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Difficult to deliver the perfect balance of growth and
fiscal rectitude
§ Challenging backdrop: The backdrop for FY13 budget is challenging given the context of slowing growth, lack
of investment momentum and a difficult fiscal scenario of subdued tax and non-tax revenue generation even
while various subsidy burden are ballooning. Toping these is a much weaker Central government after recent
state elections debacle of Congress party, which weaken its ability to take critical reform measures
§ Multiple priorities amid rising structural imbalances: Fiscal imbalances and falling domestic savings pose
significant structural challenges. We will look for a credible commitment towards fiscal consolidation, ways to
raise tax revenue (200bp hike in excise duty or expanding the tax base by including more services), reduction in
subsidy burden by raising prices of public utilities and services, ways to address the recurring deficits across
multiple public sector undertaking and departments and most importantly providing the focus on capital
spending and infra sectors. While implementation of GST is most ideally suited in the current context we think it
is unlikely to happen in this budget. Broadly, there can be some progress towards meeting the recommendation
of direct tax code (DTC)
§ Enablers more important than budget itself: While we expect some progress, expecting lot of reforms from
the budget may be optimistic. Given that the government has failed to deliver on the promised fiscal
consolidation in FY12, measures taken out of the budget to enable budget promises will be more critical
§ Fiscal deficit unlikely to come below 5%: Overall, we expect total allocation to increased by 10% to Rs
14,661bn in FY13E translating into a fiscal deficit of Rs 5,423bn and net borrowings of around Rs 5,000bn (Rs
5,900 bn inclusive of redemptions). Hence, we expect FY13 fiscal deficit of around 5.4% of GDP. Gross tax
revenue is expected to growth by 13.7% in FY13E vs 10.8% in FY12. We incorporate an optimistic assumption
of higher capital spending (primarily Plan expenditure) growth at 27% or 17% of total spending
Key Expected measures and Sectoral outcomes
§ Fiscal consolidation, YES but PARTIAL: Expect roll back of Cenvat rates to 12% (pre-2008 level), inclusion
of more services in services tax net, put 50% probability to increase in service tax (which align it more towards
GST), put nearly 100% probability to increase in the auto fuel prices. Yet we believe it will be difficult to cut fiscal
deficit lower than 5.0%. While the budget may project a target of 5% for FY13, there is a reasonable probability
of it remaining around 5.5%, somewhat lower than FY12E at 5.8%
§ Investments, more ENABLER and some PUSH: Change in the take-out financing norms for IIFCL allowing it
to take over under construction projects too vs. only commissioned currently. Announcements on power sector
reforms like credit guarantee fund or interest subvention fund. Share of capital outlay rising to 17%
§ Less pro-consumption but pro-savings: The pro-consumption (esp non-plan discretionary) policies adopted
by the govt over last three years have also fueled the inflation to large extent. Increase in auto fuel prices will
hurt consumption to an extent but we believe this could be partially counter balanced by (1) increase in tax
slabs and (2) pro-savings policies like expanding scope of S/80C, tax exemptions for bank deposits above three
years
§ Sectoral Winners and losers: Expectations from our analysts are mixed. But by and large our analysts
expect several positive measures from the budget (Please see Slide 7 & 8 for a Summary of sector
specific Budget Expectations). Notably expectations are positive for sectors such as Engineering and
cap goods, Construction (positive to neutral), Pharma and Banking. On the negative to neutral side are
sectors like Cement, Consumers & Oil and Gas
Possible market reaction: Will it be a populist or a
reformist budget?
§ We hope that the budget will be far less populist than the past. Given that the next Union election is in
2014 there is a possibility tighter budget for FY13 followed by more populism in FY14.
