Netscribes Budget Analysis 2013 : Missing the woods for the trees
EXCLUSIVEBudget Analysis Budget Analysis 2013 BudgetHighlights 2013 Missing the woods forHAPPY LOTInvestors the treesThe hike in income threshold to investin Rajiv Gandhi Equity Saving Scheme(RGESS) is good news for new investorsto the stock marketSalaried ClassMiddle Income Group earning upto 5 lakhswill enjoy Income Tax credit of INR 2000 With probably the worst on SUVs or mobile phones were possible economic backdrop mysterious considering theseAgriculture in recent years and an were two robust growth sectors40% larger allocation at Rs 7,00,000 election round the corner, one could – and they affected domesticcrore has been provided for farm loans possibly argue that Chidambaram’s manufacturers and the middlewith interest discounts hands were a bit tied. But that is class too. why he is Chidambaram, and the • Given the high interest environmentReal Estate expectations were growth-oriented, if and the fact that banks haveAffordable house for buyers willingto buy upto 25 lakhs will enjoy not Big Bang. actually been extending tenors oftax benefits home loans to individuals to keep Did he deliver? Maybe, when it came EMIs low, what was the harm ofGarments to micro changes here and there, but extending the Rs 25 lacs limit to allApparel prices may be reduced or at leastwill not be increased anytime soon, say there was really no big picture, no home loans?retailers, as the Budget has announced a big impetus or intent towards growth • How could the FM ignore thingszero excise duty on cotton and yarn at the or big relief to citizens reeling under like the medical allowance limit ofgarment stage inflationary pressures. Yes, one can Rs 15,000 per month or the travelGems and Precious Stones argue that a lot is left to the Reserve allowance of Rs 800 per month inBuying gems will become slightly cheaper, Bank of India, but a lot more could such inflationary healthcare andas the duty on precious and semi-precious have been done to lift the sentiment transport environments? (Not tostones has been cut from 10 to 2% – one of the biggest drivers to mention the oil price hike againHealthcare investments and growth. The oil price after the Budget).The Ministry of Health and Family Welfare hike that followed could not have been • In short, what did he really takehas been allocated Rs 37,330 crore in the worse timed. away from the rich and what didproposed Budget he really give to the middle class, With GDP dipping below 5% in several or, for that matter, the marketsUNHAPPY LOT quarters, people were looking out for or industry? the growth signal. They were probablyAutomobiles looking out for some relief too. But Chidambaram says, “the key to startHigh end automobiles will cost morebecause of revised excise duty/custom then came a series of delicate jokes: the growth engine is to attract moreduty in SUVs, high end vehicles and investment both from domesticmotorcycles • A meagre 10% surcharge on the investors and foreign investors”. Yes, super rich earning more than Rs understood, but how? This cannotCigarettesCigarettes, the staple item for duty hikes 1 crore a year was really more happen by throwing numbers orevery Budget, has not been spared this symbolic rather than impactful planning Budgets, it can only happentime too, with the duty raised by 2% to considering if the government with real policy measures and an18% was really serious, they could impetus for growth. Has he missed theMedia have easily introduced another woods for the trees?New cable connection may also 40% slab.cost more as duty on imported set- • A paltry Rs 2,000 tax rebate totop boxes, or STBs, has been raised those earning up to Rs 5 lacs andby 5% more in the current inflationaryHigh Income Group environment was probably more ofIndividuals with annual salary of more an insult than a gift.than INR 1 crore will have to pay 10 • And what was the message topercent additional surcharge those sectors doing well during the downturn? The higher duties
Budget Analysis 2013Islands of happiness Despite the lack of a big picture, Chidambaram has sent small signals with respect to different avenuesto invite greater investments in theseareas and depict a healthier India. Alot, however, will depend on the goalsversus the achievements.Fiscal deficitThe biggest concern for foreigninvestors looking at India apart fromthe pace of policy reforms was thecountry’s fiscal deficit. With creditrating agencies closely watchingcountries following the Europeancrisis, India had the task of reigning inits fiscal deficit to remain an attractiveinvestment destination. The Budgetproposal to contain the FY’14 fiscal offers the Look East policy to provide Haldia Port to the Farakka Powerplant.deficit to below 5% of the GDP (target connectivity for the North Easternis 4.8% of GDP) against 5.2% of GDP states to Myanmar. This will provide Taxationin 2012-13 is a very brave and positive an impetus in economic growth of the There