Crisil budget analysis_2016

CRISIL Budget Analysis
February 2016
Fiscally prudent, socially redistributive

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Last updated:August, 2014
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Contents
Executive Summary.....................................................................................................................................................1
Economy
Economy analysis.........................................................................................................................................................................5
Industry
Sectoral impact ..........................................................................................................................................................17
Capital markets
Capital markets..........................................................................................................................................................24
Annexure: Sector wise Impact
Airport infrastructure...................................................................................................................................................................28
Automobiles.................................................................................................................................................................................29
Banking ........................................................................................................................................................................................31
Cement.........................................................................................................................................................................................32
Construction.................................................................................................................................................................................33
Fertilisers......................................................................................................................................................................................34
Hospitals ......................................................................................................................................................................................35
Information technology...............................................................................................................................................................36
Media & Entertainment...............................................................................................................................................................37
Non-ferrous metals.....................................................................................................................................................................38
Oil & gas.......................................................................................................................................................................................40
Petrochemicals............................................................................................................................................................................42
Pharmaceuticals..........................................................................................................................................................................43
Ports .............................................................................................................................................................................................44
Power ...........................................................................................................................................................................................45
Real estate...................................................................................................................................................................................46
Renewable energy......................................................................................................................................................................48
Roads ...........................................................................................................................................................................................49
Steel..............................................................................................................................................................................................50
Sugar............................................................................................................................................................................................52
Telecom........................................................................................................................................................................................53
Textiles.........................................................................................................................................................................................54

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This Page is Intentially Left Blank

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Executive Summary
■ Fiscal math mostly ties up: The government has done a fine balancing act and maintained its credibility by sticking
to the Fiscal Responsibility and Budget Management (FRBM) target of bringing down fiscal deficit to 3.5% of GDP in
fiscal 2017 after having met the 3.9% target for fiscal 2016. The government has assumed realistic nominal GDP
growth and gross tax collections target of 11% and 11.7%, respectively for fiscal 2017 and most of the tax collection
targets barring “income tax” and to some extent “corporate tax” appear manageable. While the overall subsidy bill is
projected to come down to 1.66% of GDP in fiscal 2017 from 1.90% in fiscal 2016, thanks largely to lower oil subsidies,
productive spending (capital spending + revenue grants for creation of capital assets) is only mildly up from 2.73% to
2.75%. Higher salaries and pensions have kept the revenue expenditure burden sticky and restrained government’s
ability to significantly increase capex.
■ Lower rates, new measures to boost bond markets: Sticking to the fiscal deficit target despite pressure to
undertake stimulus measures to revive growth will pave the way for the Reserve Bank of India to cut policy rates. With
expected improvement in monetary transmission with implementation of marginal cost of funds based lending rates,
borrowing costs will decline. Heightened hopes in the market of a rate cut are indicated by the fall in bond yields post
the Budget. In the long term, the bond market will be boosted by the push for long-term savings and pension products,
clarification of taxation on securitised papers, proposed code for resolution of financial firms and encouragement for
large borrowers to shift part of their fund raising from banks to the bond market.
■ Budget takes note of rural distress: The rural flavour in this year’s Budget was strong. The farm sector saw a
sharper increase in Budget spend, but the non-farm sector too got its fair share. The farm sector has seen a 94%
increase in allocation, with crop insurance and irrigation being the biggest beneficiaries. For the non-farm community,
while there are measures to provide a safety net, the increase in allocation is moderate compared with last fiscal. At
an overall level, rural development spend (mostly non-farm) is budgeted to grow at a moderate pace of 11% on-year
in fiscal 2017 compared with 15% in fiscal 2016. But within rural spend, the shift towards higher non-NREGA spend
is evident. Overall, after years of neglect, some key issues facing rural India have received attention, but there still are
a few misses. These include poor focus on agri-markets development and push to agriculture investment, inadequte
steps to increase farm profitability and absence of long-term solution to impart skills training and create employment
in the non-farm sector.
■ Push for rural consumption: This push on rural sectors will propel consumption in rural-linked sectors such as
tractors, two-wheelers and fast moving consumer goods. The fast-tracking of irrigation projects, increase in farm credit,
higher allocation to NREGA and extension of interest rate subvention to farmers will boost rural incomes. By contrast,
urban-driven sectors such as passenger vehicles will be negatively impacted due to levy of infrastructure cess. The
higher excise duty on branded textiles and cigarettes could impact consumption marginally.
■ Getting public sector to revive investments: The focus is sharp on infrastructure investments, which will have
spillovers on growth if implemented effectively. Despite pressure on fiscal consolidation, enough room has been
created for infrastructure spending through the government’s own resources and by nudging PSUs to invest more,
specifically on roads, highways, agriculture and rural development. Also, outlined are measures to enhance the role
of private sector in infrastructure development through better resolution of contractual issues and improving risk
assessment and pricing of loans. Overall, the budget is growth-enhancing as it supports a mild pick-up in public

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investments, which can draw in private investments over time. In the near-term, however, low commodity prices (which
will inhibit investments in sectors such as oil and gas, and metals), depressed demand and low capacity utilisation will
continue to drag recovery in private capex and delay the revival of the overall investment cycle.
■ Measures to boost demand and job creation: Tax incentives for home buyers and developers are aimed at lifting
housing demand. This will not only have spillover effect on cement and metal sectors, but is also positive for job
creation given the high labour intensity of construction sector. Likewise, steps to encourage micro and small medium
entrepreneurs to set up businesses is an effort at job creation. Tax exemptions and incentives for investing in start-
ups are also expected aid employment generation in the medium term. The finance minister has also tinkered with
customs and excise duties to encourage domestic value addition and provide a fillip to the Make in india programme.
■ Provision for PSB recapitalisation low: Against the backdrop of sharp increase in non-performing and stressed
assets and stricter Basel III norms, the Budget has fallen short of expecations. Though the Finance Minister reiterated
the Government’s commitment to support PSBs, the actual allocation of Rs 25,000 crore for their recapitalisation is
clearly inadequate and will hurt banks’ ability to fund growth. But, continuation of structural measures such as
commencement of Bank Board Bureau’s operations (as part of the Indradhanush programme to revamp PSBs), and
consolidation of PSBs could improve governance and efficiencies. Introduction of bankruptcy code, relaxation of norms
for ARCs and regulatory changes to speed up resolution of disputes/renegotiation of contracts in PPPs would help
address asset quality issues in the banking system over the long term.

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Economy

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Economy analysis
Indian economy outlook
FY15 FY16 FY17 Budget impact
GDP (y-o-y %) 7.2 7.6 7.9 Supports a pick-up in infrastruture investments, which
can crowd in private investments over time. In addition,
measures to support agriculture and rural development
will be positive for private consumption.
CPI inflation (%, average) 6.0 5.0 5.0 The government’s commitment to adhere to fiscal
consolidation targets is credible and will support the non-
inflationary stance of the RBI. Inflation will stay soft given
reasonable increases in the Seventh Pay Commission
payouts, huge excess industrial capacities and weak
domestic demand. Soft global oil and commodity prices
to also help tame inflation.
Fiscal deficit (% of GDP) 4.1 3.9 3.5 Headroom created by savings on fuel subsidy bill and
increased income from duty hikes has allowed the
government to tread the fiscal consolidation path with
ease
10-year G-sec yield
(%, March-end)
7.7 7.6 7.5 A lower fiscal deficit target would result in restrained
market borrowing programme of the government which
would help ease yields
Note: F=CRISIL Forecast, *CSO advance estimate, **Budget estimate
Source: RBI, CSO, Ministry of Finance, Ministry of Commerce and Industry, CRISIL Research
The fiscal math is balanced out
■ The fiscal math pretty much adds up, while sticking to the FRBM target of 3.5% fiscal deficit of GDP
■ A large increase in revenue expenditure has restrained growth in capital expenditure
■ A miss in disinvestment target likely, but higher spectrum revenues may do the balancing
Government sticks to the fiscal deficit target of 3.5%
The government has done a fine balancing act and maintained its credibility by sticking to the Fiscal Responsibility and
Budget Management (FRBM) Act-mandated target of bringing down fiscal deficit to 3.5% of GDP in fiscal 2017 after having
met the 3.9% target for fiscal 2016. The odds are all too visible. The economy faces global headwinds even as domestic
private invetments are weak. There is a step-up in revenue expenditure on account of the Seventh Pay Commission (SPC)
and One Rank One Pension (OROP) recommendations. The rural sector, too, is in need of a heavy booster dose after two
successive monsoon faliures and there is a need to push public expenditure higher. In such a scenario, treading the fiscal
consolidation path and honouring the FRBM target may be a tad too ambitious and the likelihood of slippages in meeting
the various targets cannot be wished away. Having said that, the benefit the government could have derived by relaxing
its fiscal deficit target would not have been large. A relaxation of say 30 basis points (bps) would have freed up only an
additional Rs 386 billion.

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In light of all this, the following points are worth highlighting with regard to the fiscal math:
■ Tax collection targets manageable: While in FY16 direct tax collections were lower than what was budgeted as both
corporate and income tax growth missed the target - the latter by a substantial amount - growth in indirect tax
collections at 28.5% far exceeded the target of 18.5% on account of windfall gain from increased excise duty on petrol
and diesel, which more than made up for the shortfall in other areas. For fiscal 2017, the overall tax collection target
assumed in the Budget appears achievable. The government has projected a realistic nominal GDP growth target of
11% for fiscal 2017. This is in line with our forecast of 10.9%. The gross tax-to-GDP ratio for fiscal 2017 has been
assumed at 10.8% -- same as that achieved in fiscal 2016. The government has also assumed a modest growth of
11.7% in gross tax revenues in fiscal 2017 after having achieved a growth of 17.2% this fiscal as the incremental
benefits, especially on account of excise hike are limited. The government introduced a Krishi Kalyan cess of 0.5%.
This would mean an effective service tax rate of 15.0% in fiscal 2017, including last year’s 0.5% Swachh Bharat cess.
Individually, the budgeted income tax growth appears to be too optimistic (see table below) and corporate tax
collections may also pose a challenge amidst an environment of subdued demand.
Major tax heads
Rs. Billion Growth (%)
FY14 FY15 FY16 RE FY17 BE FY14 FY15 FY16 RE FY17 BE
Average
FY14-
FY16
Gross Tax Revenue 11387 12449 14596 16309 9.9 9.3 17.2 11.7 12.2
Corporation Tax 3947 4289 4530 4939 10.8 8.7 5.6 9.0 8.3
Income tax 2378 2657 2991 3532 21.0 11.7 12.5 18.1 15.1
Customs 1721 1880 2095 2300 4.1 9.3 11.4 9.8 8.3
Union Excise Duties 1695 1900 2841 3187 -3.6 12.1 49.6 12.2 19.3
Service Tax 1548 1680 2100 2310 16.7 8.5 25.0 10.0 16.8
Source: Budget documents
■ Productive expenditure mildly up despite substantial reduction in subsidies: Productive expenditure can be
defined as the sum of capital expenditure and part of revenue expenditure for creation of capital assets -- as together,
they have the potential to increase the productive capacity of the economy and generate income in the future. The
government has budgeted capital expenditure at Rs. 2470 billion for fiscal 2017, an increase 3.9%, which is lower
compared with 20.9% growth achieved in fiscal 2016 . However, if we add grants for creation of capital assets, the
total budgeted productive spending comes to Rs. 3,132 billion or a rise of 14.2% in fiscal 2017, comparable with 16.2%
in fiscal 2016. As a share in GDP, productive spending would mildly go up to 2.75% in fiscal 2017 from 2.73% in fiscal
2016. At the same time, government’s subsidy burden continues to follow a downward path. Particularly, a lower fuel
subsidy bill (more on this in the next point) would help the government’s overall subsidy burden to come down to
1.66% of GDP in fiscal 2017 from 1.90% in fiscal 2016. Despite a lower subsidy bill, overall revenue expenditure in
fiscal 2017 is budgeted to rise by 11.8% compared with an increase of only 5.5% in fiscal 2016, largely on account of
increased Pay Commision and pension payouts. And that is why the government’s productive expenditure rises only
mildly in fiscal 2017.