§ Reformist construct could imply “Win some lose some” outcome
§ Three key measures to fiscal consolidation – raise excise duty, add more services and reduce subsidies;
these could be negative for the demand side
§ Enabling measures to infrastructure space
§ Higher allocation under capital expenditure heads; Supply chain in agri sector could be a focus
§ Market reactions should be positive to these
§ Populist and pro-non-plan discretionary consumption
§ No changes in subsidies and no increase in fuel prices. No changes in tax structure
§ Loan waivers and other cosmetic measures to help weak agricultural productivity
§ These will further deteriorate imbalances in inflation, interest rates and supply side responses
§ These will also make RBI’s job tougher in managing interest rates and liquidity
§ Should be negative for the market
Summary of sector specific expectations
§ Automobiles: Increase in excise duty across segments; do not rule additional tax on diesel vehicles
§ Banking and financial services: Recapitalisation funds available for PSU banks ; Interest subvention fund for
power sector; Credit guarantee fund for agriculture loans; Changes in IIFCL norms to enable it to take out
finance for construction projects
§ Cement: Diesel prices to be increased; Status quo on basic customs duty on Coal petcoke & gypsum; Maximum
limit for interest rate subventions on hosing loan can increased to Rs 20-30lakhs
§ Construction and Infrastructure: Newer services within the tax net – several services offered by infrastructure
which will include airport developers, port developers & other construction companies; Do not expect any
alteration in the effective MAT rate; Incremental allocation to sectors like roads and rail to remain muted
§ Consumers: Hike in excise on Cigarette; Overhaul of tax structure of tobacco products; Measures to discourage
gold imports and demand; Increase in personal income tax slabs
§ Engineering & Capital Goods: Total allocation to infrastructure sector (on flagship schemes, JNNURM,
APDRP, NHDP, AIBP and renewable energy resources, etc) to increase by 10%; Selectively raise import barriers
for capital equipment, especially power equipment;
» Enabling policies to expedite roll-out of infrastructure projects:
• Addressing coal availability issues facing power sector
• Extension of tax benefits U/s 80IA, 80IB by one more year
• Easing ECB norms especially for infrastructure projects– to attract debt funds into the sector
§ Fertiliser & Chemicals: Lower allocation for fertiliser subsidy (Rs700-800bn); Clear subsidy dues of ~Rs200bn
for FY12E; Bring Urea under NBS and clear new investment policy on urea; Increase urea retail prices by 20%;
Elimination of custom duty on inputs like LNG, Naphtha, Alcohol, Propylene etc
§ Metals & Mining: Import duty on HR coil and export duty on Iron fines & lumps to remain unchanged; Customs
duty on non-coking coal to be decreased to 0 (Zero)
§ Oil and gas: Extension of seven-year tax holiday for the commissioning date of new refineries; Exemption from
payment of withholding tax of 40% to facilitate Indian refiners to start using a newly agreed mechanism of paying
in Indian rupee for the crude oil they buy from Iran
§ Pharmaceuticals: Healthcare sector be given infrastructure status; R&D expenses relating to overseas trials,
preparations of dossiers, consulting & legal fees, ANDAs eligible for weighted deduction; Higher allocation for
primary healthcare
§ Power: Incentives/measures (Shunglu/BK Chaturvedi committee’s recos, National Electricity Fund for interest
subsidy etc) for SEBs reforms with preconditions; Introduction/increase of import duty on power equipments at/to
19% for mega/small power plants; 10% Import duty on imported coal could be withdrawn or reduced ; Withdrawal
of customs duty and excise duty on mining; Coal Regulator – to take care of pricing, excess coal diversion etc.
Automobiles
§ We expect 200 bps increase in excise duty across segments. We do not rule out the possibility of additional tax
on diesel vehicles. However, we expect positive surprises with respect to quantum of increase.
§ An additional tax of upto 5% will not have a significant impact on demand (similar to cost increases due to
emission norms) especially in case of UVs given the buyer profile and lack of alternative options
§ We expect companies to pass on the duty hikes to consumers by increasing prices. So impact on margins
should be limited
§ MSIL to be impacted the most in case of additional tax on diesel vehicles (coupled with imminent petrol price
hike). However, current favorable exchange rates and hedging policy should offset the impact.
