a detailed approach to budget analysis

1. Presented by:
Anirban Chatterjee
Ankita Saha
Avishek Mazumder
Sayantan Das
Supratim Ghosh

3. India is the second largest producer of cement, employing a million people worldwide.
Market Size:
• Cement demand in India is expected to increase due to government’s push for large infrastructure projects,
leading to 45 million tonnes needed in the next 3 to 4 years.
• India’s cement demand is expected to reach 550-600 million tonnes per annum(MTPA) by 2025.
• To meet the rise in demand cement companies are expected to add 56 million tonnes capacity over the next
3 years.
Demand Drivers:
• Housing sector is the biggest demand driver of cement, accounting for about 67 percent of the
• total consumption in India.
• Infrastructure at 13 percent.
• Commercial construction at 11 percent.
• Industrial construction at 9 percent.

4. India is the world’s third-largest producer of crude steel and is expected to become the
second-largest producer by 2016. The growth in the Indian steel sector has been
driven by domestic availability of raw materials such as iron ore and cost-effective
labour.
Market Size:
• India’s crude steel capacity reached 109.85 Million Tonnes (MT) in 2014-15, a
growth of 7.4 per cent. Production of crude steel grew by 8.9 per cent to 88. 98 MT.
• The steel sector in India contributes nearly two per cent of the country’s gross
domestic product (GDP) and employs over 600,000 people.
• India produced 7.34 MT of steel in the month of September 2015, which was nearly
equal to the country's steel production in September 2014.

5. It is understood that there has not been any direct benefit for the cement
sector from this budget. The first half of FY15 nurtured hopes of better
growth but the second half was shot by a slowdown, especially in the
quarter ending in March because of the government cutting expenditure.
Cement however is the basic ingredient of infrastructure and thus cement is
a natural beneficiary of the infrastructure pickup in the country. Impetus
offered to infrastructure segment in the budget will certainly help demand
scenario to improve going ahead. Hence it is believed that the cement
industry in India is on the verge of cyclical upturn from Financial Year
2016 in the backdrop of pickup in infrastructure and real estate activities
across the country. Slowing capacity addition in the industry from
Financial Year 2016 will further aid industry utilisation.

6. Production of cement over the last five years

7. Budget Proposal Impact
• Excise duty hiked to 12.5% from 12% Marginally Negative
• Impetus to infrastructure development Positive
• Clean energy cess increased from Marginally Negative
Rs100/tonne to Rs200/tonne on coal

8. It is expected that domestic steel off-take will remain weak in the near term.
But with the government’s thrust on infrastructure, the domestic steel
growth is expected to rise in the Financial Year 2016. . However,
realizations are under pressure due to cheap imports and hence Net Sales
Realization (NSR) is expected to dip over the next two quarters, resulting
in steel spreads coming under pressure. The domestic steel industry got a
double booster shot from the 5% hike in the customs duty, which will make
imported steel costlier, and a major thrust on infrastructure. This duty
revision is aimed at curbing import of Chinese and Russian steel and help
local firms reclaim market share. However it was felt that the move to
double import duty on metallurgical coke to 5% and doubling of coal cess
to Rs 200 a tonne will hurt the industry.

9. Steel Industry in India

10. Budget Proposal Impact
• Increase in Tariff rate on Marginally Positive
Iron & Steel from 10% to 15%
• Increase in Import duty on Marginally Negative
Metallurgical coke from 2.5% to 5%
• Increase in excise duty from 12% Marginally Negative
plus education cess and higher
education cess to 12.5% all inclusive
• Incremental spend of Rs700 billion Positive
on infrastructure

11. • To increase the demand for cement.
• In the cement sector, justice and fairness
is called for, as cement despite being an
essential commodity is one of the most
heavily taxed commodities as if it is a
luxury product. Therefore taxation on
cement must be brought at par with the
steel sector.
• Import duty on inputs for cement is higher
than on the finished products and this needs
to be addressed.
• Bigger allocation for the much required
irrigation projects and infrastructure must be made.

12. • In the upcoming Union Budget, steel manufacturers
are expecting measures to protect the domestic
industry from imports.
• Slashing down the prices of products of allied
construction industries like cement, steel and
other building materials is also necessary for
bringing down the overall cost of construction.
• Higher import duty on steel products.
• Increase the demand for steel.

13. • Targeted schemes to boost housing sector will also help cement demand to regain growth.
• Instead of allowing home buyers tax benefits post possession, the Union Budget should make
a provision that allows these from the time they start paying the housing loans.
• The government should increase the tax deduction limit for housing loans, especially for
buyers in metropolitan cities.
• Raise house rent deduction limit.
• Make additional allocation for infrastructure which will lead to increased demand for cement
and steel.
• Remove the DDT bottleneck in REITs.

14. • Railway budget 2016 proposes to develop three freight corridors which in turn will
increase the demand for cement and steel.
• Demand for cement and steel will also increase due to Railway budget’s proposal to
build more terminals.
• Higher import duty on steel products, particularly long and flat steel products.
• Reduction in import duty on coking coal: Coking coal is a key input in steel
manufacturing and in the absence of domestic resources, steel manufacturers resort
to imports for their coking coal needs. A reduction in the import duty is expected
which will help to control the input costs.

15. Cement Sector Impact
• Higher spend on infrastructure segments Positive for all cement makers.
such as roads and highways, irrigation and push
to “housing for all scheme”.
• Incremental spend on smart city development. Positive for cement makers.
• Rise in allocation under Pradhan Mantri Gram Positive for cement makers.
Sadak Yojana.
• Extension of excise duty exemption. Positive for cement makers.
• No talk of GST Bill. Neutral to negative for all cement
makers as they pay 25-26 percent in
indirect taxes.

16. Prediction Announcement
•Bigger allocation for the much required
irrigation projects and infrastructure.
•To increase the demand for cement.
•Change in excise duty structure.
•Taxation on cement must be lowered.
• Total outlay for infrastructure- Rs 2,21,246 cr.
•Demand expected to increase upto 5.5-6% in
2016-17 from an estimated 3.5-4% in 2015-16.
•No change in excise duty structure.
•Tax incentives for housing.

17. Steel Sector Impact
• Higher investment on infrastructure. Positive for all steel makers.
• Government procurement from domestic Positive.
steel sector.
• Announcement on infra growth. Positive.
• Doubling of clean energy cess. Negative.

18. Prediction Announcement
• To increase the demand for steel. Infrastructure spending promised by
the govt. will help increase steel
demand in the country.
• Higher import duty on steel products. Import duty increased.
• Reduction in import duty of coking coal. No major reduction.
• Measures to protect domestic industry. Recently imposed duties on imported
steel are giving breathing space to
Indian companies.

19. The government is banking on infrastructure spending to kickstart investment
and job creation. The major benefits of higher spending in infrastructure,
will ensure higher demand for cement and steel which will in turn result in
more efficient public transport facilities, public convenience, creation of
new jobs for youth, etc. The increase in demand of cement and steel will
make the domestic cement and steel sector play an important role to the
govt. of India’s schemes of ‘Make in India’ and “Smart Cities” .