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Expenditure share
Source: Budget documents, CSO
■ Lower oil prices to aid revenues: Oil prices are expected to continue their downward journey. After Brent crude
prices almost halved from an average $86 per barrel to an estimated $48 per barrel in fiscal 2016, we expect oil prices
to fall further to around $39 per barrel in fiscal 2017. The decline has reduced the government’s oil subsidy burden,
and allowed it to ramp up revenues stream by hiking excise duty on petrol and diesel. At current rate of excise hikes
– of Rs 7.07 per litre for diesel and Rs 4.02 per litre for petrol which the government undertook between November
2015 and February 2016 – the government stands to earn extra revenue of Rs 179 billion and Rs 405 billion in fiscal
2016 and fiscal 2017, respectively. At the same time, the government’s fuel subsidy bill is budgeted to drop from Rs
300 billion in fiscal 2016 to Rs 270 billion in fiscal 2017. However, we expect the fuel subsidy bill in fiscal 2017 to be
lower than this.
■ Disinvestment target unrealistic: The government has once again set an ambitious target of Rs.565 billion from
disinvestment proceeds in fiscal 2017. Previous experience on this front suggests this would be difficult to achieve
this target as market conditions remain unfavourable and the government doesn’t seem to have a clear strategy to
execute its divestment plan. For fiscal 2016, compared with the budgeted disinvestment target of Rs 695 billion, the
government was able to garner only Rs 253 billion. So, a miss of the same proportion in the disinvestment target as
last fiscal could increase the fiscal deficit by 0.14% in fiscal 2017. However, a miss in the disinvestment target may be
made up by higher than budgeted spectrum revenues. If the spectrum sales happen as per government’s plan, the
revenues could exceed the budgeted target of Rs. 990 billion for fiscal 2017. In fiscal 2016, government earned
spectrum revenues of Rs. 560 billion, higher than the budgeted Rs. 429 billion.
2.8 2.8
2.6
2.7 2.8
2.6
2.3
2.1
1.9
1.7
0.0
0.5
1.0
1.5
2.0
2.5
3.0
FY13 FY14 FY15 FY16 RE FY17 BE
Productive expenditure (% of GDP) Subsidies (% of GDP)

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Disinvestment receipts (Rs. Billion)
Budget takes note of rural distress: push towards agri and shift
towards non-NREGA safety-net spend
■ Spend on irrigation, crop insurance is up but innovative policy solutions to ensure effective implementation key
■ Poor focus on agri-markets development, push to agriculture investment absent, steps to increase farm profitability
far from adequate
■ Significant support to rural safety net creation; spends up on NREGA, rural roads, push to food processing sector and
rural housing
The rural flavour in this year’s Budget was strong. The farm sector saw a sharper increase in Budget spend, but the non-
farm sector too got its fair share. At an overall level, rural development spend is budget to grow at a slower pace of 10.8%
in fiscal 2017 compared with 15.4% in fiscal 2016. But within rural spend, the shift towards higher non-NREGA spend is
evident.
There is a 94% on-year increase in spend on agriculture and famers’ welfare that includes 42% increase in irrigation spend,
86% increase in crop insurance allocation, and a Rs 150 billion provision towards interest subvention on loans. For the
non-farm community, while the budget announces measures to provide a safety net, the increase in budgetary allocation
is moderate compared to last fiscal. Within non-farm spend (rural development) though, there is a clear shift towards non-
NREGA spend; a 50% increase under rural housing and a 25% increase in rural roads allocation (PMGSY) coupled with
fast-tracking of road project completion, while NREGA spend is only up 7.7%. Overall, after years of neglect, some key
issues facing rural India have received attention, but there still are a few which have been missed.
Unaddressed vulnerabilities have long amplified stress in the farm sector. India’s farm economy needs a holistic, structural
approach, where resources, reforms and implementation go hand in hand to ensure long-term rural prosperity. Similarly,
the non-farm sector, too, is crying for policy support to (i) create a safety net to mitigate losses to the farm sector in case
of a weather shock and (ii) provide a long-term solution to impart skills training and create employment. Hurt by weak rains
and falling export prices, agriculture growth was at -0.2% in fiscal 2015 and is estimated at a dismal 1.1% in fiscal 2016.
About 58% of rural households engage in agriculture and within this, two-thirds are heavily reliant on it. Alongside, in the
non-agriculture sector, a continued fall in wage growth (due to limited extension of NREGA and decelerating growth in
manufacturing and mining output – half of which is produced in rural India) hurt those dependent on wage income. As rural
300
558
634
695
565
0
100
200
300
400
500
600
700
FY13 FY14 FY15 FY16RE FY17BE
Disinvestment Budgeted Disinvestment Actual

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India suffers, the biggest blow has been to demand (see our report on this).
Figure 1: Shift in rural spending focus
Figure 2: Higher spending on other rural
development
RE: Revised estimate, BE: Budgeted estimate
Farm sector
In the agricultural sector, seven broad areas require policy support – expansion of irrigation cover, development of
agricultural markets, a big push to crop insurance, need to make agriculture profitable, focus on farm investment versus
subsidy, extension of direct benefit transfer (DBT) to fertiliser subsidies to plug leakages and generate non-farm
employment. The Budget has made some attempt to provide a framework to address some of these issues. What is
missing is a holistic approach to rekindle the agriculture sector.
■ Crop insurance spend is budgeted to nearly double under the Pradhan Mantri Fasal Bima Yojana (PMFBY) to Rs
55 billion in fiscal 2017. Earlier this fiscal, the government launched this crop insurance scheme which promises to
contribute a larger share of the premium. The scheme will be operational from fiscal 2017. Here, effective
implementation will be key to meeting the target of 50% coverage in the first two years. At the same time,
adequacy of coverage per farmer per crop will be critical to ensure the usefulness of the scheme. This,
however, will need a sharper increases in Budget allocation. Other challenges include ensuring transparent
assessment of crop damage within a specified time following weather shocks, and the ability to adequately
compensate farmers for the losses within the shortest possible time.
■ Irrigation spend is budgeted to increase by 42% to Rs 77 billion, focussed at fast-tracking and revival of irrigation
projects. It also envisages creation of a Long Term Irrigation Fund in NABARD to an initial corpus of Rs 200 crore, in
addition to ecouraging multilateral funding for ground water management. Such spending needs to be encouraged
more and linked to employment generation. Focus on irrigation will require the government to deploy
sustainable micro-irrigation schemes and creation of assets for rainwater harvesting and storage. This will
go a long way in drought-proofing the economy. While there is some push to irrigation, the coverage is far from
adequate and will have to increased rapidly. In India, poor irrigation cover exposes agriculture to shocks from uneven
rainfall patterns. At the all-India level, irrigation covers only 46.9% of the total cropped area, exposing the rest to
monsoon shocks. Around 84% of pulses, 80% of horticulture, 72% of oil seeds, 64% of cotton and 42% of cereals are
cultivated in unirrigated conditions. The combined spending of Centre and states on irrigation has been a mere 2%
per year of their total spending in the last five years. This is also less than the 3% per year spent in the 5 preceding
years.
100
200
300
400
500
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY 16
RE
FY17
BE
(Rs billion)
NREGA Rural development ex NREGA
0
100
200
300
400
FY14
FY15
FY16RE
FY17BE
FY14
FY15
FY16RE
FY17BE
FY14
FY15
FY16RE
FY17BE
FY14
FY15
FY16RE
FY17BE
FY14
FY15
FY16RE
FY17BE
National
Rural
Livelihood
Mission
National
Social
Assistance
Rural
housing
Roads NREGA
(Rs billion)

