number
Be ready also with your PAN (permanent account number) card every time you invest, as the Budget proposes to make this the sole number for financial market transactions. Though various broking houses had already made PAN mandatory for trading in stocks, you can now use it for investing in mutual funds too! This essentially means that the previously proposed MIN (mutual fund identification number) is no more a must for mutual fund investments. Making PAN the sole identification number not only saves you from a lot of paper work, but would also help the government keep a close watch on your investments. With PAN becoming the most important number ever, those of you who have still not applied for a PAN, get cracking.
Tax deductions on education loans
Thanks to the new amendment introduced in the Budget, you can now get a tax deduction for educating your spouse or children! The proposed amendment allows you to deduct the amount that you pay as interest for the education loan (for your spouse or children) from your gross total income.
The facility was hitherto available only for the individual who applied for the loan. It is to be noted that the deduction would be available for eight assessment years beginning from the year in which the payment of interest on the loan begins. However, since the amendment would be effective from April 2008, you can avail yourself of the facility from the assessment year 2008-09 only.
Saturday, March 03, 2007
Friday, March 02, 2007
Thursday, March 01, 2007
Anand Rathi - Budget 2007
Fiscal deficit is down to 3.7% (FY07RE) and is further expected to improve to 3.3% (FY08BE). This improvement is more of a reflection on growth rather than fiscal management. Despite strong collection growth, the deficits have increased in absolute numbers. Moreover, it is revenue vs. capital expenditure; non-plan vs. plan expenditure that has contributed to the deficits. A trend that is yet to get arrested to instill confidence on fiscal management.
Growth vs. Inflation will remain a debate as inflation containment measures are muted. Principally this is good as any fiscal related control on inflation normally is counter productive.
Encouraging facets of the budget are -
- Growth - Sustainable, High and Equitable.
- Emphasis on social sector, agriculture and sustainable growth
- Continuity remains the key theme with major items remaining untouched. Subtle changes are much better than drastic shifts
Disappointing as far as industry wish list was concerned. Moreover, with excellent collection growth backed by economic growth actually presents and excellent opportunity to bring down taxes and / or enhance key bottlenecks in systems like infrastructure. Sadly once again this budget misses on these opportunities. Understandable so, on account of coalition politics.
Overall a balanced and a neutral budget.
Impact- Some of the measures taken are negative for cement, technology and construction sector. However, the reaction of equity markets was far more than warranted. This gives an good value buying opportunities for long-term investors.
- Key picks - Cement (Guj. Ambuja, Shree Cement, Orient Paper); Technology (TCS, Polaris); Construction (L&T, IVRCL, HCC)
Download here
Thanks Yash
Budget Takeaways
Takeaways on Budget 2007-08
Ambit Capital
· Agri investment to go up by +2% of GDP
· Irrigation focus to benefit Kirloskar Bros
· Education thrust to benefit paper & stationery cos; +ve for BILT, Navneet , Camlin
· Rural thrust to benefit Infra, Irri, Power;+ve for IVRCL, Jain Irrigation
· Education sector focus to benefit NIIT, Aptech, Educomp & Prithvi Info
· Rural focus will benefit SBI, PNB, BOI for agri advances
· Immunisation prog +ve for Wockhardt, Panacea Biotech
· Farm sector focus +ve for tractor cos - M&M, Punjab tractors, Escorts
· Agri focus +ve for Monsanto, Rallis, Bayer Crop, JK Agritech
· Irrigation thrust to benefit Jain Irri, Finolex pipes
· APDRP +ve for Jyoti, KEC Int'l, Kalptaru
· Ultra Mega Power Projects +ve for BHEL, Alstom, Siemens, ABB
· UMPP also +ve for PFC
· Increased outlay to NHDP +ve for L&T, Gammon, HCC
· CBM projs benefits Shiv Vani, ONGC
· TUF extension to benefit textile sector
· Higher tourism allocation to benefit Hotels, Pvt. Airports
· More branches for RRBs Positive for PSU Banks
· Short selling allowed for inst will improve liquidity in the mkts
· Higher defence exp to benefit BEL, BEML, L&T, Dynamatic Tech, AstraMicro
· Increased focus on PPP to benefit construction cos
· E-governance thrust benefits Vakrangee, 3i Infotech, TCS
· Rural telephony to benefit Rel Com, Bharti Airtel
· Fiscal deficit of 3.3% to ease pressure on interest rates
· Reduction of peak import duties to benefit Capital goods cos
· Customs on man-made fibre reduced from 16 to 8%