§ M&M to be impacted marginally as diesel UVs for personal use constitutes ~28% of total volumes. Also, the
impact would be limited due to lack of alternate option
Banking and financial services
§ Expect comments on Banking Regulation Act amendment to clear decks for new banking licenses
§ Expect tax exemption of deposits with maturity of 3-5 years to boost savings though probability may be low
§ Explicit mention on the amount of recapitalisation funds available for PSU banks
§ Interest subvention fund for power sector
§ Credit guarantee fund for agriculture loans
§ Changes in IIFCL norms to enable it to take out even under construction projects
Cement
§ Expect Ad-valorem excise duty rates to increase by 200bps to 12%
§ Expect Diesel prices to be increased by Rs4/ltr & Petrol prices to be increased by similar extent. Expect status
quo on basic customs duty on Coal petcoke & gypsum
§ Interest rate subventions on hosing loan up to Rs 15 lakhs can be extended to Rs 20-30lakhs which will be
positive for demand
Construction and Infrastructure
§ Enhancing the scope of service tax by introducing negative list which will bring newer services within the tax net
– several services offered by infrastructure which will include airport developers, port developers & other
construction companies – Such widening will impact the demand growth rather than the profitability as this is an
indirect tax which will be further passed on to consumer
§ We don’t expect any alteration in the effective MAT rate which stands at 20% offering sigh of relief to
infrastructure companies
§ Incremental allocation to infrastructure sectors - roads, rail to remain muted as fiscal deficit offers little room
for increasing the spend.
Consumers
§ Expect Ad-valorem excise duty rates to increase by 200bps from 10% to 12%
§ Expect excise on Cigarette to be hiked by 12-15%; Likelihood of overhaul of tax structure for tobacco products
§ Measures to discourage gold imports and demand – further increase in import duties
§ Increase in fuel prices i.e. diesel and petrol, which is applicable for other sectors as well
§ Widening of personal income tax slabs; Increase the disposable income for consumers
Engineering & Capital Goods
§ Expect total allocation to infrastructure sector (on flagship schemes, JNNURM, APDRP, NHDP, AIBP and
renewable energy resources, etc) to increase by 10% to Rs2360 bn
§ Expect enactment of enabling policies to expedite roll-out of infrastructure projects
§ New mining policy to expedite investments in mining industry
§ Addressing coal availability issues facing power sector à easing import barriers, clearing captive blocks
§ Extension of tax benefits U/s 80IA, 80IB by one more year
§ Easing ECB norms especially for infrastructure projects– to attract debt funds into the sector
§ Selectively raise import barriers for capital equipment, especially power equipment – to facilitate domestic
players
Fertiliser & Chemicals
§ In fertiliser, expect budgetary allocation for fertiliser subsidy of Rs700-800bn (vs current year subsidy est of ~Rs
900bn). Government also needs to clear subsidy dues of ~Rs200bn for current year
§ Lowering of interest rate on crop loans to 3% for those farmers who pay in time, from the existing 4%
§ To bring Urea under NBS and also clear the new investment policy on urea
§ Increase urea retail prices by minimum 20% to reduce the gap between complex fertiliser and urea prices
§ Chemicals industry expects custom duty on various inputs like LNG, Naphtha, Alcohol, Propylene etc to be
eliminated from current rates of 5%.
IT Services & Telecom
Information technology
§ We expect the Union Budget to be neutral to the IT services sector
§ After an increase in MAT rate over the past 2 Union budgets, we does not expect any other increases on this
front
Telecom
§ We think the budget could be a non-event this year as the National Telecom Policy (NTP 2012) is expected to be
announced in next fiscal.
§ Supreme court’s judgment on cancellation of 122 licenses has freed up close to 448MHz of spectrum, which is
likely to be auctioned in near future. As per the current spectrum pricing government can raise upto Rs340bn by
auctioning of spectrum. However, government is working on the new pricing which would give the exact amount
it can raise.
Metals & Mining
§ Expect ad valorem excise duty to be increased by 200 bps
§ Expect import duty on HR coil to remain at 5% although the industry wish-list includes a hike in this to 10%
§ Expect export duty on Iron fines and lumps to remain at 30%
§ Expect the customs duty on non-coking coal to be decreased from current 5% to 0 (Zero)
Media
Current Status Expected Impact
FDI limits- Currently 49% in DTH and
cable, 26% in news broadcasting &
print media and 20% in radio sector
Increase in the limit to 74% for DTH
and Cable industry
Positive for DTH and cable companies like Dish TV, Hathaway,
Den Networks and Hinduja media ventures
5% import duty on the Set-top-boxes Reduction in import duty for set top
boxes to 0%
Positive for DTH and cable companies like Dish TV, Hathaway,
Den Networks and Hinduja media ventures
Increase in FDI limits from currently 49% in DTH and cable, 26% in news broadcasting & print media and 20% in
radio sector
§ Possibility of reduction in import duty for set top boxes to 0% from currently 5%
§ Increase in service tax could have negative impact on demand, which is applicable for other sectors as well
Oil & Gas
§ Despite the cut in custom duties to 5% on crude oil and Petrol/Diesel to NIL and 2.5% and excise duty cut on
diesel by INR2.6/lit to INR2/lit, announced in June 2011, the taxation component remains high in consumer
prices. We expect status quo on customs and excise duties in the oil & gas sector in light of the sustained high
losses on sales of subsidized petroleum products at current retail selling price.