have been no major changes ingoal. This will involve a reduction in North Eastern states in view of the Direct or Indirect taxes in the Budgetnon-plan expenditure from 12.3% easy accessibility to the mainland. The proposal, however, much awaited taxto 10.8% while increasing the tax present proposal is to connect North reform measures like the Direct Taxrevenues from 16.7% to 19.1%. Eastern states to Myanmar, which is Code (DTC) and Goods and ServiceChidambaram expects a large portion a part of the grand India – Myanmar Tax (GST) has received an impetus.of the revenues to come from the – Thailand highway connectivity plan The Finance Minister has proposed tospectrum auctions (Rs 40,000 crore) for East Asia integration. This will introduce DTC and GST in this fiscaland disinvestments (Rs 58,000 crore) require assistance of the World Bank itself which will be a major boost towith a similar amount of Rs 100,000 and the Asian Development Bank industrial growth. In view of thecrore coming from an increase in which may encourage fund flow in the continuous opposition by some oftax revenues. Infrastructure Sector. the states for introduction of GST, the Finance Minister has agreedHowever, with no major taxation The Budget also proposes the to compensate the affected statesproposed in the Budget, to increase development of two new ports – one in adequately for revised rate of Centralthe tax revenue by Rs 100000 crore, Andhra Pradesh and the other in West Sales Tax (CST).the growth should be in the range of Bengal, with capacity of 100 million ton6.5% to 7%. Considering this fiscal’s cargo handling per annum. Further, a With regard to Income Tax, theregrowth would not exceed 5.5%, it may new outer harbour will be developed has been no change in Tax slabsbe a major challenge to achieve 6.5- in Tamil Nadu. This development will and rates. For taxing the super rich,7% growth in the next fiscal to earn involve Public-Private-Partnership 10% surcharge has been proposedthe additional tax revenue and thereby (PPP) with an estimated investment for income above Rs 1 crore. For thereduce the fiscal deficit. of Rs 7,500 crore with an estimated middle class, a token tax relief has capacity of 42 million tons. been extended in the form of tax creditInfrastructure of Rs 2,000 for income up to Rs 5 lacs.Under the current fiscal condition, Five inland waterways have been The FY’14 estimates peg income taxconsidering the subdued demand for declared as national waterways. The growth at 16.9% as against 11.2% inmanufacturing goods as reflected by Haldia to Farakka stretch in West FY’13. The Service Tax revenue growthsluggish growth in IIP data recently, Bengal has been awarded the first has been assumed at 36% of the grossthe next major growth area should be transport contract. This will help in tax revenue as against 13% in thethe Infrastructure Sector. This Budget transportation of imported coal from last fiscal.
Budget Analysis 2013Agriculture textile manufacturing include theThe agricultural community constitutes establishment of textile parks under Key budget figuresa major part of our population. To Scheme for ‘Integrated Textile Parks’cater to the requirements of this (SITP) which will house apparel FY13 (RE) FY14 (BE)sector, a 40% larger allocation at Rs manufacturing units. An amount of Budget size 14,308 16,6537,00,000 crore has been provided for Rs 50 crore has been allocated to the Gross tax-GDP ratio (%) 10.4 10.9farm loans with interest discounts. Ministry of textiles in order to provide Receipt/expenditureThe growth in the agricultural sector supplementary funding of Rs 10 crore growth (%) 14.3 14.6is of prime importance considering the for each textile park. Net govt. borrowingfact that to achieve 9% growth; the (Rs bn) 4,674 4,840farming sector needs to grow by 4%. Healthcare Fiscal deficit-GDPTherefore, it may be considered as a India is steadily gaining importance as ratio (%) 5.2 4.8move in the right direction. a medical tourism hub and is attracting patients from all over the world for RE-Revised estimates, BE-BudgetEncouraged by the robust production inexpensive and effective treatments. estimates Source: Government of Indiain cereal crops in the eastern states, Also, with higher disposable incomesthe Budget proposes a Second and the higher occurrence of lifestyle crore for the 6 AIIMS-like institutionsGreen Revolution in these states to diseases the healthcare market in India that have already commenced theirencourage cash crops as alternatives is witnessing tremendous potential. academic session and are expectedto traditional crops like rice, wheat etc . This year, the Budget allocated Rs to initiate operations of the attachedMoreover, two National level institutes 66,165 crore to the Indian healthcare hospitals by 2013-14.will be established at Chattishgarh space. The Ministry of Health andand Jharkhand which will serve as Family Welfare has been allocated Educationcenters for excellence in agricultural Rs 