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Some other critical issues failed to find adequate policy addressal in this year’s budget. These include steps to encourage
private sector investment in agriculture and development of agriculture markets, both of which are key to improving
profitability of the farm sector
■ Farm profitability is low and declining as the cost of inputs continues to soar. Input and output cost dynamics have
been turning unfavourable year after year, reducing the farmer’s profit margin. The disparity is particularly glaring in
pulses, and growing. Within pulses, the largest disparity between cost of cultivation and output prices is in urad, gram
and tur. In urad, while output prices in the last decade have risen 12%, the cost of cultivation in major producer-states
have risen 12-26%. Similarly, in gram and tur, output prices grew about 10%, but cost of cultivation rose 12-18%. The
Bharatiya Janata Party had in its 2014 general elections manifesto announced its intention to take steps to ensure a
minimum 50% profit over the the cost of cultivation. This will require, among other things, ensuring availability of high-
yield seeds at reasonable costs, reducing the cost of transportation, effective market pricing of agricultural produce,
drought-proofing the sector by expanding irrigation cover and introducing the latest technologies for farming. The
budget refrained from making any announcements to address these issues.
■ Likewise, farm investment has to be encouraged. After coming to power, the National Democratic Alliance
government promised a technology-driven second Green Revolution in India. Crucial to this objective is investment,
but public sector investment in agriculture is low and poor, while private investors don’t have enough incentives. Of
the government’s total spending on agriculture, less than 10% is towards public outlay on capital formation, while the
rest is in the form of subsidies for food and fertilisers. Therefore, for investments in agriculture to increase, the
government will have to take the first step forward. And to make room for spending, it will have to reorient expenditure
from subsidies to public sector investment in agriculture. For instance, during fiscals 2013 and 2014, while public
sector gross capital formation in agriculture grew by an average 4.7%, spending on food subsidy rose nearly three
times faster.
Non-farm sector
A push to non-farm income tends to create a demand-pull in the economy and improves welfare. Construction, trade and
transport have historically acted as engines of rural non-farm employment growth. But these sectors, though labour-
intensive, contribute just about a fourth to GDP at the aggregate India level, and therefore may not be able to solely drive
rural employment. In addition, in recent years, a slowdown in mining and manufacturing output - more than half of which
is produced in rural areas – is likely to have brought down wage growth. Policy focus, therefore, needs to sharpen on other
rural non-farm sectors such as food processing and even tourism.
As in the past, this year’s budget, too, gave a push to construction-driven rural jobs, but there was also a push to the food
processing sector. Also, recent years have seen that the scale of NREGA expansion has been limited, there has been
increased focus on other rural development spending such as roads and social assistance.
■ NREGA spend this budget has seen a lower increase of 7.7%, to Rs 385 billion. Last year, the government had spent
1% higher than the budgeted amount as demand for funds rose during the year. But the increase in fund allocation
does not appear to be commensurate with job creation. In recent fiscals, budgetary allocation for NREGA have seen
only saw small increases. Incidentally, in these years, number of jobs created under NREGA also appears to have
come down. Latest data1
show that employment generation under the scheme has slowed. In fiscal 2015, at an all-
India level, only 23 million households were provided employment compared with nearly 50 million in each of the
preceding 5 years. And in the first four months of fiscal 2016, average employment days per household halved.
Overtime however, there has been increased focus on improving the quality of works under NREGA while linking it to
irrigation and water conservation projects.
1
As reported by Indiastat.com

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■ Rural roads continued to be favoured in terms of budgetary allocation. The Budget has put aside Rs 190 billion
towards rural spending on roads (Pradhan Mantri Gram Sadak Yojana – PMGSY) where the allocation is up 25.2% in
fiscal 2017 over a 52.4% increase in fiscal 2016. The current government has also sharpened focus on rural road
project completion with a plan to further increase the pace of road construction per day, from the current 100 km. It
has accordingly advanced the year of road project completion to 2019, from 2021. This will to some extent cushion
non-farm rural income through job creation.
■ Food processing sector received an impetus with 100% FDI proposed through the direct approval route for marketing
of food products produced in India. This could provide a significant push to this sector which employs more than 8
million people and contributes about 2% to value added.
Boost from public investments?
■ Capital expenditure to moderate to 1.64% of GDP in 2016-17 from 1.75% last fiscal. However, on adding assets for
capital creation, ratio increases mildly to 2.75% to 2.73%
■ The budget has continued to push investment in infrastructure sectors such as roads & national highways
■ We expect higher infrastructure investment to crowd in private capex in fiscal 2017
Growth is gradually looking up, inflation is within the Reserve Bank of India’s comfort band and current account deficit is
firmly under control. Debottlenecking steps by the government are improving the ease of doing business, while declining
inflation and lower interest rates are expected to support private consumption. Yet, India Inc remains cautious on fresh
investments. A revival in investments hinges on increased public investments, especially in infrastructure – specifically
roads, power transmission/distribution and railways – because spending on it has a significant multiplier effect of creating
demand for steel, cement, capital goods and commercial vehicles, and spurring investments in the manufacturing space
as well.
What the budget says about public investments and infrastructure creation?
■ The budget plans a 3.9% increase in capital expenditure in fiscal 2017 compared with a 21% increase in fiscal 2016,
taking its ratio in GDP down by 11 basis points to 1.64%. However, productive spending (capital expenditure plus
revenue spending on assets for capital creation), still shows a mild improvement to 2.75% of GDP in fiscal 2017 from
2.73% in fiscal 2016. Plan capital expenditure is budgeted to remain broadly unchanged at 0.97% of GDP in fiscal
2017 from 1.04% last year. Overall increase in plan outlay (revenue and capital expenditure) is budgeted to rise by
45% compared to an increase of 36% last fiscal.

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Capital expenditure moderates slightly in 2016-17
Note: Total capital expenditure is the sum of planned and non-planned capital expenditure for the Centre and states.
Composition of public investment
■ Allocation for infrastructure-related sectors has risen by 42.7% y-o-y for fiscal 2017. The highest increase in allocation
has been recorded for rural development, followed by roads, shipping and railways.
■ In crucial infrastructure sectors such as roads, highways and railways the cumulative capital outlay is about Rs 2.2
trillion, which is about 34% higher on-year.
■ In 2015, nearly 85% of stalled projects have been put on track. The budget has taken further steps to speed up
the process of road construction by allocating Rs. 55,000 crore for roads and highways on top of Rs 15,000 crore
to be raised by NHAI through bonds. Thus the total investment in the road sector, including PMGSY allocation, is
close to Rs 97,000 crore for fiscal 2017.
■ On national highways, additional 10,000 kms are expected to be approved in fiscal 2017 - much higher than the last
two years. Also, 50,000 kms of state highways will also be taken by for upgradation as national highways.
■ Apart from infrastructure, sectors that have seen a significant increase in budget allocation in fiscal 2017 are
agriculture, food and public distribution, food processing industries, and health and family welfare. On the other hand,
sectors that were not in the limelight (saw lower growth in budgetary allocation compared with fiscal 2016) were
textiles, chemicals, communication and information technology and housing and urban poverty alleviation.
Overall, despite the pressure on fiscal consolidation, the budget has managed to create room for infrastructure spending
through a mix of its own resources as well as by nudging PSUs to invest more. However, an increase in resources available
for funding infrastructure and the government’s implementation capacity to ensure efficient delivery remain a concern.
This, therefore, should be the next area of focus for the government.
1.7 1.6
1.8
1.6
2.8
2.6
2.7 2.8
0.0
0.5
1.0
1.5
2.0
2.5
3.0
FY14 FY15 FY16 FY17*
Capital expenditure % GDP Productive expenditure % GDP
0
500
1,000
1,500
2,000
2,500
3,000
FY14 FY15 FY16 FY17*
(Rs bn)
Centre State

13
13
Sectors with higher plan outlay CPSUs shoulder more than half of capex spending
Note: I.E.B.R.: Internal and extra budgetary resources which are raised by central PSUs through profits, loans and equity; RE:
Revised estimate, BE: Budgeted estimate
Crowding in private investment
■ In order to develop the role of the private sector in infrastructure development, the budget announced three new
initiatives: 1) the Public Utility Bill will be introduced to deal with resolution of disputes in construction contracts, PPP,
etc; 2) guidelines for renegotiation of PPP concession agreements will be issued; and 3) a new credit rating system
for infrastructure projects to better perceive risks of projects and as a result have better pricing of loans.
■ The budget announced 100% FDI will be allowed in marketing of food products produced and manufactured in India.
This will provide benefit to farmers, create employment and boost the food processing industry.
■ These measures, along with higher public investment spending in infrastructure, we believe will also raise private
investment. According to a recent IMF study (2015), public investment on infrastructure such as roads, railways and
power will raise private investment by raising the productivity of capital. A Re 1 increase in public investment is shown
to crowd in private investment by Rs 0.60, Rs 0.31 and Rs 0.17 after one, two and three years, respectively.
Box 1: Corporate tax exemptions – bringing down the Exemption Raj
Last Budget, the government communicated its intent to lower the corporate tax rate to from 30% to 25% by fiscal 2020,
while gradually withdrawing corporate tax exemptions. This Budget, the government has taken the plunge, although there
is more road to cover. The budget proposes a lower tax rate of 25% for new manufacturing companies, provided they
opt out of exemptions. In addition, it has also proposed a lower corporate tax rate of 29% on small units having a turnover
of Rs 5 crore. This is expected to reduce the revenue foregone on account of tax exemptions, which in fiscal 2015 stood
at 4.7% of GDP. Still, the amount budgeted to be spent on tax exemptions – or tax expenditures measured as revenue
foregone – remains large. Tax expenditures incurred by the government on various stakeholders is also a form of subsidy.
Add the direct spending on subsidies – petroleum, food, fertilisers and interest costs, which help reduce individuals’ cost
of consumption – and the total subsidy spending by the government actually amounts to over Rs 9 trillion or about 6% of
GDP.
Besides, the presence of a large number of exemptions erodes the tax base and has for long impeded a reduction in tax
rate. Presence of multiple layers of taxes is also inconvenient to businesses and is hurting India’s competitiveness. The
government’s intent in reducing corporate tax exemptions is right. But it takes care of only corporate tax, which is 61%
of the total revenue foregone on direct taxes but a mere 11% of total revenue foregone (direct plus indirect taxes). A
larger share of total revenue foregone goes to customs duty – at 51% – followed by Union excise duty exemptions at
31% (see table). The government will need to reassess the costs and benefits on these exemptions because revenue
1.8 1.3
11.9
1.1
2.4
4.0
13.3
6.0
0
2
4
6
8
10
12
14
Agriculture Health and
Family Welfare
Road
Transport
Rural
development
% Share in total Central Plan Outlay
FY16 RE FY17 BE
60.6 61.1
56.4
45.6 44.8
48.8
39.4 38.9
43.6
54.4 55.2
51.2
2011-12 2012-13 2013-14 2014-15 2015-16
RE
2016-17
BE
% share in total capital outlay
Budget Support I.B.E.R