· TUF continuation to benefit textiles, +ve for SRF
· RSM: concession rate of 5% to all research units
· CVD on aircrafts incl helicops negative for Global Vectra, Air Deccan, SpiceJet
· RSM: no change in service tax rate
· Excise duty on petrol & diesel reduced, +ve for Oil Mktg Cos & economy in general
· Excise duty on footwear reduced, +ve for Bata, Liberty, Mirza Tanners
· RSM: Excise on cigarettes increased by 5%
· RSM: service tax exemption increased to 8,00,000
· ITC to marginally impacted by excise hike
· Service tax net widened, includes individual PMS services
· RSM Infrastructure status for Gas Pipeline & Storage Facilities & Navigation schemes
· Section 80 IA benefit extended to ppeline cos, very +ve for PSL, JSAW, Man Industries, GAIL, GSPL, IGL
· Diamond Mfg & trd deemed income taxation introduced
· RSM: Benign assessment procedure for gems industry
· Hotel & Conventions centres to get tax benefit
· Tax holiday for new hotels, +ve for Parsvnath, Anant Raj
· MAT introduction negative for software cos
· MAT levy on exempt Dividend & Cap Gain income for corporates
· Cap Gains Exemption for NHAI & REC bonds to continue
· Increase in dividend distribution tax -ve for corporates/MFs
· FBT exemption for Free Samples; to benefit corporates
· ESOP SUBJECT TO FBT
· Corporate Headline Tax Rate 33.99%
· Additional education cess of 1% to hit corporate earnings
· ATF exemption on smaller aircrafts to benefit Air Deccan
· Budget -ve for IT & Cement cos
· RSM: Tax deduction for housing projects not extended
· Housing Companies Exemption lapses
· Budget +ve for pipeline cos, cap goods, oil mktg cos, infra, FMCG & textiles
· Service tax exemption on clinical trials, +ve for DRL, Ranbaxy
· RSM: service tax on commercial rentals
· SEZ benefit restricted to new units; trf of exst bus not eligible
Ambit RSM
· Higher Defence Allocation; + ve Ashok Leyland, Tata Motors
· Dredgers exempt from import duty- Dredging Corp to gain
· Custom reduced on medical equipment to 7.5%
· Ad valorem on petrol down from 8% to 6%
· Excise duty exemption for water purified devices; +ve for Ion Exchange
· Increase in specific rate of excise duty on tobacco by 5%
· Asset Management service under service tax net
· New services - commercial renting of immovable property, asset management services
· Clinical trial of new drugs exempt from service tax
· Mediclaim deduction increased to Rs 15000
· Surcharge reduced for SME with less than 1 crore income
· Corporate Tax Rate Unchanged
· Surcharge removed on all cos with taxable income less than Rs 1 crore
· Senior citizen threshold limit increased to Rs 195000
· Venture Cap Funds benefit limited to Bio, IT Nano technology, select pharma, Dairy and poultry, Tourism sectors
· Art covered under capital gains
· FBT on free samples exempt
· Service Tax on Commercial Rental -ve for Retailers / Malls
CNBC-TV18
· Healthcare allocation increased; +ve Max India, Apollo Hospitals
· More focus on HIV eradication; +ve MNC Pharma, Cipla, Wockhardt
· Education allocation increased; +ve Educomp, NIIT, APTECH
· Healthcare allocation increased; +ve Max India, Apollo Hospitals
· Focus on HIV eradication; +ve for MNC Pharma cos like Novartis
· More allocation to self house groups; +ve ICICI Bank
· Higher Allocation for roads; +ve IVRCL, HCC, Gammon, Nagarjuna
· More agri focus spending; +ve ITC
· Higher Agri Focus; +ve Ruchi Soya, Agro Dutch, Agro Tech
· Higher farm lending; +ve for all PSU banks
· Higher agri focus; + Ve fertiliser & pesticide co
· More Irrigation projects; +ve pipe for cos esp PSL
· IT spending on Food corporation on India; Focus - TCS, CMC
· Seven more UMPP under process; focus: NTPC, Lanco, GMR, REL Ener, Tata Power
· Seven more UMPP under process; Focus - PFC
· Higher outlay under NHDP; +ve IVRCL, HCC, Gammon, Nagarjuna
· Higher Outlay for road infrastructure; + ve cement and CV players
· Seven more UMPP's to be awarded; +ve Electric Eq suppliers
· Higher outlay for TUF; + ve Lakshmi Machine Works
· Higher outlay for TUF; + ve Gokaldas, Arvind Mills
· Higher outlay for TUF; + ve textile cos
· Higher tourism allocation; + ve TFCI
· New mortgage guarantees/instruments to be introduced; + ve HDFC, HDFC Bank, Dewan Housing, LIC
· New mechanism for unlocking value thru exchangeable bonds against subsidiaries by group cos; Focus - Tata Motors, M&M, Bharat Forge, CESC, Bajaj Auto
· Allocation to defence increased; + ve BEL, Nelco, Astra, Avantel, CMC, Zen Technologies
· Higher e-Governance Spend; Focus CMC, ICSA, Wipro, 3i Infotech, TCS, Vakrangee Software
· PHASE OUT OF CST; PREPARE ROADMAP FOR INTRODUCTION OF GST BY 2010; + ve INDIA INC
· ON COURSE TO ACHIEVE FRBM TARGETS, + VE INDIA INC, MKTS
· PEAK CUSTOMS DUTY CUT ( Non Agri); + ve INDIA INC
· Customs duty on PTA, MEG Cut; + ve RIL, IPCL, INDO RAMA
