analysis of union budget - careratings.com budget analysis 2015-16.pdf · the analysis which has...

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UNIONBUDGET

2015-16

Credit Analysis & Research Ltd.

Analysis of

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Airlines......................................................17

Airports.....................................................18

Auto Components ....................................19

Automobiles .............................................20

Banking and Financial Services ............21-22

Cement ................................................23-24

Coal...........................................................25

Construction ........................................26-27

Consumer Durables ..................................28

Education ..................................................29

Engineering and Capital Goods ...........30-31

Fertilizers .............................................32-33

FMCG ...................................................34-35

Gems and Jewellery..................................36

Hospitals and Healthcare .........................37

Hotels .......................................................38

IT and ITES ................................................39

Media and Entertainment ........................40

Mining and Minerals ................................41

Non-ferrous Metals .............................42-43

Oil and Gas ..........................................44-45

Paper ........................................................46

Pharmaceuticals .......................................47

Pipes .........................................................48

Ports .........................................................49

Power (incl renewables) ...........................50

Real Estate ................................................51

Roads and highways .................................52

Steel .....................................................53-54

Sugar .........................................................55

Telecom ....................................................56

Warehousing and Logistics .......................57

TABLE OF CONTENTSForeword ............................................................................................. 2

Macro Economic Backdrop ............................................................... 3-5

Union Budget 2015-16 ................................................................... 6-13

Railway Budget 2015-16 ............................................................... 14-16

Industry Allocation Sectors

Impact Symbols

Positive +Negative -Neutral =

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The Union Budget is a very important policy document which sets the tone for all other policies that are to be

implemented during the course of the year. It also in a way indicates the stance that may be taken by the RBI when

formulating the monetary policy and hence is quite all encompassing. Being the first policy that is announced before

the start of the Fiscal New Year, it really gives one time to assimilate the content and prepare for the year ahead.

The Budget has taken a pro-growth stance and it does appear that the government is keen to expedite the growth

process by directly contributing to investment. The creditable part of this exercise is that it has been accomplished

by being pragmatic with the level of fiscal deficit which will be at 3.9% for the year even though the glide path to 3%

is still on the agenda. The proposals do reinforce the commitment to making things happen which means that there

will be focus on easing the processes that are involved in doing business in the country.

The Budget has to also garner additional resources and in this context has decided on making changes in the indirect

tax rates so as to collect this additional revenue. There are sops given for direct taxes which will lead to a net

loss of revenue which is finally compensated by indirect tax collections. In particular, the proposal to lower the

corporate tax rate by 5% over the next four years which should be interpreted with caution as there is also a move

to rationalize the exemptions that are presently provided. Further, we are once again looking for disinvestment to

be an integral part of the fund raising effort and it remains to be seen whether it would materialize. If it does, we

can expect a boost to be given to the markets.

The analysis which has been done by our team looks at both the macro implications of the proposals as well as the

impact on various sectors. We do hope to hence provide a comprehensive view of the Budget which the reader

should find useful. This effort of CARE has been part of our tradition to provide this analysis as soon as possible after

the Budget is introduced and I would personally like to commend the team for doing an excellent job as always.

D.R. Dogra

MD & CEO

Foreword

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The Economic Survey for the year 2014-15

The Survey based on developments of FY15, indicate an improvement in the macroeconomic fundamentals which is reflected both in temporal and cross-country comparison.

Macroeconomic Performance

As indicated above, the fundamentals have shown a significant improvement. The highlights are as follows;

• Acceleration in growth

• Growth in FY15 settled at 7.4% , mostly driven by the industry and services sector

• Declining price levels

• WPI has registered moderation at 3.4%, while CPI has moderated to 6.2% up to December 2014.

• Structural shifts in inflation are due to lower oil prices, deceleration in agriculture prices & wages and improved household inflation expectations

• Stagnating trade outcome

• The trading environment is becoming more challenging as the buoyancy of Indian exports has declined with respect to world growth, and as the negotiation of mega- regional trading arrangements threatens to exclude India

•Improved Balance of Payments

• Current account deficit (CAD) declined sharply from a record high of 4.7% of GDP in FY13 to 1.7% of GDP in FY14, which increased marginally to 1.9% in H1 FY15

• Foreign exchange reserves increase to $ 328.7 billion at end January 2015

• Fiscal deficit is expected to be contained at 4.1% as mentioned in the budget estimates.