14
14
foregone on indirect taxes is as high as 83% of the total revenue foregone and 89% of the indirect tax collections.
In case of direct subsidy spending, the government’s push towards direct benefit transfer of subsidies is a welcome step.
In case of tax expenditure, too, the government should focus on better targeting. A few – but minimal – exemptions with
targeted goals can stay, such as concessions for engaging in economic activity in the hilly and backward areas, tax
breaks on household savings, research & development activities and few exemptions to the exports sector. Withdrawing
tax exemptions will be no mean feat for the government. But there is larger good to be had in the form of efficiency gains
– from lesser taxes paid by producers to savings on tax administration as the cost of enforcement comes down.
Box 2: Subsidy dispensation
Direct benefit transfer (DBT), or the mechanism for channelling subsidy through bank accounts directly to the beneficiary,
is proving to be successful for liquefied petroleum gas (DBT-L) users. Leakages in LPG are estimated at 24%. Since the
scheme was launced at an all-India basis in January 2015, the total beneficiaries has reached 151 million, while the
leakages have come down by 24%. There is still some way to go in terms of reach and coverage. The Economic Survey
also recommends that the household cap on LPG cylinders be brought down to 10 from 12..Potential annual fiscal saving
of full implementation of DBT-L is Rs 127 billion in the subsequent year. The government is also planning to implement
DBT for kerosene users from April 1 in eight states. About 11% of the total subsidy spending by the government is on
fuel (LPG and kerosene) and the extent of leakages has necessitated adoption of DBT.
On similar lines, the government is now also proposing to implement DBT for fertiliser subsidy on a pilot basis. The
government spends 28% of its subsidy burden (or Rs 700 billion) per year on fertilliser subsidies – a large part of which
gets wasted in leakages. Leakages in fertiliser subsidies are estimated at 40%. Also, only 35% of the total fertiliser
subsidy reaches the intended beneficiaries. The Economic Survey finds fertiliser subsidy a good candidate for DBT
through the JAM ecosystem if three pre-conditions are met: (i) there is a high leakage rate; (ii) higher central government
control over dispensation; and, (iii) there is greater control on the first and middle-mile reach. Still, there are several
challenges associated with its implementation. The Survey also says, “The disbursal of subsidy on fertilisers should shift
to DBT, the benefits of which will be maximised, if all controls (including imports) on the fertiliser industry / outputs are
lifted simultaneously” Identification of subsidy per farmer is another area; here subsidy will have to be determined based
on crops produced and soil conditions. Yet, there is some ground that has been covered. The government has in place
a Fertiliser Monitoring System which captures distributor and dealer – level data on fertiliser sales. The challenge now is
to capture retail and farmer level sales data so that adequate subsidy can be transferred to beneficiaries. Once
implemented at an all-India level, it will in addition to plugging leakages, help balance the nutrient intake for crops.
Currently, disproportionately higher subsidy on urea (nearly 70% of the total) has encouraged overuse and unfavourably
tilted the nutrient balance.
Similarly, DBT is also expected to be a game changer in food subsidy. But the Budget refrained from announcing
focussed measures on this. Food subsidy is currently the single-largest subsidy burden of the government, and at Rs 1.3
trillion eats up nearly half of total subsidies. We estimate that DBT can help the government save as much as 20% (or
Rs 250 billion) in food subsidy expenditure by eliminating costs associated with procuring, distributing and storing
foodgrains. Moreover, DBT will help bring millions of poor households that currently do not have access to public
distribution system into the food subsidy net. We estimate that at fiscal 2016 prices, the cash transfers under the DBT
will amount to almost Rs 5,800 per year for a family of five. This will implicitly raise their disposable income as the amount
is higher than the reported total annual expenditure (food +non-food) of the poorest 5% of the rural households and more
than half the annual expenditure of the poorest 10% of urban households. Given the high marginal propensity to consume
at lower income levels, such a significant unconditional cash transfer will undoubtedly raise discretionary spending of the
recipient households, providing a consumption boost to the economy

16
Industry

17
17
Sectoral impact
Industry Impact
Automobiles: Negative for passenger vehicles; other segments to gain Neutral
Key budget proposals:
■ Infrastructure cess of 1% on small petrol/ compressed natural gas/ liquefied petroleum gas cars, 2.5% on small diesel
cars, 4% on big sedans and sports utility vehicles (SUVs) and a 1% additional luxury tax on passenger vehicles priced
over Rs 1 million
■ Expenditure of Rs 1.03 trillion for construction of national highways
■ Fast-tracking of irrigation projects, increase in farm credit (by Rs 500 billion) to Rs 9 trillion, an 11% increase in
allocation to the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and extension of interest
rate subvention to farmers
Our view
The focus on rural incomes and infrastructure development is structurally positive for the automobiles sector. In the near
term, however, the infrastructure cess and additional luxury tax on passenger vehicles (excluding taxis) will drive up prices
and reduce demand. Within passenger vehicles, demand for diesel vehicles, large sedans and SUVs will be relatively more
impacted. Higher spending on national highway projects will spur sales of construction trucks. Continued focus on rural
development schemes will also indirectly aid sales of tractors and two-wheelers.
Cement: Higher spending on infrastructure to benefit in medium term Positive
■ Deduction for interest enhanced for first-time home buyers to Rs 2,50,000 from Rs 2,00,000 per annum.
■ 100% deduction for profits of companies undertaking specific housing projects ( only for flats up to 30 sq m in four
metro cities and 60 sq m in others) and service tax exemptions on construction of affordable houses (up to 60 sq m
under any scheme of the central or state government).
■ Investment towards national highways increased by 49% to Rs 1032 billion (budgetary +internal and extra budgetary
resources).
■ Rs 170 bn for irrigation projects under Accelerated Irrigation Benefit Project.
■ Outlay towards urban infrastructure increased 11% to Rs 166 billion.
■ Ready mix concrete manufactured at the site of construction exempted from excise duty.
■ Clean energy cess on coal (domestic and imported) doubled to Rs 400 per tonne.
CRISIL Research’s View:
The government’s focus on infrastructure is evident with the total targeted spending in FY17 increasing 28% over FY16.
This, along with a number of benefits provided on affordable housing, would aid recovery in cement demand. Further, the
rise in duties and tariffs in the form of clean cess on coal is expected to have a muted impact on total cost, which is
expected to increase 0.2%. Power and fuel cost (~25% of cost of sales) will increase 1%. However, amid rising demand,
players will be able to offset this with a hike in prices.

18
18
Consumer goods: Little to savour Neutral
■ Additional excise duty hiked 200-270% on cigarettes and by 15-16% on other tobacco products
■ Basic excise duty on pan masala increased from 16% to 19%
■ Excise duty on water (mineral and aerated) increased from 18% to 21%
CRISIL Research’s view
Increased focus on sustainability of rural income and infrastructure is a long-term positive for consumer goods
manufacturing sector. Excise duty hike will hurt demand for tobacco-based products as companies will pass on the
increase in cost. Resultantly, revenue of key players such as ITC Ltd, VST Industries Ltd and Godfrey Phillips Ltd will take
a hit. Increase in excise duty on mineral water and aerated beverages will lead to marginal increase in prices.
Financials: Allocation for capitalising PSBs inadequate Marginally negative
■ Rs 250 billion to be provided as capital support to public sector banks (PSBs) in FY17, with a commitment to provide
additional funds, if required
■ Focus renewed on creating a route for consolidation of PSBs
■ Commitment to introduce bankruptcy code and stregnthening debt recovery tribunals
■ Target for banks and NBFC-MFIs to sanction loans increased to Rs 1,800 billion for FY17 vis-à-vis Rs 1,000 billion
sanctioned till early February 2016 under the Pradhan Mantri Mudra Yojana
■ No taxes on profits of companies offering housing projects with flats up to 30 sq mtrs in four metro cities and 60 sq
mtrs in others. Also, additional housing loan interest deduction of Rs 50,000 per annum for first-time home buyers on
loans up to Rs 3.50 million and maximum house value of Rs 5 million
■ Period for acquisition or construction of self-occupied house property increased from 3 years to 5 years for claiming
deduction of interest
■ NBFCs to be eligible for deduction to the extent of 5% of their income provisioned for bad and doubtful debts
■ Sponsor of an asset reconstruction company (ARC) to hold up to 100% stake in the ARC and non-institutional investors
to invest in securitisation receipts through amendments in the SARFAESI Act 2002.
■ Funds for capitalising PSBs seems inadequate, given the high capital requirements to meet Basel-III commitments
and high gross NPAs
■ Proposal to focus on consolidation of PSBs would be a positive, along with introduction of bankruptcy codes Tax
rebates in real estate companies’ profits on affordable housing projects and loan interest deduction for first-time home
buyers will give a boost to the real estate sector and create credit growth opportunities
■ As provision for bad debts, limited to 5% of income, would be tax deductible, NBFCs’ net margin will improve.

19
19
Proposal related to ARCs effectively allows a single foreign entity to own 100 percent stake in an ARC (compared to 49
percent currently). This might not have a significant impact in the near term as it does not resolve issues such as mismatch
in price expectations of banks and ARCs, as well as higher equity required by ARCs while purchasing assets.
Infrastructure: Focus on dispute redressal, tax clarifications to aid investor confidence Positive
■ Budgetary allocation: Total outlay for infrastructure has been increased 28% to Rs 3.4 trillion (roads, railways and
power the biggest beneficiaries). Of this, Rs 1.29 trillion is on account of budgetary support
■ Roads: Investments for development of national highways is proposed to be hiked 49% on-year to Rs 1032 billion.
This is on the backdrop of spending being 16% lower than FY16 budgeted estimates in the segment
■ Railways: Total outlay raised by 24% to Rs 1,210 billion. In Railway Budget FY17, there have been numerous
announcements for improvement of port connectivity and three new dedicated freight corridors
■ Airports & ports: No new projects announced barring Rs 8 billion earmarked for greenfield ports and national
waterways. Overall, outlay for civil aviation has been reduced by 30% to Rs 44 billion, mainly in line with reduced
equity support to Air India
■ Funding availability: The government has provided flexibility for select state entities to raise capital up to Rs 313 billion
by way of bonds across infra segments
■ Other measures: Dividend distribution tax waiver to be applicable on income distributed from SPVs to INVIT holding
entity. Furthermore, a mechanism to renegotiate of contracts and a public utility bill will be introduced to streamline
resolution of disputes in infrastructure related construction contracts
CRISIL’s View
The Budget reiterated focus on roads and railways with almost 76% of the incremental government spending (budgetary
allocation + inter and extra budgetary resources) focused on these two segments. Also, the increase in budgetary
allocations of Rs 250 billion towards various infra segments were muted compared with Rs 1090 billion in the last Budget.
This clearly reinforces a shift in funding dependence from government outlays to cashflows of government entities and
their borrowing capability to drive public investments in the sector.
Of the Rs 250 billion incremental budgetary support, almost Rs 130 billion is directed towards railways, followed by Rs 40
billion towards power, Rs 30 billion for urban development and Rs 25 billion, for roads, respectively. Given the targets
relating to electrification of villages, the Budget provides a thrust on investments in the distribution segment of power with
a 84% on-year increase in planned expenditure for key schemes.
For EXIM-focused sectors such as airports and ports, focus on single window customs clearance, backed by process
simplification, is targeted towards debottlenecking of capacity amid lower budgetary allocations.
The Budget continued to build up investor confidence for investing in infrastructure segments by providing clarity on
dividend distribution tax for entities like INVITs and giving confirmation on contract renegotiation and intriduction of the
public disputes utility bill. This comes at a time when private sector interest in infrastructure development is low and the
balancesheets of many developers in the sector remain stretched.
We believe the rise in overall government spends will boost execution of national highway projects to about 5,200 km
annually in 2016-17 and create a robust construction opportunity for road and railway engineering procurement &
construction companies.