· Cut in customs duty on Gem stones; + ve Vaibhav Gems, Gitanjali Gems
· Custom reduced on medical equipment to 7.5%; + ve Apollo Hospitals, Max India
· Customs duty cut on man-made fibre; + ve RIL, Indo Rama
· NO INCREASE IN SERVICE TAX; + ve INDIA INC, Indian Consumer
· Excise duty cut in Diesel & Petrol from 8% to 6%; + ve HP, BP, IOC
· Duty cut on water carriage pipes; + ve PSL, Ratnamani, Finolex Pipes
· Increase in excise duty for cement prices above Rs.190 per bag; -ve ACC, Guj Amb, Shree Cements
· NO CHANGE IN CORP TAX; - ve India Inc
· Infrastructure status for Gas Pipeline; Positive GAIL, CAIRN, RIL, GSPL
· Cut in service tax on Clinical trials; + ve Biocon
· MAT definition tweaked
· Tax Benefits extended for 5 more years; + ve Pharma & Auto co's
· IT/ITES sector to come under MAT: to pay 11.22% of adjusted Book profits; - ve IT industry - Infosys, TCS, Wipro
· 150% weighted deduction extention ;+ve for pharma sector Sun Pharma, Ranbaxy, Dr reddys
· Dividend Distribution Tax hiked; - ve for high dividend payers - ONGC, NTPC, IOC, RIL
· Esops to be brought under FBT; - ve Tech, Media cos
· Dividend Distribution Tax increased; - ve Mf's
· Rent on Commercial properties; - ve Unitech, Mah Gesco
· EFFECTIVE TAX RATE UP FROM 33.66% to 33.99%; Tax rates of 30.90% for SMEs (total income < 10mn)
· Service tax exemption on clinical trials; + Ve Dr Reddy, Ranbaxy, Biocon
· Service tax on commercial property rent; - ve Pantaloon, Shoppers Stop, Trent
· Service tax on commercial property rent; - ve Multiplexes
· MAT not levied on 10 AA - SEZ's spared; marginally positive for SEZ players
· Proposal for Single tax levy on Telecom; directional + ve for telecom's
· Export Duty of Rs 300/tonne on iron ore; Negative for Sesa Goa
· Customs duty cut on coking coal; + ve for steel, power co's
· Measures to contain cement prices; +ve for construction co's
E&Y
· Immunisation programme to promote Pharma industry
· Higher outlay for seed procurement to benefit agri-based companies
· Coffee, rubber to get similar fund benefits as tea industry
· Rs 1800 cr allocated to NABARD +ve for banks
· Rural bonds worth 5000 cr to be issued will be eligible for tax exemption
· Higher outlay for seed procurement to benefit agri-based cos- monsanto,syngenta
· Agri focus with a view to increase production is a measure to curb inflation
· Focus on road construction to benefit cement cos
· Technology upgradation scheme to continue - handlooms to be covered
· Increased Allocation for textile parks to boost Garment and textile cos
· Retail sector in sports may get a boost on account of commonwealth games
· Tourism and Hotel sector to also benefit from Commonwealth games
· Higher VAT growth will reduce subsidy burden on Central Govt
· Interstate purchase to become less costly due to reduction in CST
· Reduction in rate step towards phasing out of CST
· Peak rates reduced from 12.5% to 10% for non-agri products
· Textile raw materials import duty cut
· Gem & jewellery sector to benefit from reduction in duties
· General rate on medical equipments reduced to 7.5%
· Medical equipment duty cut to benefit the Hospital sector
· No change in CENVAT & service tax rates
· Excise duty on petrol & deisel reduced from 8% to 6%
· Reduction in duty on petro products - Measure to curb inflation
· All types of food mixes exempted from excise
· Reduction in excise duty on biscuits/packed foods to benefit SSI:E&Y
· SSI excise exemption increased to Rs 1.5 crores
· Service tax minimum taxable slab increased from Rs 4 to 8 lakh
· Clinical Trial Industry to get boost - Cost of providing services lower by 12.24%
· Export of services rules undergo changes. May simplify the export definition
· Individual tax payers to pay less tax by Rs 1000
· Exemption from 4% CVD for crude & refined edible oil
· Food processing industry to benefit from import & excise duty cuts
· Corporate having turnover less than 100 lakhs not to pay surcharge: effective rate is 30.6%
· Corporates having turnover less than 100 lakhs gain by 2.68% from abolishment of surcharge
· IT/ITES sector to come under MAT: to pay 11.22% of adjusted Book profits
· 5 year tax holiday for hotels/convention centres will promote tourism/hotel sector
· Private sector R & D institutions to gain by import duty cut to 5%
· Dividend Distribution Tax increased to 15% - effective rate is 16.83%
· Private import of aircraft & helicopters now liable to duty
· Education cess increased from 2 to 3 percent
· Effective Corporate tax rate, Turnover > Rs 1 cr - 33.99%, DDT: 16.99%, MAT: 11.33%
· Effective customs duty at peak rates reduced from 36.74% TO 34.13%
· Effective CENVAT rate becomes 16.48%
· Effective service tax rates proposed to increase to 12.36%
· Rent on commercial property covered under service tax