37,330 crore in the proposed A greater expenditure on education willbio-technology. Budget; out of which the new National have a positive impact on companies Health Mission that combines the providing education and IT relatedManufacturing and rural mission and proposed urban services such as Educomp, NIIT,Construction mission will be allocated Rs 21,239 Aptech etc.For an economy to be truly developed, crore. Medical education, training andone of the prerequisites is a robust research have been considered for a The Budget proposes a 7% increase inmanufacturing sector. However, a proposed provision of Rs 4,727 crore. the allocation of Rs 27,258 crore forsluggish manufacturing sector has The National Programme for Health education under the Right to Educationbeen weighing on the country’s Care of Elderly is set to be executed in Act and the Sarva Shikshya Abhiyaangrowth, as reflected by recent IIP data. 100 selected districts of 21 states. The (RTE-SSA). It also provides Rs 3,924To provide a boost to the sector, the government has also shown interest crore for Rashtriya MadhyamikUnion Budget 2013-14 has proposed a to mainstream Ayurveda, Unani, Shikshya Abhiyaan (RMSA). A sum ofnumber of development measures for Siddha and Homoeopathy through Rs 1,000 crore has been allocated forthe manufacturing industry. National Health Mission for which Rs Nation Skill Development Corporation 1,069 crore is being allotted to the (NSDC) for attracting youth to jobSemiconductor wafer fab plays an Department of AYUSH. The Budget based vocational trainings.important role in the eco-system of also declared allocation of Rs 1,650electronics manufacturing. In orderto promote the manufacturing ofelectronic goods, incentives will be Non-Plan Expenditure Estimatesprovided to semiconductor waferfab manufacturing facilities which Non-Plan Expenditureinclude zero customs duty for plant Rs Crores 2012-13 RE 2013-14 BE* Growth %and machinery. A reduction in duty on Interest Payments and Debt Servicing 319759 360000 13%specified machinery for manufacture Defense and service 193407 206000 7%of leather and leather goods, includingfootwear, from 7.5% to 5% has been Fertilizer Subsidy 100974 85000 -16%announced in the Budget. Food Subsidy 100000 125000 25% Petroleum Subsidy 72260 40000 -45%Under the Budget for FY’14, Total Non Plan Expenditure 1063580 1111000 4%the concession period has been *Estimatedextended for the manufacturers of environment friendly vehicles. Sources: MOF Also, proposed measures to boost
Budget Analysis 2013 Key Economic Indicators Real Estate The Union Budget has given the India Economic Data Latest Month Previous Month on Real Estate sector and the home Month Month change % buyers something to look forward to. Allocation of the rural housing fund IIP growth % y-o-y -0.10% Nov-12 8.20% -2.22% has been raised to Rs 6,000 crore Manufacturing % y-o-y 0.30% Nov-12 9.60% -2.14% along with an Urban housing fund of WPI y-o-y* 7.18% Dec-12 7.24% -0.30% Rs 2,000 crore. First time home buyers Exports USD billion 0.25 Dec-12 0.22 11.57% will get an increased interest deduction of Rs 1 lac for loans up to Rs 25 lacs. Imports USD billion 0.43 Dec-12 0.42 2.19% The Budget has introduced TDS at 1% Trade Balance USD billion -0.18 Dec-12 -0.19 -8.66% on the value of immovable property Bank deposit growth % y-o-y 11.10% Dec-12 12.80% 0.53% exceeding Rs 50 lacs. These measures Bank credit growth % y-o-y 15.10% Dec-12 17.00% 1.37% are expected to boost demand for the *Expected affordable housing segment. Source: CSO, RBI, Government Automobiles While the proposed Budget has had a neutral impact on the Auto sector,Energy and Utilities to significantly reduce the import manufacturers of sports utility vehiclesKeeping a focus on encouraging of electronics. Furthermore, the (SUVs) and high end automobiles arealternative energy generation government has focused on the not happy. A negative has been themethods, the Union Budget has promotion of the manufacturing of set increased excise duty levied on sportsproposed incentives for green energy top boxes in the nation itself. In this utility vehicles (SUVs) to 30% from theand quite a few tax incentives for the financial year’s Budget, import duty existing 27%, on the grounds of higherenergy sector. The ‘generation based levied on set top boxes have been occupancy of parking and road space.incentive’ for the wind energy sector has increased from 5% to 10%. Import duty on superbikes and highbeen reintroduced with a reservation end cars has also been hiked, and nowof Rs 800 crore. Municipalities are Some of the other proposals from stands at 100% from 75% previouslyencouraged to participate in the this year’s Budget include banking for fully built cars and 75% from 60%Public-Private-Partnership (PPP) norms compliance, ATM expansion, earlier for motorcycles above 800cc.model and generate power from urban transforming post offices and thewaste. The Government has also textile sector and rolling out Aadhaar