20
20
While the Budget provisions are positive, it will continue to put to test the execution capability of implementing agencies
such as the National Highways Authority of India and Indian Railways. This comes on the backdrop of overall spending in
national highways being 16% lower in FY16 as compared with the allocations. Addressing on-ground issues such as
clearances and land acquisition becomes extremely critical to ensure a sharp increase in project execution.
Metals: No big announcements for metals Neutral
Key budget proposals
■ Customs duty on aluminium increased to 7.5% from 5%
■ Clean environment cess doubled to Rs 400 per tonne
■ Export duty on low grade (below 58% iron content) iron ore lumps and fines scrapped
■ Export duty on bauxite reduced to 15% from 20%
■ Hike in customs duty on aluminium will narrow the gap between landed cost of aluminium and domestic aluminium
prices, thereby curbing aluminium imports
■ Doubling of clean environment cess to Rs 400 per tonne is a negative – aluminium manufacturers’ power cost is
expected to rise by ~3% and sponge iron manufacturers’ total production cost is expected to increase by 2-3%
■ Scrapping of export duty on low grade iron ore lumps and fines will benefit iron ore exporters – primarily from Goa,
which has the largest concentration of low grade iron ore – as their tax burden will reduce by ~Rs 950 per tonne and
~Rs 250 for lumps and fines, respectively
■ Lowering of export duty on bauxite will benefit exporters such as Nalco
Oil & Gas: Higher government share in under-recovery burden and lower cess on domestic
oil production bode well for oil companies Positive
■ Government to bear initial cost of providing LPG connections to 15 million below poverty line (BPL) households in
2016-17
■ Oil subsidy for 2016-17 at Rs 270 billion, a decline of 11% from 2015-16
■ Cess on domestic crude oil production changed from a fixed rate of Rs 4,500 per tonne to ad-valorem 20% of crude
oil prices
■ Gas production from deep-water, ultra-deep water and high pressure-high temperature areas to be incentivised by
giving caliberated marketing freedom to gas produced from these difficult terrain but ceiling prices will be pegged to
alternate fuels.
CRISIL Research’s View
■ Ad valorem cess on crude oil to improve realisations of upstream companies by $2/barrel and reduce government
receipts by ~Rs 40 billion
■ Addition of 15 milllion rural connections (equivalent to ~55% of rural connections added over the last five years) to
boost LPG demand by an additional 3% on-year in FY17

21
21
■ Budgeted subsidy of Rs 27,000 crore for petroleum products for FY17 to be sufficient to cover under-recovery in LPG
and kerosene. Upstream companies to be spared from subsidy burdden, while downstream to share 3-5% of the
burden.
■ Proposal to grant marketing freedom for gas produced from difficult terrain is a step in the right direction. However,
ceiling prices of gas based on alternate fuels, which are already under pressure, is unlikely to attract large investments
Power and renewable energy: Higher budgetary allocation to boost investments in T&D;
halving of accelerated depreciation negative for renewable energy Positive
Key budget proposals
■ Budgetary allocation: Allocation to centrally-funded power distribution schemes (Deendayal Upadhyaya Gram Jyoti
Yojana and Integrated Power Development Scheme) has increased by 85% to Rs 85 billion. Also, allocation to
renewable energy for viability gap funding, preparation of requests for prequalification and any other central financial
assistance has been increased by 65% to Rs 102 billion. Additionally, to augment nuclear power investments, Rs 30
billion is to be allocated annually over the next 15-20 years.
■ Duties and levies: Clean energy cess on coal has been doubled to Rs 400 per tonne. Also, basic customs duty has
been increased on industrial water heaters (10% vs 7.5%) and solar-tempered glass (5% vs nil). However, excise duty
on solar lanterns was removed from 12.5% levied earlier.
■ Taxation: Power transmission assets will be eligible for additional depreciation of 20% in the year of acquisition or
commission, with effect from April 2017 will benefit both public and private transmission companies. However, for
renewable energy projects, accelerated depreciation has been halved to 40%, effective from April 2017.
The budget reiterates the government’s strong thrust on the power transmission & distribution and renewable energy. This
is evident from the signifincant rise in budgetary allocation through various schemes and tax breaks, which will supplement
recent reforms such as the Ujjwal Discom Assurance Yojana scheme, amendments to the National Tariff Policy and
proposed Electricity Act. Timely implementation and effective monitoring, though, will be crucial.
While halving of accelerated depreciation will adversely impact additions in the wind and rooftop solar segments (as
industrial and commercial consumers avail this to reduce cost), significant government thrust is expected to continue
through central funding, facilitation in project execution and concessional duties & charges.
Real Estate: Affordable housing gets a shot in the arm; commercial realtors also benefit Positive
■ Measures on affordable housing projects
̶ Interest deduction limit under Sec 80EE increased from Rs 1 lakh to Rs 1.5 lakh for first-time home buyers
(applicable only on loans not exceeding Rs 35 lakh for houses costing below Rs 50 lakh and sanctioned during
April 1, 2016, to March 31, 2017) for the entire loan duration
̶ Under the Pradhan Mantri Awas Yojana, 100% deduction on profits from housing projects approved between
June 2016 and March 2019, and completed in three years of getting approval and satisfying the following
conditions:

22
22
(sq mt) 4 Metros Other cities
Maximum size of house 30 60
Minimum size of land parcel 1,000 2,000
Other
Within 25 km of
municipal limit
However, minimum alternate tax will apply.
̶ Service tax exemption on construction of affordable houses up to 60 square metres (646 sq ft) under any central
or state government scheme, including public-private partnerships (PPPs)
̶ Phasing out of deductions allowed on capital expenditure (other than land, goodwill and financial assets) under
Sec 35AD from 150% to 100% w.e.f. April 1, 2017, for affordable housing projects
■ Exemption of dividend distribution tax (DDT) on distribution made by special purpose vehicles (SPVs) to real estate
investment trusts (REITs)
■ Revival of national land record digitisation scheme with a funding of Rs 1.5 billion
■ 0.5% Krishi Kalyan Cess on all taxable services
■ Boost to affordable housing - especially tier II and tier III cities
̶ Affordable housing segment has received a shot in the arm with the abovementioned measures
̶ Increase in interest deduction for first-time home buyers will boost demand for homes priced in that bracket.
Currently, nearly 40% of the upcoming supply in the 10 major cities tracked by CRISIL Research is priced under
Rs 50 lakh. Upcoming supply in this price bracket in tier II and tier III cities is expected to be even higher.
Source: CRISIL Research
̶ However, the phasing out of deductions on capital expenditure will be a dampener to some extent.
■ Removal of DDT for SPVs distributing income to REITs is a positive for developers with significant exposure to rental-
yielding real estate assets
■ Digitisation of land records will aid transparency in the real estate sector and help tap foreign capital inflows in the
medium to long term
■ Krishi Kalyan cess, applicable for under-construction projects, will hurt the industry marginally
77%
58%
50%
41% 39% 37% 36% 36%
32%
26%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Ahmedabad
Kolkata
Kochi
NCR
Hyderabad
Chandigarh
Pune
Bengaluru
Chennai
MMR
% of upcoming supply priced below Rs 50 lakhs

24
24
Capital markets
Planning for old age – on the path for greater inclusion
Social security, especially retirement planning, has been a key agenda for Finance Minister Jaitley. In keeping with that,
Union Budget 2016-17 focuses on two important metrics – penetration and sufficiency of corpus.
To bring parity between retirement funds in the country, the Budget has provided tax exemption of 40% of the pension
wealth received by an employee from a product. This is a positive for the National Pension System (NPS) which was
originally introduced with the objective of expanding pension coverage within the unorganised sector. To bring more people
into the social security net, the government has decided to pay the Employee Pension Scheme (EPS) contribution of 8.33%
for all new employees in Employees Provident Fund Organisation (EPFO) with salaries up to Rs 15,000 per month. This
will incentivise employers to bring a larger number of people from the informal to the formal sector. On similar lines, the
Budget has proposed to increase the tax benefit for employers contributing to recognised provident funds and
superannuation funds from Rs 1 lakh to Rs 1.5 lakh per annum.
Further, as a small benefit, service tax has been exempted for annuity buyers from NPS and EPFO to increase payouts to
pensioners.
The right intent to deepen capital markets
Developing the corporate bond market has been discussed for several years now, and the Budget lists the steps needed
to deepen the bond market. Notable amongst them are proposals to transition bank borrowings to bond markets, introduce
an electronic auction platform for primary offers and develop the corporate bond repo market. These measures are
expected to increase transparency and liquidity, enhance price discovery and help establish a more efficient corporate
bond market in the long term. The government is, however, yet to notify the details.
The government has proposed to set up a dedicated fund under Life Insurance Corporation of India (LIC) to enhance credit
to infrastructure projects. This is expected to facilitate higher rated issuances by lower rating entities, which will help meet
the investment criteria for several large institutional investors such as retirement funds, insurance companies and mutual
funds. If successful, this initiative can lay the foundation for the entry of a larger number of institutions in the credit
enhancement space.
The Budget also proposes to introduce a comprehensive code on resolution of financial firms which, together with the
Insolvency and Bankruptcy Code 2015, will provide a resolution mechanism for the economy. A strong bankruptcy code
has been a long-pending demand of investors. Such an initiative is expected to boost the confidence of local and global
investors in India’s debt market.
The proposal to provide complete pass-through status to securitisation trusts and tax the income in the hands of the
investor at applicable tax rates is expected to bring greater clarity on taxation of such products and likely to encourage
investment. The measure may renew the interest of institutional investors in the securitisation market, especially mutual
funds who were key investors in these products earlier.
The measure to encourage retail participation in government securities through trading platforms is expected to have a
marginally positive effect on the fixed income market. Although this will add another investment avenue for retail investors,
the potential for returns is limited compared with fixed deposits and other small savings schemes. Lower liquidity and mark-
to-market risk are additional impediments.

25
25
The investment basket for foreign portfolio investors is proposed to be expanded to include unlisted debt securities and
pass-through securities issued by securitisation special purpose vehicles. Besides increasing avenues available for foreign
investors, this measure enhances the investor universe for such issuers.
Very little for mutual funds
Last year, the Budget announced tax exemption for merger or consolidation of mutual fund schemes. This year, the
provision has been extended to cover consolidation of mutual fund plans within a scheme. This measure is expected to
result in consolidation within plans of a mutual fund scheme and is consistent with Securities and Exchange Board of
India’s (SEBI’s) guidelines for single plans.
Efforts to channelise physical gold savings to financial savings continue
In last year’s Budget, the government announced the Sovereign Gold Bond Fund and the Gold Monetisation Scheme as
measures for productive use. To increase the attractiveness of these schemes, this year’s Budget proposes to exempt the
interest earned and capital gains arising from these schemes. Further, long-term capital gains on transfer of sovereign
gold bond will be eligible for indexation benefits. Although these are steps in the right direction, their efficacy, given the
country’s penchant for physical holdings, remains to be seen.