§ Expect extension of seven-year tax holiday for the commissioning date of new refineries. The current
exemption is available for only those refineries which are commissioned by March 2012. This will benefit Indian
Oil Corporation (IOC) which is setting up a greenfield 15mmtpa refinery in Paradip, Orissa.
§ Exemption from payment of withholding tax of 40% to facilitate Indian refiners to start using a newly agreed
mechanism of paying in Indian rupee for the crude oil they buy from Iran.
Pharmaceuticals
§ Healthcare sector be given infrastructure status
§ Expenses incurred outside R&D facility like those on overseas trials, preparations of dossiers, consulting & legal
fees, ANDAs should be eligible for weighted deduction
§ Higher allocation for primary healthcare as % of GDP in the budget
§ Allow deduction for free samples as sales promotion
Power
§ Most Important – Expect some incentives/measures (Shunglu/BK Chaturvedi committee’s recos, National
Electricity Fund for interest subsidy etc) for SEBs reforms with preconditions
§ Expect introduction/increase of import duty on power equipments at/to 19% for mega/small power plants
§ 10% Import duty on imported coal could be withdrawn or reduced
§ Withdrawal of customs duty and excise duty on mining equipments - to bring policy in line with mega power
project benefits
§ Announcement of appointment of Coal Regulator – to take care of pricing, excess coal diversion etc.
Printing and Writing Paper
§ Custom duty on paper to remain unchanged from current at 10%
§ Industry has accumulated significant CENVAT credit and expects some government to extend the benefit of the
same to industry by some mechanisms other than excise duty rebate
§ With rising domestic coal prices and lower availability of coal through linkages, industry expects Import Duty on
coal (current at 5%) should be waived off
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Difficult to deliver the perfect balance of growth and
fiscal rectitude
§ Challenging backdrop: The backdrop for FY13 budget is challenging given the context of slowing growth, lack
of investment momentum and a difficult fiscal scenario of subdued tax and non-tax revenue generation even
while various subsidy burden are ballooning. Toping these is a much weaker Central government after recent
state elections debacle of Congress party, which weaken its ability to take critical reform measures
§ Multiple priorities amid rising structural imbalances: Fiscal imbalances and falling domestic savings pose
significant structural challenges. We will look for a credible commitment towards fiscal consolidation, ways to
raise tax revenue (200bp hike in excise duty or expanding the tax base by including more services), reduction in
subsidy burden by raising prices of public utilities and services, ways to address the recurring deficits across
multiple public sector undertaking and departments and most importantly providing the focus on capital
spending and infra sectors. While implementation of GST is most ideally suited in the current context we think it
is unlikely to happen in this budget. Broadly, there can be some progress towards meeting the recommendation
of direct tax code (DTC)
§ Enablers more important than budget itself: While we expect some progress, expecting lot of reforms from
the budget may be optimistic. Given that the government has failed to deliver on the promised fiscal
consolidation in FY12, measures taken out of the budget to enable budget promises will be more critical
§ Fiscal deficit unlikely to come below 5%: Overall, we expect total allocation to increased by 10% to Rs
14,661bn in FY13E translating into a fiscal deficit of Rs 5,423bn and net borrowings of around Rs 5,000bn (Rs
5,900 bn inclusive of redemptions). Hence, we expect FY13 fiscal deficit of around 5.4% of GDP. Gross tax
revenue is expected to growth by 13.7% in FY13E vs 10.8% in FY12. We incorporate an optimistic assumption
of higher capital spending (primarily Plan expenditure) growth at 27% or 17% of total spending
Key Expected measures and Sectoral outcomes
§ Fiscal consolidation, YES but PARTIAL: Expect roll back of Cenvat rates to 12% (pre-2008 level), inclusion
of more services in services tax net, put 50% probability to increase in service tax (which align it more towards
GST), put nearly 100% probability to increase in the auto fuel prices. Yet we believe it will be difficult to cut fiscal
deficit lower than 5.0%. While the budget may project a target of 5% for FY13, there is a reasonable probability
of it remaining around 5.5%, somewhat lower than FY12E at 5.8%
§ Investments, more ENABLER and some PUSH: Change in the take-out financing norms for IIFCL allowing it
to take over under construction projects too vs. only commissioned currently. Announcements on power sector
reforms like credit guarantee fund or interest subvention fund. Share of capital outlay rising to 17%
§ Less pro-consumption but pro-savings: The pro-consumption (esp non-plan discretionary) policies adopted