· Taxation of ESOPs under FBT to adversely impact remuneration policies of companies
· Exchangeable bonds to facilitate borrowings against promoters holdings
· Retrospective amendment to section 10AA made pari passu with section 10A for SEZ Units - anti abuse provisions introduced
· TDS on professional payments increased from 5% to 10% from June 1, 2007
· TDS on rented plant & machinery reduced to 10% from June 1, 2007
· Supreme Court ruling on taxability of royalty/ FTS overruled - Explanation to Section 9 provides for no requirement to establish territorial nexus with India
· Definition of "India" under Income Tax Act, 1961 made pari passu to definition under Article 1 of Consititution - to include territorial waters and air space
· MAT impact for tax holiday companies would depend on tax credit available
· Effective tax rate (including DDT) of domestic companies increased by 1.76% now being 43.58%
Budget Impact - Dhirendra Kumar
Last year, I thought that Budget 2006 was a 'low-impact' one as far as issues like savings and tax relief on savings went. The basic shape of taxes, both personal and capital gains, remained the same. In Budget 2007, things are much the same. This is yet another low-impact budget whose underlying message for savings and investments is that things are basically OK and there's no need to tinker too much. As I thought last year too, there's nothing wrong with a budget that's basically a do-nothing in these areas. Historically, Indian Finance Ministers have shown a tendency to do too much of the wrong things when governments are in some political pressure but Mr Chidambaram has stuck to his guns and basically emphasised that his policy on savings is just fine and I think that's a good thing. For individuals doing their tax-planning, stability of the tax regime has a great value.
Exemption: However, there are a few changes that will impact some segments. The increase in the basic tax exemption by Rs 10,000 means an extra Rs 1,000 a year for all tax payers. This kind of an increase should really be automatic and linked to some sort of an inflation index.
Dividend Distribution Tax: Some of the mutual fund industries' debt fund products will come under increased pressure as the Dividend Distribution Tax in liquid and money market funds has been hiked to 25 per cent. These are the kind of funds that most corporates use to park short-term cash. Of course, banks will benefit because their deposits will not be as relatively unattractive as they are now compared to income funds, but on the whole this will definitely mean a higher tax outgo (even though this tax outgo is invisible in their accounts) for cash-rich companies. It's difficult to calculate the exact impact at this stage but it is entirely possible that fund companies that have been hyperactive in these kinds of products could be severely affected.
New Regulations: In his speech, the FM said the government sought to 'promote the flow of investment to the infrastructure sector by permitting mutual funds to launch and operate dedicated infrastructure funds.' I'm not sure yet what this means. Funds are already free to launch any kind of sector-specific funds and some infrastructure funds already exist. Another point about funds he made is that the government would 'converge the different regulations that allow individuals and Indian mutual funds to invest in overseas securities by permitting individuals to invest through Indian mutual funds'. Here again, individuals can already invest abroad through mutual funds. I guess things will become clearer when the actual regulations detailing these changes arrive.
Exchangeable Bonds: Another interesting statement is that the government will 'put in place an enabling mechanism to permit Indian companies to unlock a part of their holdings in group companies for meeting their financing requirements by issue of Exchangeable Bonds'. In countries where they are permitted, exchangeable bonds are bonds that can be exchanged for the stock of a company other than the issuer, generally a subsidiary. I guess this would be mostly of interest to business houses that like to use innovative financing and restructuring strategies.
Markets' Fall: As far as stocks' steep fall on budget day goes, I think investors were basically nervous and were looking for any excuse (the budget or the global stock collapse over the last two days) to sell heavily. The general story seems to be that the market expected this or that benefit and since nothing materialised prices are crashing. It seems that whether it is corporate results or the Union Budget, stock players routinely build up great expectations unilaterally and then complain when these are not met.
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