26

27
Annexure: Sector wise Impact

28
28
Airport infrastructure
Relaxation in duties for MRO*, dispute resolution guidelines marginal positives
Company Impact
GMR Infrastructure Ltd 
GVK Power and Infrastructure Ltd 
MRO: Maintenance, Repair and Overhaul
Impact factors
A. Revitalisation of public private partnership (PPP) projects will benefit the industry, particularly in situations of dispute
between private and public parties. However, final modalities shall be monitorable.
B. Implementation of Customs Single Window Project at major airports starting FY17 can impact positively. Final
modalities and associated processes are key monitorables.
C. Exemption of duties such as excise, customs and countervailing for certain inputs procured by maintenance, repair
and overhaul (MRO) players to marginally benefit airports that provide/ plan to provide these services.
D. Restoration of service tax exemption for construction of an airport is a positive for qualifying greenfield airports given
their dominant 80-85% share of investments over the next five years. Airports that have entered into construciton
contracts prior to March 1, 2015 would qualify for this exemption.
E. In line with the draft civil aviation policy released in October 2015, the Government reinforced revival of under-served
and unserved airports to boost regional connectivity. The central government intends to partner with state governments
to revive some of its 160 airports and air strips at Rs 50-100 crores. With increasing travel to regional locations, hub
airports too will benefit.

29
29
Automobiles
Negative for passenger vehicles; other segments to gain
Company Impact
Maruti Suzuki India Ltd 
Tata Motors Ltd 
Ashok Leyland Ltd 
Bajaj Auto Ltd 
Hero Motocorp Ltd 
Mahindra & Mahindra Ltd 
Impact factors
A. Infrastructure cess of 1% on small petrol/ compressed natural gas/ liquefied petroleum gas cars, 2.5% on small diesel
cars; 4% on big petrol sedans (length exceeding 4 metres and engine capacity of over 1200cc), diesel sedans (length
exceeding 4 metres and engine capacity of over 1500cc) and sports utility vehicles (SUVs), will drive up prices and
reduce demand for passenger vehicles (excluding taxis, electrically operated vehicles, hybrid vehicles and
ambulances). This combined with a 1% additional luxury tax on passenger vehicles priced over Rs 1 million, will have
a relatively higher impact on sales of diesel vehicles, large sedans and SUVs.
B. Impetus to infrastructure development is a structural positive. Higher spending of Rs 1.03 trillion for construction of
national highways will spur sales of of construction trucks in the near term.
C. Focus on rural incomes is another positive medium-term driver. Fast-tracking of irrigation projects, increase in farm
credit (by Rs 500 billion) to Rs 9 trillion, an 11% increase in allocation to the Mahatma Gandhi National Rural
Employment Guarantee Act and extension of interest rate subvention to farmers will indirectly aid sales of tractors and
two-wheelers in the near term.
D. Service tax (of 5.6%) levied on transportation of passengers via contract carriages has been extended to cover air-
conditioned stage carriages, effective June 1, 2016. This is not expected to significantly impact bus sales in the near
term.
Tariffs
(%) Customs Excise
2015-16 2016-17 2015-16* 2016-17
New cars
-Completely knocked down units (CKD) 10.3 10.3 - -
-Semi-knocked down units (SKD) 61.8 61.8 - -
-Completely built units (CBU) 128.8 128.8 - -
-Specified small cars1
- - 12.5 12.5
-Other than specified small cars2
- - 24.7 24.7
Utility vehicles (less than 1500 cc) 128.8 128.8 24.7 24.7
SUVs (including utility vehicles exceeding 1500 cc and length exceeding
4000 mm, ground clearance of 170 mm and more)^*
128.8 128.8 30.9 30.9
Infrastructure cess

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30
(%) Customs Excise
2015-16 2016-17 2015-16* 2016-17
-Specified small cars with length <4000 mm
Petrol (engine capacity <1200 cc) - 1.0
Diesel (engine capacity <1500 cc) 2.5
-Other than specified small cars2
- 4.0
SUVs (including utility vehicles exceeding 1500 cc and length
exceeding 4000 mm, ground clearance of 170 mm and more) - 4.0
Luxury Cars - (Note 3)
Two-wheelers 10.3 10.3 12.5 12.5
Trucks (LCVs and MHCVs)4
20.6 20.6 12.5 12.5
Buses (LCVs and MHCVs)4
20.6 20.6 12.5 12.5
Tractors 10.3 10.3 - -
Engine and engine parts 7.7 7.7 12.5 12.5#
Drive transmission, steering, suspension, braking parts,silencer,
exhaust pipes and radiators
10.3 10.3 12.5 12.5
Electrical parts 7.7 7.7 12.5 12.5
Steel items 7.7 12.9 12.5 12.5
Pig iron 5.2 5.2 12.5 12.5
Excise duty includes education cess @ 3% (not applicable on 12.5% rate in 2015-16)
LCV: Light commercial vehicles; MHCV: Medium and heavy commercial vehicles
Notes:
* Effective from 01/01/2015
1
Specified small cars include cars with length not exceeding 4000 mm and engine capacity not exceeding 1200 cc for petrol cars and
1500 cc for diesel cars.
2
Others will include cars with length exceeding 4000 mm and engine capacity exceeding 1200 cc for petrol cars and 1500 cc for diesel
cars.
3
For luxury cars over Rs. 10 lakhs, Tax to be deducted at source at the rate of 1%. However, three wheeled vehicles, Hybrid Vehicles,
Electrically operated vehicles,Hydrogen vehicles based on fuel cell technology, Motor vehicles which after clearance have been
registered for use solely as taxi, Cars for physically handicapped persons and Motor vehicles cleared as ambulances OR registered for
use solely as ambulance will be exempt from this Cess.
4
Represents effective rate for fully-built vehicles. Customs duty on commercial vehicles in CKD kits will continue to be at 10%
# Excise duty for engines of Hybrid vehicles (< 1% total population) has been reduced from 12.5% to 6%, effective from 2016-17.

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31
Banking
Bank capitalisation insufficient
Company Impact
State Bank of India 
Punjab National Bank 
ICICI Bank 
HDFC Bank 
HDFC Ltd 
Impact factors
A. The proposed Rs 250 billion capital support to public sector banks (PSBs) is inadequate at a time when PSBs are
experiencing significant pressure on profitability, high gross non-performing assets amid necessity to comply with
stringent Basel III capital requirements.
B. The code to deal with bankruptcies in banks, insurance companies and financial sector entities will help in faster
resolution. The proposal to strengthen debt recovery tribunals will be positive for banking system over the long term.
C. The proposal to consolidate PSBs will improve efficiencies in the system.
D. No taxes on profits of companies undertaking housing projects with flats up to 30 sq metres in four metro cities and
60 sq metres in other cities along with additional housing loan interest deduction of Rs 50,000 per annum for first-time
home buyers securing loans up to Rs 3.5 million and maximum house value of Rs 5 million has been proposed. The
government also increased the period for claiming interest deduction from date of acquiring or constructing self-
occupied houses to five years from three years. These reforms will provide a boost to the real estate sector, creating
credit growth opportunities for the housing finance industry.
E. Non-banking financial companies (NBFCs) are eligible for deduction to the extent of 5% of their income with respect
to provision for bad and doubtful debts because of which NBFCs’ net margin will improve.
F. The government has proposed to amend the Securitisation and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 or SARFAESI Act, allowing a single foreign entity to own 100 percent stake in an ARC
(compared to 49 percent currently). This might not have a significant impact in the near term as it does not resolve
issues such as mismatch in price expectations of banks and ARCs, as well as higher equity required by ARCs while
purchasing assets.

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32
Cement
Measures to boost housing and infrastructure positive, cost escalations minor
Company Impact
ACC Ltd. 
Ambuja Cements Ltd. 
India Cements Ltd. 
Shree Cement Ltd. 
UltraTech Cement Ltd. 
Impact factors
G. Following budget proposals to help real estate and aid housing demand:
■ Deduction on interest for first-time home buyers enhanced to Rs 2,50,000 from Rs 2,00,000 per annum
■ 100% deduction on profits made by undertaking specific housing projects ( valid only for flats up to 30 sq
metres in four metro cities and 60 sq metres in other cities),
■ Exemptions from service tax on construction of affordable houses (those up to 60 sq metres under any scheme
of the Central or a state government )
H. Following proposals to boost demand from infrastructure:
■ Investment towards national highways increased 49% to Rs 1,032 billion (budgetary allocation + internal and
extra-budgetary resources)
■ Government to spend Rs 170 bn for irrigation projects under its Accelerated Irrigation Benefit Project
■ Outlay for urban infrastructure increased 11% to Rs 166 billion
I. Exemption of ready-mix concrete manufactured at the site of construction from excise duty to make it more competitive
to concrete manufactured at site ; UltraTech and ACC to be prime beneficiaries
J. Doubling of clean energy cess on coal (domestic and imported) to Rs 400 per tonne to increase power and fuel costs
by 1%; operating costs to increase at muted 0.2%. Overall, profitability to remain intact as the players pass on the
increase in costs amid price increases.
Cement: Tariffs
(Per cent) Customs Excise Abatement rate
2015-16 2016-17 2015-16 2016-17 2015-16 2016-17
Portland cement 0 0 12.5
+Rs125/tonne
12.5
+Rs125/tonne
0 0
White cement 10.3 10.3 12.5 12.5 30 30
Cement clinker 10.3 10.3 12.5 12.5 0 0
Ready mix concrete 0 0 12.5 0.0
Limestone 5.2 5.2 0 0 0 0
Gypsum 2.6 2.6 0 0 0 0
Pet coke 2.5 2.5 14.4 14.4 0 0
Imported coal
2.5% BD+2.0%
CVD
2.5% BD+2.0%
CVD
0 0 0 0
BD: Basic duty; CVD: Counter veiling duty
The above duties don't include education cess, secondary and higher education cess and Swachh Bharat cess of 2%, 1% and 0.5%
respectively