by the govt over last three years have also fueled the inflation to large extent. Increase in auto fuel prices will
hurt consumption to an extent but we believe this could be partially counter balanced by (1) increase in tax
slabs and (2) pro-savings policies like expanding scope of S/80C, tax exemptions for bank deposits above three
years
§ Sectoral Winners and losers: Expectations from our analysts are mixed. But by and large our analysts
expect several positive measures from the budget (Please see Slide 7 & 8 for a Summary of sector
specific Budget Expectations). Notably expectations are positive for sectors such as Engineering and
cap goods, Construction (positive to neutral), Pharma and Banking. On the negative to neutral side are
sectors like Cement, Consumers & Oil and Gas
Possible market reaction: Will it be a populist or a
reformist budget?
§ We hope that the budget will be far less populist than the past. Given that the next Union election is in
2014 there is a possibility tighter budget for FY13 followed by more populism in FY14.
§ Reformist construct could imply “Win some lose some” outcome
§ Three key measures to fiscal consolidation – raise excise duty, add more services and reduce subsidies;
these could be negative for the demand side
§ Enabling measures to infrastructure space
§ Higher allocation under capital expenditure heads; Supply chain in agri sector could be a focus
§ Market reactions should be positive to these
§ Populist and pro-non-plan discretionary consumption
§ No changes in subsidies and no increase in fuel prices. No changes in tax structure
§ Loan waivers and other cosmetic measures to help weak agricultural productivity
§ These will further deteriorate imbalances in inflation, interest rates and supply side responses
§ These will also make RBI’s job tougher in managing interest rates and liquidity
§ Should be negative for the market
Summary of sector specific expectations
§ Automobiles: Increase in excise duty across segments; do not rule additional tax on diesel vehicles
§ Banking and financial services: Recapitalisation funds available for PSU banks ; Interest subvention fund for
power sector; Credit guarantee fund for agriculture loans; Changes in IIFCL norms to enable it to take out
finance for construction projects
§ Cement: Diesel prices to be increased; Status quo on basic customs duty on Coal petcoke & gypsum; Maximum
limit for interest rate subventions on hosing loan can increased to Rs 20-30lakhs
§ Construction and Infrastructure: Newer services within the tax net – several services offered by infrastructure
which will include airport developers, port developers & other construction companies; Do not expect any
alteration in the effective MAT rate; Incremental allocation to sectors like roads and rail to remain muted
§ Consumers: Hike in excise on Cigarette; Overhaul of tax structure of tobacco products; Measures to discourage
gold imports and demand; Increase in personal income tax slabs
§ Engineering & Capital Goods: Total allocation to infrastructure sector (on flagship schemes, JNNURM,
APDRP, NHDP, AIBP and renewable energy resources, etc) to increase by 10%; Selectively raise import barriers
for capital equipment, especially power equipment;
» Enabling policies to expedite roll-out of infrastructure projects:
• Addressing coal availability issues facing power sector
• Extension of tax benefits U/s 80IA, 80IB by one more year
• Easing ECB norms especially for infrastructure projects– to attract debt funds into the sector
§ Fertiliser & Chemicals: Lower allocation for fertiliser subsidy (Rs700-800bn); Clear subsidy dues of ~Rs200bn
for FY12E; Bring Urea under NBS and clear new investment policy on urea; Increase urea retail prices by 20%;
Elimination of custom duty on inputs like LNG, Naphtha, Alcohol, Propylene etc
§ Metals & Mining: Import duty on HR coil and export duty on Iron fines & lumps to remain unchanged; Customs
duty on non-coking coal to be decreased to 0 (Zero)
§ Oil and gas: Extension of seven-year tax holiday for the commissioning date of new refineries; Exemption from
payment of withholding tax of 40% to facilitate Indian refiners to start using a newly agreed mechanism of paying
in Indian rupee for the crude oil they buy from Iran
§ Pharmaceuticals: Healthcare sector be given infrastructure status; R&D expenses relating to overseas trials,
preparations of dossiers, consulting & legal fees, ANDAs eligible for weighted deduction; Higher allocation for
primary healthcare
§ Power: Incentives/measures (Shunglu/BK Chaturvedi committee’s recos, National Electricity Fund for interest
subsidy etc) for SEBs reforms with preconditions; Introduction/increase of import duty on power equipments at/to
19% for mega/small power plants; 10% Import duty on imported coal could be withdrawn or reduced ; Withdrawal
of customs duty and excise duty on mining; Coal Regulator – to take care of pricing, excess coal diversion etc.
