SECTOR WISE ANALYSIS OF BUDGET
Excise duty on auto components and tyres increased from 8% to 10%. Interest subvention of 2% on pre-
shipment credit for small and medium exporters extended to 31 March 2011.
No significant impact on the industry. Increase in excise duty on tyres will be passed on fully to original
equipment manufacturers (OEMs) and replacement segments. A rise in excise duty for the auto
component sector may be passed on to automobile manufacturers. However, if absorbed, it will be offset
by increase in demand. The interest subvention of 2% will have a marginally positive impact for small and
medium exporters engaged in exports of auto components.
AUTO/ TWO- WHEELER
Excise duty up from 8% to 10%; excise duty on big cars, sport utility vehicles and multi-utility vehicles
raised from 20% to 22%; additional duty component retained at Rs15,000 for cars of 1,500-1,999cc
engine capacity and Rs20,000 for passenger vehicles with engine capacity above 2,000cc; excise duty of
Re1 per litre on fuel; customs duty 5% higher; allocation for road development up 13%; weighted
deduction on in-house R&D spending raised from 150% to 200%; 4% excise duty on electric vehicles;
critical parts and assemblies of such vehicles exempted from basic customs duty, special additional duty;
countervailing duty of 4% imposed.
Higher excise duty rate is likely to be passed on to consumers and is partially negative. But this is likely to
be compensated by exemptions on personal income-tax rates. The government’s thrust on rural and
infrastructural development remains positive. The increased weighted deduction rate for in-house R&D
will encourage higher R&D allocations.
RBI to consider giving banking licenses to private sector companies /non banking finance companies.
Government to recapitalise select public sector banks by Rs16,500 crore; additional capital to regional
rural banks. Increase in interest subvention from 1% to 2% for farmers who pay as per repayment
schedule, extension of debt waiver and debt waiver for farmers extended to 30 June.
Competition is likely to further intensify. Recapitalising public sector banks is likely to help around one
third of these banks. The additional interest rate subvention schemes to encourage prompt repayment
by farmers should improve credit culture. But b, the government’s borrowing programme for FY11
remains sizeable and if the credit offtake is more than 15% - 16%, bond yields may rise and thereby
impact treasury profits.
CAPITAL GOODS/ ENGINEERING
Increased allocation for power and infrastructure sector; excise duty cut from 8% to 4% on compact
fluorescent lamps (CFL) and LED lamps; 5% concessional import duty on inputs for photovoltaic, solar
panels; excise duty waived on photovoltaic, solar panels, and on inputs required in rotor blades.
Increased allocation and long-term funding availability for power and infrastructure projects will induce
more investment and thereby benefit equipment manufacturers. Focus on energy efficiency and excise
duty reduction for CFL will result in improved demand prospects for players in the lighting segment.
Concessional import duty and waiver of excise duty on photovoltaic and solar panels as well as lower
excise duty on inputs for rotor blades will benefit photovoltaic cell and wind turbine generator
2% excise duty hike.
Increase in outlay on roads, subventions on housing and focus on infrastructure development should
boost demand for cement. Increased rural income under National Rural Employment Guarantee Scheme
will also boost rural housing demand and, in turn, demand for cement. However, increase in excise duty
and imposition of Rs50 per tonne cess on imported and domestic coal will increase costs, which will
difficult to pass on to consumers given the current over supply situation.
Higher allocation for roads, railways, housing, urban infrastructure sectors; India Infrastructure Finance
Co. Ltd (IIFCL) to continue take-out financing; minimum alternate tax (MAT) increased from 15% to 18%
of book profits.
The increased outlay and continued take-out financing and refinancing plans of IIFCL, and availability of
funds through long-term infrastructure bonds, will aid in faster execution of infrastructure projects. MAT
increase will have negative impact on players with operational build-operate-transfer projects.
Increase in weighted reduction from 150% to 200% on expenditure incurred on in-house research and
development (R&D) activities, and from 125% to 175% on activities outsourced to specific institutions.
Partial rollback in excise duty from 8% to 10% (to impact raw material costs).
The increase in weighted reduction on R&D activities is a positive and will continue to support higher
investments by Researchled pharmaceutical companies. It’s a positive for contract research organisations
as well. The increase in excise duty for raw material will impact the cost structure. Also, an increase in
petrochemical prices may impact some of the basic raw material (intermediate) costs, impacting margin.
The increase in MAT rate, however, is going to increase tax outgo for few companies that are currently
paying lower taxes.