Macro-economic Indicators (%)

% FY12 FY13 FY14 FY15GDP growth n.a 5.1 6.9 7.4Inflation (WPI) 8.9 7.4 6.0 3.4*Inflation (CPI) 8.4 10.4 9.7 6.2*Savings rate 33.9 31.8 30.6 n.aInvestment rate 38.2 36.6 32.3 n.aCAD (% of GDP) 4.2 4.7 1.7 1.9^Forex Reserves ($ bn) 294.4 292 304.2 328.7#Export growth 21.8 -1.8 4.7 4.0*Import growth 32.3 0.3 -8.3 3.6*

Source: Economic Survey 2014-15, *up to Dec’14, ^data for H1, #up to Jan’15

Macro-Economic Backdrop

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Challenges and Proposed Strategy

•Fiscal Framework• Need to adhere to the medium term target of 3%

• Provide for the required fiscal space to insure against future shocks

• Move towards eliminating of revenue deficit and ensure borrowing used for only capital formation

• Introduction of GST and expenditure control to help in meeting these targets

• Expenditure needs to be shifted from consumption towards investments

• Investment Challenge• Stalled projects stand at 7% of GDP, mostly accounted for by the private sector, specially manufacturing and infrastructure

owing to changed market conditions and impeded regulatory clearances

• Need for public sector investment to rise up capital formation and recreate an environment to crowd-in the private sector

• Banking Challenge• Banking balance sheet suffering from ‘double financial repression

• On the liabilities side, high inflation lowered real rates of return on deposits

• On the asset side, SLR and priority sector lending (PSL) requirements depressed returns to bank assets.

• The survey proposes the 4Ds of policy going forward- deregulate, differentiate, diversify and disinter

• Putting Public Investment on Track – the Rail Route to Higher Growth • Over the years the railways has been characterised by underinvestment resulting in lack of capacity addition and network

congestion, poor services and consequent financial weakness resulting in below potential contribution to economic growth

• In the long run, efforts need to be taken to make railways commercially viable and railway reforms such as adoption of commercial practices, tariff rationalization and technology overhaul need to be adopted

• Skill India to Complement Make in India• Make in India should be targeted at sectors that are capable of facilitating structural transformation in an emerging

economy, which includes characteristics such as;

• Have high level of productivity

• Show convergence to the technology frontier over time

• Draw in resources from rest of the economy to spread the fruits of growth

• Be aligned with the economy’s comparative advantage

• Be tradable

• Need to bolster the Make in India initiative by complementing it with the Skilling India initiative. This would enable a larger section of the population to benefit from the structural transformation that such sectors will facilitate

• A National Market for Agricultural Commodities • Markets in agricultural products are regulated under the APMC Act enacted by the State governments

• APMCs levy multiple fees of substantial magnitude, that are non – transparent and hence a source of political power

• There is a need to introduce integrated single licensing system (based on the Karnataka model) which will remove the barriers that militate against the creation of choice for farmers and against the creation of marketing infrastructure by the private sector

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• The 14th Finance Commission• Unprecedented increase in tax devolution would confer more fiscal autonomy on the states, enhanced by the FFC induced

imperative of having to reduce the scale of other central transfers to the state

• All states gain from the extra resources, although some variation between states would exist

Outlook for FY16• GDP growth likely to be in the range of 8.1% - 8.5%

o Growth to receive boost from the cumulative impact of reforms, lower oil prices, likely monetary policy easing facilitated by lower inflation and forecast of normal monsoon

• Inflation likely to remain in the range of 5% - 5.5%

• CAD to be limited to 1% of GDP

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The first full year budget of the new government has attempted to carry forward the positive sentiments surrounding the Indian economy by providing for a roadmap for the future. The broad measures/allocations announced, including the various social and welfare allocations, will provide for benefits in the long term as opposed to any significant changes in the immediate timeframe.

While recognising the various challenges faced, the budget has rightly focussed on 4 key areas – agriculture, infrastructure, manufacture and fiscal discipline, to realise it vision and trajectory for the country’s economy. The thrust laid on the infrastructure sector, the measures announced to stimulate the “Make in India” programme and for the facilitation of “Ease of Doing Business” sets the tone for the revival of the country.