Automobiles
§ We expect 200 bps increase in excise duty across segments. We do not rule out the possibility of additional tax
on diesel vehicles. However, we expect positive surprises with respect to quantum of increase.
§ An additional tax of upto 5% will not have a significant impact on demand (similar to cost increases due to
emission norms) especially in case of UVs given the buyer profile and lack of alternative options
§ We expect companies to pass on the duty hikes to consumers by increasing prices. So impact on margins
should be limited
§ MSIL to be impacted the most in case of additional tax on diesel vehicles (coupled with imminent petrol price
hike). However, current favorable exchange rates and hedging policy should offset the impact.
§ M&M to be impacted marginally as diesel UVs for personal use constitutes ~28% of total volumes. Also, the
impact would be limited due to lack of alternate option
Banking and financial services
§ Expect comments on Banking Regulation Act amendment to clear decks for new banking licenses
§ Expect tax exemption of deposits with maturity of 3-5 years to boost savings though probability may be low
§ Explicit mention on the amount of recapitalisation funds available for PSU banks
§ Interest subvention fund for power sector
§ Credit guarantee fund for agriculture loans
§ Changes in IIFCL norms to enable it to take out even under construction projects
Cement
§ Expect Ad-valorem excise duty rates to increase by 200bps to 12%
§ Expect Diesel prices to be increased by Rs4/ltr & Petrol prices to be increased by similar extent. Expect status
quo on basic customs duty on Coal petcoke & gypsum
§ Interest rate subventions on hosing loan up to Rs 15 lakhs can be extended to Rs 20-30lakhs which will be
positive for demand
Construction and Infrastructure
§ Enhancing the scope of service tax by introducing negative list which will bring newer services within the tax net
– several services offered by infrastructure which will include airport developers, port developers & other
construction companies – Such widening will impact the demand growth rather than the profitability as this is an
indirect tax which will be further passed on to consumer
§ We don’t expect any alteration in the effective MAT rate which stands at 20% offering sigh of relief to
infrastructure companies
§ Incremental allocation to infrastructure sectors - roads, rail to remain muted as fiscal deficit offers little room
for increasing the spend.
Consumers
§ Expect Ad-valorem excise duty rates to increase by 200bps from 10% to 12%
§ Expect excise on Cigarette to be hiked by 12-15%; Likelihood of overhaul of tax structure for tobacco products
§ Measures to discourage gold imports and demand – further increase in import duties
§ Increase in fuel prices i.e. diesel and petrol, which is applicable for other sectors as well
§ Widening of personal income tax slabs; Increase the disposable income for consumers
Engineering & Capital Goods
§ Expect total allocation to infrastructure sector (on flagship schemes, JNNURM, APDRP, NHDP, AIBP and
renewable energy resources, etc) to increase by 10% to Rs2360 bn
§ Expect enactment of enabling policies to expedite roll-out of infrastructure projects
§ New mining policy to expedite investments in mining industry
§ Addressing coal availability issues facing power sector à easing import barriers, clearing captive blocks
§ Extension of tax benefits U/s 80IA, 80IB by one more year
§ Easing ECB norms especially for infrastructure projects– to attract debt funds into the sector
§ Selectively raise import barriers for capital equipment, especially power equipment – to facilitate domestic
players
Fertiliser & Chemicals
§ In fertiliser, expect budgetary allocation for fertiliser subsidy of Rs700-800bn (vs current year subsidy est of ~Rs
900bn). Government also needs to clear subsidy dues of ~Rs200bn for current year
§ Lowering of interest rate on crop loans to 3% for those farmers who pay in time, from the existing 4%
§ To bring Urea under NBS and also clear the new investment policy on urea
§ Increase urea retail prices by minimum 20% to reduce the gap between complex fertiliser and urea prices
§ Chemicals industry expects custom duty on various inputs like LNG, Naphtha, Alcohol, Propylene etc to be
eliminated from current rates of 5%.