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33
Construction
Public funding to propel construction investments
Company Impact Impact Factors
Larsen & Toubro Ltd  A, B, C, D, E, F, G, H, I
Hindustan Construction Co Ltd  A, B, D, E, F, H, I
Punj Lloyd Ltd  A, B, C, D, E, F, H
Nagarjuna Construction Co Ltd  A, B, C, D, E, F, H
Simplex Infrastructures Ltd  A, B, C, D, E, F, H
Impact factors
A. Allocation towards infrastructure sector hiked 28% to ~Rs 3.4 trillion. Of this, Rs 1.3 trillion is through budgetary
support, while the rest is from internal and extra budgetary resources. Roads & highways, railways and power
segments will be the major beneficiaries
B. The Budget has proposed a 49% on-year rise in investments for development of national highways to
Rs 1.03 trillion. Of this, Rs 440 billion is the budgetary support, while the rest is from the internal and extra budgetary
resources
C. In railways, outlay has been increased 24% on-year to Rs 1.21 trillion. However, most of this increase will be used to
fund higher pension outgo and employee costs as a result of the 7th
Pay Commission
D. Planned outlay on urban infrastructure development, which includes development of smart cities and metro rail
projects, has been increased 11% on-year
E. Planned outlay on the power segment increased 20% on-year.
F. Three new initiatives proposed to boost private participation:
■ A public utility Bill to be introduced during FY17 to streamline institutional arrangements for resolution of
disputes in infrastructure-related construction, PPP and public utility contracts
■ Guidelines for renegotiation of PPP concession agreements to be issued, keeping in view the long-term nature
of such contracts and potential uncertainties of the real economy
■ A new credit rating system emphasising on in-built credit enhancement structures to be developed for
infrastructure projects
G. Dividend distribution tax will not be applicable on distribution made from special purpose vehicles to infrastructure
investment trusts
H. Countervailing duty of 12.5% levied on specified machinery required for road construction
I. Construction, erection, commissioning or installation of original works pertaining to monorail or metro, in respect of
contracts entered into on or after March 1, 2016, to attract a service tax of 5.6%.

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34
Fertilisers
Announced subsidy to be adequate
Company Impact
Chambal Fertilisers & Chemicals Ltd 
Coromandel Fertilisers Ltd 
Gujarat State Fertilisers & Chemicals Ltd 
National Fertilizers Ltd 
Rashtriya Chemicals and Fertilizers Ltd 
Zuari Industries Ltd 
Impact factors
■ Government expenditure of Rs 3.68 billion on Soil Health Card Scheme covering more than 140 million farmers to
boost consumption of complex fertilisers, as awareness on soil quality improves
■ The direct benefit transfer scheme (announced on a pilot basis) is likely to reduce the subsidy leakage in the long run
and, thereby, lower the government’s subsidy burden over time
■ Budgeted subsidy amount of Rs 700 billion expected to be sufficent for fiscal 2016, as fertiliser prices are not expected
to increase due to softening of raw material prices
■ However, most of the policies will be beneficial only in the long term and are unlikely to provide any immediate relief
to fertiliser companies
Fertilisers: Tariffs, prices and landed costs
Landed costs
Tariffs (%) Prices (January 2016) (Rs/tonne)
Customs Excise Domestic International Pre- Post-
2015-16 2016-17 2015-16 2016-17 (Rs/tonne) ($/tonne) budget budget
Urea 5.0 5.0 1.0 1.0 5,360 212 15,869 15,869
DAP 5.0 5.0 1.0 1.0 23,500 393 30,721 30,721
MOP 5.0 5.0 1.0 1.0 17,500 283 20,408 20,408
Ammonia 5.0 5.0 1.0 1.0 n.a. 348 25,077 25,077
Phosphoric acid 5.0 5.0 - - NT 715 51,573 51,573
Sulphur 2.5 2.5 - - n.a. 134 9,346 9,346
Rock phosphate 2.5 2.5 - - NT 118 9,557 9,557
Naphtha 0 0 - - 23,182 345 24,863 24,863
Fuel oil 0 0 - - 13,644 162 11,847 11,847
Contracted LNG2
5.0 5.0 - - - 343 24,227 24,227
DAP: Di-ammonium phosphate; LNG: Liquefied natural gas
MOP: Muriate of potash; NT: Not traded; n.a.: Not available
"-" Indicates not applicable
Notes:
1) There is no excise and customs duty on naphtha and fuel oil used for production of fertilisers.
2) International prices are FOB prices.

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35
Hospitals
Step closer towards inclusive healthcare
Company Impact
Apollo Hospitals Enterprise Ltd 
Fortis Healthcare Ltd 
Narayana Hrudayalaya Ltd 
Max Healthcare Ltd 
Impact factors
A. Under the new health insurance scheme, the government proposes to provide an insurance cover of Rs 100,000 to
all the families, with senior citizens (60+ years) getting an option to 'top-up' by another Rs 30,000. CRISIL Research
believes that while this scheme will help increase the penetration of health insurance in India, the exact proposition of
the scheme in terms of eligibility, ailment coverage and hospital network will need to be defined clearly to ensure its
success. As per Insurance Regulatory and Development Authority (IRDA), only 17% of India's population had health
insurance cover as of 2013-14.
B. National Dialysis Services Programme to be started under National Health Mission: While more than 200,000 new
cases of End Stage Renal Disorder (ESRD) get added annually in India, yet the dialysis segment constitutes less than
1% of the Rs 3,800 billion healthcare delivery market in India on account of limited accessibility and high treatment
costs. With the government proposing to provide dialysis services in all district hospitals and exempting certain parts
of the equipment from basic customs duty (BCD), excise/countervailing duty (CVD) and special additional duty (SAD),
the key concerns impacting dialysis treatments in India have been addressed. CRISIL Research, however, believes
the success of this initative will depend on the effective implementation through the private public partnership route.
The extent of the cost benefit that will be passed on to the patients by these dialysis centres following the removal of
the BCD, CVD and SAD on the equipment (namely disposable sterilised dialyser and micro barrier of artificial kidney)
from the earlier rate of more than 20% will also be a key factor.

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36
Information technology
No significant impact
Company Impact
TCS 
Infosys 
Wipro 
HCL Technologies 
Tech Mahindra 
Impact factors
■ Exemption from basic customs duty, countervailing duty and special additional duty for components and accessories
used to manufacture routers and broadband modems to reduce IT hardware players’ input cost
■ Digitalisation of land records of school and college certificates and automation in fair-price shops would create
opportunities in the domestic market, which accounts for less than 10% of revenue for large players
Information technology: Tariffs
(%) 1 Customs * Excise
2015-16 2016-17 2015-16 ** 2016-17
Information technology software 10.3 10.3 10.3 10.3
Personal computers 0.0 0.0 12.5 12.5
Monitor 0.0 0.0 12.5 12.5
Keyboard 0.0 0.0 12.5 12.5
Mouse 0.0 0.0 12.5 12.5
Printer 0.0 0.0 12.5 12.5
FDD, HDD, CD-ROM drive and other storage drives2 0.0 0.0 12.5 12.5
Motherboards 0.0 0.0 12.5 12.5
Microprocessors3
0.0 0.0 12.5 12.5
Routers 0.0 0.0 12.5 12.5
Modems 0.0 0.0 12.5 12.5
1
Tax rate is inclusive of education cess.
2
FDD: Floppy disk drive; HDD: Hard disk drive; CD-ROM: Compact disk-read only memory.
3
Microprocessors meant for fitment inside the CPU housing/laptop body.
*
Basic customs duty and does not include CVD, SAD
** Education Cess and Secondary Higher Education Cess are subsumed in Central Excise Duty and general rate of Central Excise Duty
rounded off to 12.5%.

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37
Media & Entertainment
No significant impact of the Budget
Company Impact
Balaji Telefilms 
Dish TV 
Entertainment Network India 
Hathway Cable & Datacom 
HT Media 
PVR 
Zee Entertainment Enterprises 
Impact factor
■ Krishi Kalyan cess at 0.5% to be levied on TV distribution
■ An equalisation levy of 6% to be withheld by advertiser on online advertisment through foreign e-commerce players
(without permanent residence in India) for annual payments of more than Rs 100,000.
■ Basic customs duty and countervailing duty on set-top box has been removed and excise duty has been revised from
a flat 12.5% to 4% without input tax credit and 12.5% with input tax credit.
■ Reduction in basic customs duty for newsprint (a key raw material for newspaper) from 5% to nil.
Media & Entertainment: Tariffs
(%) Customs Excise Abatement
2015-16 2016-17 2015-16 2016-17 2015-16 2016-17
Digital cinema equipment 10.3 10.3 12.5 12.5 35 35
Broadcast equipment 7.7 7.7 12.5 12.5 35 35
Set-top boxes 10.3 0 12.5 12.5 35 35
Note: Customs duty includes basic duty and education cess of 3% and Swacch Bharat cess of 0.5%; TV broadcast equipment includes
broadcast equipment sub-system and TV broadcast transmitter

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38
Non-ferrous metals
Marginally positive
Company Impact
Hindalco Industries Ltd 
Hindustan Copper Ltd 
Hindustan Zinc Ltd 
National Aluminium Co Ltd 
Sesa Sterlite Ltd 
Impact factors
A. Hike in customs duty on aluminium and aluminium products to 7.5% from 5% will narrow the gap between landed cost
and domestic prices to 3-4% from 6-8%, helping curb alumnium imports to some extent (36% of consumption in the
current fiscal).
B. Doubling of clean energy cess on coal to Rs 400 per tonne will increase power cost of aluminium manufacturers by
3%
C. Lowering of export duty on bauxite to 15% from 20% will benefit aluminium companies with surplus bauxite, with India
set to export ~9.4 million tonnes of bauxite (50% of production) in FY16.
D. Higher public investment in railways, power and aviation (end-users of aluminium, copper and zinc) is a marginal long-
term positive for the domestic non-ferrous metals industry. The government has increased allocation towards
infrastructure by 28% to Rs 3.4 trillion
Non Ferrous metals: Tariffs, prices and landed costs
Tariff (%)1
Prices (February 2016)
Landed cost
(Rs/tonne)
Customs Excise Domestic2
Internation
al3
Pre-
budget
Post-
budget
2015-16 2016-17 2015-16 2016-17 (Rs/tonne) ($/tonne)
Aluminium ingots 5.2 7.7 12.5 12.5 132,617 1,641 139,543 143,044
Aluminium products
- Flat-rolled products 5.2 7.7 12.5 12.5 - - - -
- Foils 5.2 7.7 12.5 12.5 - - - -
Aluminium scrap 5.2 5.2 12.5 12.5 - - - -
Non-coking coal 2.6 2.6 2.1 2.1 - - - -
Caustic soda 7.7 7.7 12.5 12.5 - - - -
Calcined 2.6 2.6 14.4 14.4 - - - -
petroleum
coke
Copper 5.2 5.2 12.5 12.5 404,583 4,585 387,620 387,620
Copper scrap 5.2 5.2 12.5 12.5 - - - -
Copper ore and 2.6 2.6 4.1 4.1 - - - -
concentrates
Lead 5.2 5.2 12.5 12.5 126,000 1,774 150,751 150,751
Lead ore and 2.6 2.6 4.1 4.1 - - - -
concentrates

39
39
Tariff (%)1
Prices (February 2016)
Landed cost
(Rs/tonne)
Customs Excise Domestic2
Internation
al3
Pre-
budget
Post-
budget
2015-16 2016-17 2015-16 2016-17 (Rs/tonne) ($/tonne)
Zinc 5.2 5.2 12.5 12.5 178,000 1,704 144,852 144,852
Zinc ore and 2.6 2.6 4.1 4.1 - - - -
concentrates
Notes:
1) Tariff rates are inclusive of 3% education cess.
2) International prices are average LME cash prices; LME aluminium prices includes premium.
3) Domestic prices are average prices for February 2016 and is exclusive of excise duty.