Key Highlights

• Housing for 2 crore houses in Urban areas and 4 crore houses in Rural areas

• Basic facility of 24x7 power, clean drinking water, a toilet and road connectivity and providing medical services in each village and city

• Electrification of the remaining 20,000 villages including off-grid Solar Power- by 2020 and connecting un-connected habitation (1,78,000)

• Government to work towards creating a functional social security system for all Indians, specially the poor and the under-privileged

• Government committed to the on-going schemes for welfare of SCs, STs and Women

• To make India, the manufacturing hub of the World through Skill India and the Make in India Programmes

• Development of Eastern and North Eastern regions on par with the rest of the country

• Fiscal deficit target of 3% to be achieved in 3 years rather than 2 years (3.9% in FY16, 3.5% in FY17 and 3% in FY18)

• Disinvestment - of loss making units as well as some strategic disinvestment

• Rationalization of subsidies to cut leakages. Direct Transfer of Benefits to be extended to 10.3 crore beneficiaries (from 1 crore)

• Agriculture - (i) steps take to address agricultural production and soil & water, (ii) Allocation of Rs.5,300 crore to support micro-irrigation, watershed development etc (iii) Rs. 8.5 lakh crore of target agricultural credit during FY16 (iv) Allocation of Rs.25,000 crore in FY16 to the corpus of Rural Infrastructure Development Fund (RIDF) set up in NABARD, Rs.15,000 crore for Long Term Rural Credit Fund, Rs.45,000 crore for Short Term Co-operative Rural Credit Refinance Fund and Rs. 15,000 crore for Short Term RRB Refinance Fund (iv) Government to work for the creation of a Unified National Agriculture Market

• Micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of Rs. 20,000 crores, and credit guarantee corpus of Rs.3,000 crores to be created. Priority given to SC/ST enterprises. The bank will be responsible for refinancing all Micro-finance Institutions which are in the business of lending to small entities

• Comprehensive Bankruptcy Code of global standards to be brought in FY16 towards ease of doing business

• NBFCs registered with RBI and having asset size of Rs.500 crore and above may be considered for notifications as ‘Financial Institution’ in terms of the SARFAESI Act, 2002

• Infrastructure – (i) Sharp increase in outlays of roads and railways, (ii) National Investment and Infrastructure Fund (NIIF), to be established with an annual flow of Rs.20,000 crores, (iii) Tax free infrastructure bonds for the projects in the rail, road and irrigation sectors, (iv) Ports in public sector to be encouraged to become companies under the Companies Act to

Union Budget 2015-16

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attract investment and leverage the huge land resources, (v) 5 new Ultra Mega Power Projects, each of 4000 MW, in the Plug-and-Play mode, (vi) An expert committee to examine the possibility and prepare a draft legislation where the need for multiple prior permission can be replaced by a pre-existing regulatory mechanism

• Financial Markets – (i) Public Debt Management Agency (PDMA) bringing both external and domestic borrowings together to be set up, (ii) Forward Markets commission to be merged with SEBI, (iii) Section-6 of FEMA to be amended through Finance Bill to provide control on capital Flows, (iv) Enabling legislation, amending the Government Securities Act and the RBI Act included in the Finance Bill, 2015

• Foreign Investment – (i) Permit foreign investment in Alternate Investment Funds, (ii) Distinction between foreign portfolio investments and foreign direct investments to be done away with

• Make in India – (i) Tax “pass through” to be allowed to both category I and category II alternative investment funds, (ii) Revival of investment and promotion of domestic manufacturing, (iii) Rationalisation of capital gains regime for the sponsors exiting at the time of listing of the units of REITs and InvITs, (iv) General Anti Avoidance Rule (GAAR) to be deferred by two years, (v) Basic Custom duty on certain inputs, raw materials, inter mediates and components in 22 items, reduced to minimise the impact of duty inversion, (vi) All goods, except populated printed circuit boards for use in manufacture of ITA bound items, exempted from SAD (vii) Proposal to reduce corporate tax from 30% to 25% over the next four years