IT Services & Telecom
Information technology
§ We expect the Union Budget to be neutral to the IT services sector
§ After an increase in MAT rate over the past 2 Union budgets, we does not expect any other increases on this
front
Telecom
§ We think the budget could be a non-event this year as the National Telecom Policy (NTP 2012) is expected to be
announced in next fiscal.
§ Supreme court’s judgment on cancellation of 122 licenses has freed up close to 448MHz of spectrum, which is
likely to be auctioned in near future. As per the current spectrum pricing government can raise upto Rs340bn by
auctioning of spectrum. However, government is working on the new pricing which would give the exact amount
it can raise.
Metals & Mining
§ Expect ad valorem excise duty to be increased by 200 bps
§ Expect import duty on HR coil to remain at 5% although the industry wish-list includes a hike in this to 10%
§ Expect export duty on Iron fines and lumps to remain at 30%
§ Expect the customs duty on non-coking coal to be decreased from current 5% to 0 (Zero)
Media
Current Status Expected Impact
FDI limits- Currently 49% in DTH and
cable, 26% in news broadcasting &
print media and 20% in radio sector
Increase in the limit to 74% for DTH
and Cable industry
Positive for DTH and cable companies like Dish TV, Hathaway,
Den Networks and Hinduja media ventures
5% import duty on the Set-top-boxes Reduction in import duty for set top
boxes to 0%
Positive for DTH and cable companies like Dish TV, Hathaway,
Den Networks and Hinduja media ventures
Increase in FDI limits from currently 49% in DTH and cable, 26% in news broadcasting & print media and 20% in
radio sector
§ Possibility of reduction in import duty for set top boxes to 0% from currently 5%
§ Increase in service tax could have negative impact on demand, which is applicable for other sectors as well
Oil & Gas
§ Despite the cut in custom duties to 5% on crude oil and Petrol/Diesel to NIL and 2.5% and excise duty cut on
diesel by INR2.6/lit to INR2/lit, announced in June 2011, the taxation component remains high in consumer
prices. We expect status quo on customs and excise duties in the oil & gas sector in light of the sustained high
losses on sales of subsidized petroleum products at current retail selling price.
§ Expect extension of seven-year tax holiday for the commissioning date of new refineries. The current
exemption is available for only those refineries which are commissioned by March 2012. This will benefit Indian
Oil Corporation (IOC) which is setting up a greenfield 15mmtpa refinery in Paradip, Orissa.
§ Exemption from payment of withholding tax of 40% to facilitate Indian refiners to start using a newly agreed
mechanism of paying in Indian rupee for the crude oil they buy from Iran.
Pharmaceuticals
§ Healthcare sector be given infrastructure status
§ Expenses incurred outside R&D facility like those on overseas trials, preparations of dossiers, consulting & legal
fees, ANDAs should be eligible for weighted deduction
§ Higher allocation for primary healthcare as % of GDP in the budget
§ Allow deduction for free samples as sales promotion
Power
§ Most Important – Expect some incentives/measures (Shunglu/BK Chaturvedi committee’s recos, National
Electricity Fund for interest subsidy etc) for SEBs reforms with preconditions
§ Expect introduction/increase of import duty on power equipments at/to 19% for mega/small power plants
§ 10% Import duty on imported coal could be withdrawn or reduced
§ Withdrawal of customs duty and excise duty on mining equipments - to bring policy in line with mega power
project benefits
§ Announcement of appointment of Coal Regulator – to take care of pricing, excess coal diversion etc.
Printing and Writing Paper
§ Custom duty on paper to remain unchanged from current at 10%
§ Industry has accumulated significant CENVAT credit and expects some government to extend the benefit of the
same to industry by some mechanisms other than excise duty rebate
§ With rising domestic coal prices and lower availability of coal through linkages, industry expects Import Duty on
coal (current at 5%) should be waived off
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