40
40
Oil & gas
Oil & Gas: Higher govt share in under-recovery burden, lower cess on domestic oil production positive for oil
companies
Company Impact
Oil and Natural Gas Corporation Ltd 
Reliance Industries Ltd 
Cairn India Ltd 
Oil India Ltd 
Indian Oil Corporation Ltd. 
Bharat Petroleum Corporat.ion Ltd 
Hindustan Petroleum Corporation Ltd 
GAIL 
Impact factors
■ Overall impact on the oil and gas sector is positive. Crisil Reseach expects crude oil prices to average $33-38 per
barrel in 2016. Consequently, 20% ad valorem cess on crude oil will improve realisations of upstream companies by
$2/barrel from current levels and reduce government receipts by ~Rs 40 billion.
■ Addition of 15 milllion rural connections (equivalent to ~55% of rural connections added over the last five years) will
boost LPG demand by an additional 3% on-year in FY17.
■ Despite 11% decline in budgeted petroleum product subsidy to Rs 270 billion, it is expected to be adequate due to
sharp reduction in crude oil prices. This factors in 8-10% on-year increase in LPG volumes.
■ Proposal to grant marketing freedom for gas produced from difficult terrain is a step in the right direction. However, as
the ceiling prices of gas are based on alternate fuels, which are already under pressure, this move is unlikely to attract
large investments.
Oil and gas: Tariffs, prices and landed costs
Tariffs
(per cent)
Prices
(January 2016)
Landed costs
(Rs/tonne)
Customs Excise Domestic International
Pre-
Budget
Post-
Budget
2015-16 2016-17 2015-16 2016-17 (Rs/tonne) ($/tonne)
Motor spirit (MS) 2.6 2.6 Rs 21.48/ltr Rs 21.48/ltr 80,743 395 28,107 28,107
Aviation turbine fuel
(ATF) 8.2 8.2 8.2 8.2 49,494 556 42,024 42,024
Naphtha 5.2 5.2 14.4 14.4 23,182 313 24,863 24,863
Superior kerosene
oil (SKO)
- Industrial use 5.2 5.2 14.4 14.4 42,772 375 27,777 27,777
- Domestic use 0.0 0.0 0.0 0.0 18,561 375 26,417 26,417
High-speed diesel
(HSD) 2.6 2.6 Rs 17.33/ltr Rs 17.33/ltr 53,516 289 20,633 20,633
Fuel oil 5.2 5.2 14.4 14.4 13,644 158 12,101 12,101
Liquefied petroleum
gas (LPG) 5.2 5.2 8.2 8.2 44,045 463 35,562 35,562

41
41
Tariffs
(per cent)
Prices
(January 2016)
Landed costs
(Rs/tonne)
Customs Excise Domestic International
Pre-
Budget
Post-
Budget
2015-16 2016-17 2015-16 2016-17 (Rs/tonne) ($/tonne)
Bitumen 5.2 5.2 14.4 14.4 25,372 158 13,544 13,544
Crude oil 1
0.0 0.0 0.0 0.0 n.a. 226 - -
LNG3
5.0 5.0 - - - 343 24,227 24,227
CNG - - 14.0 14.0 - - 42,600 42,600
'-' indicates not applicable
n.a.: Not available
1
Cess on crude oil (in lieu of excise) is advalerom Rs 20% of crude oil price , National Calamity Contingent Duty (NCCD) of Rs 50/mt
levied on imports of crude oil
2
Price per '000 scm
3
Prices are for contracted LNG
Notes
1) International prices are FoB Arab Gulf prices.
2) Domestic price of petroleum products are ex-storage point prices.
3) Priority sectors for natural gas include power and fertiliser.
4) Domestic natural gas prices represent landfall prices for each category.
5) Customs duty and excise duty on naphtha used for fertiliser is nil.
6) Customs duty and excise duty on fuel oil used in fertiliser is nil.
7) Additional customs duty of Rs 2/litre is levied on Motor spirit and HSD

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42
Petrochemicals
Duty cuts to support benzene producers
Company Impact Impact factors
Basic petrochemicals and intermediates 
Reliance Industries Ltd  C
GAIL  C
Supreme Petrochem Ltd  C
Finolex Industries Ltd  C
Styrolution ABS Ltd  C
Bhansali Engineering Polymers Ltd  C
Note: The impact specified is only for the petrochemicals business of the companies listed above.
Impact factor
■ Basic customs duty (BCD) on benzene and toulene has been reduced to 2.5% from 5%. The decrease in BCD of
toulene is expected to bring down raw material costs by 2.4% for benzene producers and improve profitability. BCD
on naphtha has also been lowered to 2.5% from 5%. This is unlikely to have an impact as most of the domestic
petrochemical players are integrated.
Petrochemicals: Tariffs, domestic prices and landed costs
(per cent) Tariff (per cent) Prices (January 2016) Landed cost (Rs/tonne)
Customs Excise Domestic International Pre-budget Post-budget
2015-16 2016-17 2015-16 2016-17 (Rs/tonne) ($/tonne)
Polymers
hdPE (IM) 7.7 7.7 12.9 12.9 94101 1
1074 3
92057 92057
ldPE 7.7 7.7 12.9 12.9 83890 1
1097 3
94029 94029
lldPE 7.7 7.7 12.9 12.9 93022 1
1068 3
91543 91543
PPHP (IM) 7.7 7.7 12.9 12.9 77253 1
1022 3
87600 87600
PVC 7.7 7.7 12.9 12.9 67918 1
729 3
62486 62486
PS (GP) 7.7 7.7 12.9 12.9 88000 1
1076 3
92229 92229
ABS 7.7 7.7 12.9 12.9 n.a. 1114 3
95486 95486
SBR (1502) 10.3 10.3 12.9 12.9 n.a. 1120 3
98233 98233
PBR (1220) 10.3 10.3 12.9 12.9 87400 1
1110 3
97355 97355
Basic petrochemicals and intermediates
EDC 2.1 2.1 12.9 12.9 n.a. 466 3
37170 37170
VCM 2.1 2.1 12.9 12.9 n.a. 914 3
72905 72905
Styrene (SM) 2.1 2.1 12.9 12.9 n.a. 901 2
71868 71868
Ethylene 2.6 2.6 12.9 12.9 n.a. 1005 2
82136 82136
Propylene 2.6 2.6 12.9 12.9 n.a. 565 2
46176 46176
Butadiene 2.6 2.6 12.9 12.9 47750 728 2
59498 59498
Benzene 5.2 2.6 12.9 12.9 40400 556 2
46549 45441
Toluene 5.2 2.6 12.9 12.9 46200 560 2
46884 45767
Naphtha 5.2 2.6 14.4 14.4 n.a. 345 4
28691 28008
1
Market prices, 2
FoB prices, 3
C&F South-East Asia, 4
C&F Japan, n.a.: Not available
Notes:
1) Education cess of 3 per cent has been included in the customs duty and excise duty.
2) Additional CVD of 4 per cent has been levied on all petrochemicals except Naphtha,EDC,VCM and SM where duty is 2%.
3) Landed cost also includes handling charges.

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43
Pharmaceuticals
Industry revenue and profitability to remain stable
Company Impact Impact factors
Sun Pharmaceutical Industries Ltd  A
Cipla Ltd  A
Torrent Pharmaceuticals Ltd  A
Alembic Pharmaceuticals Ltd  A
Biocon Ltd  A
Impact factors
A. Reduction in weighted research and development (R&D) deduction to 150% from 2017-18 is likely to increase the
industry’s tax outgo in the long run but not immediately. Companies will continue to spend on R&D as they focus on
tapping lucrative export opportunity in regulated markets such as the US
B. The proposed setup of 3,000 aushadhi stores to sell generic medicines is likely to improve access to affordable
medicines for poor patients. However, supply issues, which impacted earlier schemes, would need to be addressed
C. New health insurance scheme will provide expense cover of up to 1 lakh for a patient and up to 1.3 lakh for an elderly
patient for hospitalised treatment cost. This is likely to increase insurance penetration (3.3% in 2014), which will
support demand for health services such as hospital care and diagnostic services as well as consumables such as
medicines
Pharmaceuticals: Tariffs
(%) Customs Excise
2015-16 2016-17 2015-16 2016-17
Bulk drugs 7.7 7.7 12.5 12.5
Formulations 12.4 12.4 6.2 6.2
Note: Customs duty includes basic customs duty, countervailing duty and education cess

44
44
Ports
Dispute resolution guidelines, service tax exemptions and improved connectivity are positives
Company Impact
Adani Ports and SEZ Ltd 
Gujarat Pipavav Port Ltd 
Impact factors
■ Earmarking of Rs 0.8 billion for greenfield ports and national waterways is marginally positive over the medium to long
term
■ Implementation of Customs Single Window Project at major ports in FY17 and amendments to Customs Act
(facilitating deferred payment of duties for players with credible track record) are also positive moves
■ Allowing Inland Water Authority (among others such as National Highways Authority of India, National Bank for
Agriculture and Rural Development, etc) to raise capital up to Rs 31.3 billion via issuance of bonds in FY17 will be
slightly positive
■ Positive impact from restoration of service tax exemptions for port construction awarded prior to March 1, 2015
■ Incentivising ship repair operations will benefit ports with such facilities
■ Introduction of dispute resolution clauses for public private partnership projects to have a positive impact
■ Railway Budget FY17 has proposed to provide rail connectivity to Nargol and Hazira ports to facilitate faster evacuation
of cargo from the respective ports
■ Krishi Kalyan cess on all taxable services to have a marginal negative impact

Crisil budget analysis_2016

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