• Ease of Doing Business – (i) Simplification of tax procedures, (ii) Central excise/Service tax assesses to be allowed to use digitally signed invoices and maintain record electronically, (iii) Penalty provision in indirect taxes are being rationalised to encourage compliance and early dispute resolution, (iv) Wealth-tax replaced with additional surcharge of 2 per cent on super rich with a taxable income of over Rs.1 crore annually, (v) Domestic transfer pricing threshold limit increased from Rs.5 crore to Rs.20 crore, (vi) Time limit for taking CENVAT credit on inputs and input services increased from 6 months to 1 year, (vii) Service-tax plus education cesses increased from 12.36% to 14% to facilitate transition to GST

• Black Money – Bill for comprehensive new law to deal with black money parked abroad to be introduced in the current session and stringent measures announced to deal with black money, which includes 10 years rigorous imprisonment, penalty rate of 300% etc

Budget FinancialSummary of Accounts

Rs. Cr. FY11 FY12 FY13 FY14 (A) FY15 (RE) FY16 (BE)

Revenue Receipts 788,471 751,437 879,232 1,014,724 1,126,294 1,141,575

Tax revenue(net to center) 569,869 629,765 741,877 815,854 908,463 919,842

Non – tax revenue 218,602 121,672 137,354 198,870 217,831 221,733

Capital Receipts 408,857 568,918 531,140 544,723 554,864 635,902

Recovery of Loans 12,420 18,850 15,060 12,497 10,886 10,753

Disinvestment of Equity in PSE's 22,846 18,088 25,890 29,368 31,350 69,500

Internal Debt (Market Borrowings) 325,414 436,211 467,356 453,550 446,922 456,405

External Borrowings (Net) 23,556 12,448 7,201 7,292 9,705 11,173

Total Receipts 1,197,328 1,304,365 1,410,372 1,559,447 1,681,158 1,777,477

Revenue Expenditure 1,040,723 1,145,785 1,243,509 1,371,772 1,488,780 1,536,047

Interest Payments 234,022 273,150 313,170 374,254 411,354 456,145

Subsidies 173,420 217,941 257,079 254,632 266,692 243,811

Pensions 57,405 61,166 69,479 74,896 81,705 88,521

Capital Expenditure 156,605 158,580 166,858 187,675 192,378 241,430

Total Expenditure 1,197,328 1,304,365 1,410,367 1,559,447 1,681,158 1,777,477

Revenue Deficit 252,252 394,348 365,896 357,048 362,486 394,472

Fiscal Deficit 373,591 515,990 490,597 502,858 512,628 555,649

Primary Deficit 139,569 242,840 177,428 128,604 101,274 99,504

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Receipts One of the challenges to the government finances emerges from the slowdown in the growth rate of the total receipts. Over the last three years, the growth in total receipts of the Centre has moderated from 10.6% in FY14(A) to 7.8% in FY15(RE). The same is expected to reduce further to 5.7% in FY16 (BE). There has also been a moderate shift in the composition of the overall Receipts Budget over the last four years. While the share of revenue receipts rose from 58% in FY12 to 64% in FY15 (RE), that of capital receipts has declined from 44% in FY12 to 35% in FY15 (RE).

In FY16(BE), there appears to be particular focus on disinvestments as a source of generating revenue as the Government is budgeted to par take Rs. 28,500 Cr. of strategic disinvestment in addition to a target of Rs. 41,000 Cr. under disinvestment receipts.

Gross Tax Revenue/ GDP

The ratio of Gross Tax Revenue to GDP has been stagnant at 10% over the last five years. This in turn points towards the sluggishness in the economy and lack of growth in tax mobilisation. The growth in gross tax revenue has also been constant at 9.9% in FY15 compared to the growth levels in FY14.

Rs. Cr. FY12 FY13 FY14(A) FY15(RE) FY16(BE)

Gross Tax Revenue 889,176 1,036,234 1,138,734 1,251,391 1,449,491

Gross Domestic Product 8,832,012 9,988,540 11,345,056 12,653,762 14,108,945

Gross Tax Revenue (% of GDP) 10 10 10 10 10

Tax Proposals

The Tax Reforms in the FY16 Union Budget were developed on the five main pillars of effectively circumnavigating the black money problem, creation of employment, minimum government and maximum governance, ‘Swachh Bharat Abhiyan’ and lastly providing benefits to the individual middle class tax payer.