Increase in allocation to power sector at Rs5,130 crore (increase of 152%); increase in available long term
funding through refinancing from India Infrastructure Finance Co. Ltd; increase in allocation to renewable
energy sector at Rs1,000 crore (increase of 61%); formation of coal regulatory authority and national
clean energy fund; clean energy cess of Rs50 per tonne on both domestic and imported coal; increase in
minimum alternate tax (MAT) rates from 15% to 18%.
Increased allocation to power sector will be positive for central public sector undertakings. Increase in
allocation and excise duty benefits are clear positives for firms in renewable energy segment. Coal
regulatory authority will bring regulatory clarity and introduction of competitive bidding mechanism for
allotment of coal blocks will further enable increased participation from private firms. The increase in
MAT and cess on coal are a negative as they will negatively impact profitability of merchant power plants,
where costs are not a pass through.
Benefits of 100% investment linked tax deduction on capital expenditure (excluding land, goodwill and
financial instrument) for building and operating a new hotel (commissioned after 1 April) of two star
category and above, extended from select locations to across the country.
Bringing the hotel industry within the preview of investment linked tax deductions could promote
balanced (across categories) incremental investments in fresh inventory, reducing the supply–demand
gap in the country. Benefits of increased government thrust on infrastructure/roads to trickle down to
the tourism industry over the medium to long term. The increase in MAT rates will, however, have an
Rs1,270 crore allocated under Rajiv Awas Yojana; allocation for housing and urban poverty alleviation
raised to Rs1,000 crore; 1% interest subvention on housing loan up to Rs10 lakh extended to 31 March
2011; allocation under Indira Awas Yojana increased.
Allocation under Rajiv Awas Yojana will aid slum redevelopment programmes. Moreover, extension of
the scheme of 1% interest subvention on housing loan up to Rs10 lakh (where the cost of the house does
not exceed Rs20 lakh) will continue to provide a boost to affordable housing. On the rural front, increase
in allocation under the Indira Awas Yojana to Rs10,000 crore will help reduce the prevailing shortage in
rural housing. However, these allocations will not significantly impact the organised housing sector.
Minimum alternate tax (MAT) rate has been increased from 15% to 18% while surcharge has been
reduced from 10% to 7.5% for Indian companies.
The impact of the Union Budget 2010-11 on the IT sector is negative. The increase in MAT rate will offset
any benefits resulting from the decrease in surcharge and will affect the players’ cash flows. The impact
of MAT will be higher for tier II players compared to tier I players.
OIL AND GAS
Basic customs duty of 5% restored on crude petroleum, 7.50% on petrol and diesel and 10% on other
refined products. Central excise duty on petrol and diesel hiked by Rs1 per litre each.
The revised duty structure will marginally increase the import duty differential for refineries, leading to a
marginally higher refining margin, which is a positive for standalone refineries, including greenfield
projects currently being set up. Higher import duty and excise duty is negative for oil marketing
companies as gross under-recoveries will increase. But the post budget hike in fuel prices will largely
negate the impact. Increase of MAT is marginally negative
for some large oil and gas companies and new refinery projects. Five percent import duty on crude oil is
positive for upstream companies, as they will be benefited in an import parity based pricing regime.
Budget allocation for road projects increased by 13.5% to Rs19,894 crore in 201011, incremental
disbursement of Rs25,000 crore over the next three years by India Infrastructure Finance Company Ltd
( IIFCL) under its takeout financing scheme and import duty exemption for specified machinery used in
The increased outlay will favorably affect companies involved in road construction. The takeout financing
through IIFCL would facilitate the availability of long term capital. The increase in MAT rate from 15% to
18% will have an adverse impact. Excise duty hikes in cement, petrol/diesel will also push up costs for the
sector. Import duty exemption for specific equipment will provide some respite.
MAT increased from 15% to 18%. Exemption from basic, countervailing duty (CVD), and special additional
duty (SAD) to include battery chargers, headphones; Exemption of SAD extended to mobile phones not
imported in prepackaged form.
The impact on the telecom services sector is negative. The increase in MAT will negatively impact the
profitability of telecom services providers. The duty exemptions will result in further reduction in mobile
handset prices. However, the impact will be marginal as mobile handsets and accessories are already
The exemption from basic, countervailing duty (CVD), and special additional duty (SAD) on components
and accessories of mobile
handsets has been extended to include battery chargers and headphones. The government has also
extended the exemption of SAD to mobile phones that have not been imported in prepackaged form.
MAT increased from 15% to 18%.
The increase in MAT will negatively impact the profitability of telecom services providers. The duty
exemptions will result in further reduction in mobile handset prices. However, the impact will be
marginal as mobile handsets and accessories are already very affordable.