Meanwhile, the Jawaharlal Nehruremoved customs duty on electrical enabled payments for several National Urban Renewal Missionplant and machinery and plans to shift government schemes. (JnNURM) has been provided Rsto the revenue sharing model from 14,873 crore. Of this amount, athe profit sharing model in all oil and Media and Entertainment significant portion will be used for thegas projects. The proposed Budget brings cheer to purchase of 10,000 buses especially the FM broadcasting sector by adding for the hilly regions.Telecom, IT and Electronics more cities under the government’sThis year, there were some significant initiative for expansion of the FM Social SectorBudget announcements in this space. circle. The expansion of FM stations In the Social Sector, the GovernmentHowever, the telecom industry in 294 cities in the country has been has proposed some bold steps towas largely disappointed due to the announced. As a reference to Phase III manage the fiscal deficit. The Budgetabsence of any announcement related expansion of FM Radio for which the aims at reduction of subsidies in theto tax relief. On the contrary, there Information and Broadcasting ministry area of petroleum, food and fertilizers.will be 6% duty on all mobile phones is already working, the Finance As against the subsidy of 2.6% in thepriced above Rs 2,000 which adding to Minister has announced that 839 new last fiscal, the proposed subsidy forthe burden of the industry as well as FM radio channels will be auctioned. this fiscal stands at 2%. Nonetheless,the consumers. considering the political scenario in Last year witnessed full exemption the country, reduction of subsidy asThe Indian Finance Ministry has of service tax on copyright and proposed in the Budget may prove toproposed some positive initiatives, cinematography, in line with the be a major challenge.especially in the hardware industry demands. This year, themanufacturing segment. As proposed FM gave in further to the demands In the area of National Ruralin the Union Budget, the government by exempting sector Service Tax on Employment Guarantee Act (NREGA)will initiate the promotion of chip copyright on cinematography for the allocation remains unchanged.manufacturing in India in order movies exhibited at theaters.
Budget Analysis 2013During FY’14, the ministry will focus as a positive approach in this direction, As against the ruling price in the worldon controlling food inflation and the Budget has proposed some market of around $14 per unit, theaugmenting the supply side to meet major reform measures to encourage current price for Indian producers isthe growing demand for food items. investment in the country in the form pegged at less than $5; this is dryingAn amount of Rs 10,000 crore has of Domestic Investment (DI) and up investment in this crucial area bothbeen allocated as incremental cost for Foreign Direct Investment (FDI). Also, by domestic and foreign investors. TheNational Food Security Bill. In order the advent of DTC and GST will have a current Budget proposes to review theto attract investment and enhance very positive impact on the sentiment gas pricing and oil exploration policy.productivity of livestock base, the of investors. Once that is done, it is expected to‘National Livestock Mission’ will be attract more investment in areas likelaunched for which an amount of In the past, the General Anti shale gas.Rs 307 crore has been allocated. In Avoidance Rule (GAAR) has conveyedaddition, a financial support of Rs 5000 a wrong message to the international All in all, the Union Budget for FY’14crore will be provided to NABARD for investor community. In this Budget, failed to receive a thumbs up fromconstruction of warehouses, godowns, it has been proposed that GAAR will the industry, especially since the expectations were much higher fromsilos and cold storage units for storage be postponed for implementation Chidambaram after his big bangof agricultural produce, both in public to 2016. The Government has also reform announcements over the pastand private sectors. Moreover, a proposed to differentiate between several months. Experts opine that itcompany will receive an investment Foreign Institutional Investment (FII) kept the macro promises such as theallowance of 15%, if it invests Rs 100 and Foreign Direct Investment (FDI). one on fiscal deficit while some believecrore or more in plant and machinery Holding stake of 10% or lower by a its outcome will be evident laterin theduring this period. Foreign Investor will be considered as year. No matter which side we take, a FII and above 10% will be considered Budget is only as good as the last onePotential for Growth as FDI. till it delivers what it sets out to do.Although India is the 3rd economy inAsia, the major challenge that faces In recent times, gas price fixationthe country today is to attain optimum has become a major deterrent forGDP growth of 6.5% in 2014. However, investment in the Oil and Gas sector.