o As regards the first pillar on black money, the Government is to introduce a bill in the Parliament which broadly aims at discouraging the outflow of black money from the country and also curbing the same domestically through the Benami Transaction Bill. This bill would enable confiscation of benami property along with some other measures which will serve as deterrents to the holding of black money in the economy.

o There was a significant thrust on job creation which is imperative to support the ‘Make in India’ campaign. The introduction of ‘Tax Pass Through’ in Alternative Investment Funds is likely to foster investments and give the Small and Medium Scaled enterprises in particular a boost.

o In order to promote the ‘Ease of Doing Business’ the motivation is towards simplifying the tax regime. As a step in this direction, the government has abolished the Wealth Tax and instead introduced a surcharge of 2% for individuals with income of over Rs. 1 Cr. This move is expected to add Rs. 9,000 Cr. to the government’s tax revenues.

o The system is also preparing towards the Goods and Services Tax (GST) which will be applicable from FY17 onwards. In order to bring about a smooth transition, there is proposed to be an increase in the present rate of service tax plus education cesses from 12.3% to a consolidated rate of 14%.

o Under the pillar of the ‘Swachh Bharat Abhiyan’, the proposition is to create an enabling provision to levy a Swachh Bharat Cess at a rate of 2% or less on all or certain services. Also, the ongoing concessions on customs and duty for the manufacturing parts of electrical vehicles are extended for another year.

o The fifth pillar focuses on the benefits extended to the middle class tax payers that includes deductions in respect of insurance premium, additional deductions for very senior citizens & differently abled individuals, increase in limit on deduction towards contribution to pension funds to name a few

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o Basic rate of Corporate Tax is to be lowered from 30% to 25% in a phased manner over 4 years. In order to limit the loss of revenue on this front, the exemptions are to be rationalized and reduced.

o The government also announced certain exemptions to Service Tax, particularly for those contributing towards the ‘Swachh Bharat Abhiyan’ viz electrical vehicles. Likewise, senior citizens are also to be exempt from service tax under the Varishta BimaYojana.

Major Non-Tax Revenue Overall, the non-tax revenues are projected to slow down considerably in FY16 (BE) at a growth rate of 1.8% from the 9.5% growth recorded in FY15(RE). There is a moderation expected across all the major heads of non-tax revenue barring ‘Dividends and Profits’. While there was a slowdown in ‘Dividends and Profits’ in FY15 (RE) to Rs. 88,781 due to a lower contribution by PSUs, the same is expected to reverse on the back of strong dividends from RBI in FY16(BE) to Rs. 100,651 Cr.

Rs. Cr. FY11 FY12 FY13 FY14(A) FY15(RE) FY16(BE)

Interest Receipts 19,734 20,252 20,761 21,868 22,166 23,599

Dividends and Profits 47,992 50,608 53,761 90,435 88,781 100,651

Dividends from PSEs and other Investments 24,060 28,490 13,354 25,921 28,423 36,174

Dividends/Surplus from RBI, Nationalized Banks and financial Institutions

23,932 22,118 40,406 64,513 60,358 64,477

Spectrum Sale The Government in FY12 and FY13 could not meet the target to be earned through Spectrum sale. The actual figures stood markedly lower than the budgeted estimates. However, from FY14 onwards, the actual amount has tended to more or less meet the budgeted figure. While in FY14, the Centre earned the budgeted Rs. 40,847 Cr. through the spectrum sale, it missed the target at Rs. 43,162 Cr. as per the revised estimates for FY15.

The Government has projected a total of Rs.42,866 Cr. to be garnered through the Spectrum sale in FY16

Rs. Cr. Budgeted Actual / Revised

FY12 29,648 17,401

FY13 58,217 18,902

FY14 40,847 40,847

FY15 45,471 43,162

FY16 42,866 -

Disinvestment There is a major disinvestment drive in the piping in the upcoming fiscal as the Government has targeted a total of Rs 69,500 Cr. of which Rs. 28,500 is to be collected through strategic disinvestments. However, in the past years it is seen that the Centre has been unable to meet the budgeted disinvestment target. In FY15, the revised figures indicate that total disinvestments stood 49% lower than what was projected at the start of the year. The case was similar in FY14 as well with the actual figure being Rs. 29,367 Cr. as opposed to the budgeted amount of Rs. 55,814 Cr.

Hence, it remains to be seen if the optimistic target is realized in FY16.

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Rs. Cr. FY13 FY14 FY15 FY16

BE A BE A BE RE BE

Total Disinvestment 30,000 25,890 55,814 29,367 63,425 31,350 69,500

Disinvestment Receipts 30,000 25,890 40,000 16,027 43,425 26,353 41,000

Disinvestment of Government stake in non-government Companies

- - 14,000 3,000 15,000 - -

Strategic Disinvestment - - - - - - 28,500

Others - - 1,814 1,814 5,000 5,000

Gross Borrowing Programme The Gross Borrowing Programme for FY16 is virtually unchanged from that in FY15 as the Government projects to borrow Rs. 6 lkh Cr. with Rs. 1.43 lkh Cr being repayments thereby taking the net borrowing programme to Rs. 4.56 lkh cr.

Hence, liquidity in the system is expected to remain smooth without any untoward pressure in the upcoming fiscal year, much like in FY15.

Rs. Cr. FY12 FY13 FY14 (A) FY15 (RE) FY16(BE)

Gross Borrowing Programme 509,796 558,000 564,147 592,000 600,000

Repayments 73,585 90,644 110,597 145,078 143,595

Internal Debt Market borrowing (NET) 436,211 467,356 468,668 453,205 456,405

Expenditure Total Budget expenditure is projected to increase by 5.8% in FY16 compared to that in FY15 (RE). Total plan expenditure allocation has declined by 0.6% for FY16 (BE) over FY15 (RE), with non-plan expenditure showing an increase of 8.2%. In terms of percentage share in total expenditure, non-plan expenditure has been estimated to increase to 74% in FY16 (BE) from 72% in FY15 (RE). Consequently the share of plan expenditure is estimated to decline to 26% in FY16 (BE) from 28% in FY15 (RE).

Revenue expenditure accounts for most of the total expenditure, with an average share of 87.8% since FY13; while capital expenditure accounts for around 12%. The revenue expenditure increased by 10.3% on FY14 but witnessed a decline in growth rate to 8.5% in FY15 and is expected to increase by only 3.2% in FY16 (BE). Capital expenditure on the other hand, increased by 12.5% and 2.5% in FY14 and FY15 respectively; however, in FY16 the capital expenditure is expected to increase significantly by 25.5%, reflecting the governments focus on asset creation

Rs. Cr. FY12 FY13 FY14 (A) FY15 (RE) FY16 (BE)

Non plan Expenditure 891,990 996,747 1,106,120 1,213,224 1,312,200

Interest payments 273,150 313,170 374,254 411,354 456,145

Subsidies 217,941 257,079 254,632 266,692 243,811

Pensions 611,660 69,479 74,896 81,705 88,521

Plan Expenditure 412,375 413,625 453,327 467,934 465,277

Revenue 333,736 329,208 352,732 366,883 330,020

Capital 78,639 84,417 100,595 101,051 135,257

Total Expenditure 1,304,365 1,410,372 1,559,447 1681,158 1,777,477

Revenue 1,145785 1,243,514 1,371,772 1,488,780 1,536,047

Capital 158,580 166,858 187,675 192,378 241,430

The Government has taken various initiatives on the expenditure front, which have been mentioned below;

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Agriculture Initiatives

• Allocation of Rs 5,300 crore to support micro-irrigation, watershed development and the Pradhan Mantri Krishi Sinchai Yojana

• Rs 25,000 crore has been allocated towards Rural Infrastructure Development Fund (RIDF) set up in NABARD, Rs 15,000 crore for Long Term Rural Credit Fund; Rs 45,000 crore for Short Term Cooperative Rural Credit Refinance Fund; and Rs15,000 crore for Short Term RRB Refinance Fund.

• Rs 8.5 lakh crore of agriculture credit to be be disbursed by Banks

Infrastructure Spending

• Increased outlays on both the roads and the gross budgetary support to the railways, by Rs 14,031 crore, and Rs10,050 crore respectively.

• Investment in infrastructure to increase by Rs 70,000 crore in FY16, over FY15 from the Centre’s Funds and resources of CPSEs

• Establish a National Investment and Infrastructure Fund (NIIF), to ensure an annual flow of Rs 20,000 crore to it.

• The Government also proposes to set up 5 new Ultra Mega Power Projects, each of 4000 MWs in the plug-and-play mode. All clearances and linkages will be in place before the project is awarded by a transparent auction system

Interest Payments


Interest Payments 273,150 313,170 374,254 411,354 456,145

Effective Interest Rate (%) 6.5 6.5 7.0 6.9 6.9

• Interest payments account for around 23% of the total expenditure

• Interest payments increased by 19.5% to Rs 374,254 crore in FY14. The increase however moderated to 9.9% in FY15 (RE). In FY16 (BE) the interest payments are expected to increase by 10.9% to Rs 456,145 crore

• The Effective interest rate defined as outstanding liabilities to interest payments appears to remain constant in FY16 at 6.9%

Subsidies


Subsidies 217,941 257,079 254,632 266,692 243,811

Major Subsidies 211,319 247,493 244,717 253,913 227,388

Food Subsidy 72,822 85,000 92,000 122,676 124,419

Fertilizer Subsidy 70,013 65,613 67,339 70,967 72,969

Petroleum Subsidy 68,484 96,880 85,378 60,270 30,000

Interest Subsidies 5,049 7,270 8,137 11,147 14,903

Other Subsidies 1,573 2,316 1,778 1,632 1,520

• Subsidy bill for FY15 RE stood at 2.1% of GDP and is expected to decline to 1.7% of GDP in FY16(BE)

• The major contributors to this reduced levels in subsidies has been the decline in petroleum subsidy by 50.2%. Fertilizer subsidy and food subsidy are expected to increase marginally by 2.8% and 1.4% respectively

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Defence Expenditure


Defence Expenditure 170,913 181,776 203,499 222,370 246,727

• Defence Expenditure accounts for around 13% of the expenditure since FY12

• Defence Expenditure increased by 9.3% in FY15 (RE) to Rs 222,370 crore and is expected to increase by 11.0% to Rs 246,727 crore in FY16 (BE)

• With respect to defence services, the country has been dependent majorly on imports. The Government has already permitted FDI in defence to encourage manufacturing of defence equipments. The government thus plans to pursue Make in India policy to achieve greater self-sufficiency in the area of defence equipment, including aircraft

Social Programmes


MGNREGA 29,213 30,274 32,993 32,992 34,699

• NREGA in the past has not been too successful in producing meaningful public assets. The government aims at redesigning the programme by providing employment for more productive, asset creation which has linkages to agriculture& allied activities. The allocation towards this programme has been increased to Rs 34,699 crore. The government aims at improving the quality and effectiveness of activities under MGNREGA

• Other social programmes include, soon to be launched Pradhan Mantri Suraksha BimaYojna which will cover accidental death risk of Rs 2 lakh for a premium of just Rs 12 per year

• Pradhan Mantri Jeevan Jyoti BimaYojana which covers both natural and accidental death risk of Rs 2 lakhs. The premium will be Rs 330 per year, or less than one rupee per day, for the age group 18-50.

• An integrated education and livelihood scheme called ‘NaiManzil’ to enable Minority Youth who do not have a formal school-leaving certificate to obtain one and find better employment.

• Further, to show-case civilization and culture of the Parsis, the Government will support an exhibition, ‘The Everlasting Flame’. The allocation for the Ministry of Minority Affairs is estimated at Rs 3,738 crore

• All India Institutes of Medical Sciences to be set up in J&K, Punjab, Tamil Nadu, Himachal Pradesh and Assam.

• IIT to be set up in Karnataka and also Indian School of Mines, Dhanbad to be upgraded to a full-fledged IIT

• Setting up of a Post Graduate Institute of Horticulture Research and Education in Amritsar.

• IIMs will be setup in J&K and Andhra Pradesh

• Three new National Institutes of Pharmaceutical Education and Research in Maharashtra, Rajasthan, and Chattisgarh and an Institutes of Science and Education Research in Nagaland and Odisha

In terms of expenditure, there has been a clear focus on creating capital assets. While the budget has made allocations towards social/ welfare programmes, the capital expenditure has been budgeted to grow by 25.5%, a sharp increase from the 2.5% growth of the previous year. The Revenue expenditure on the other hand is budgeted to grow 3.2% (8.5% last year).

The various outlays announced for the agriculture sector would aid in boosting production and also develop logistical support required by the sector. The government has emphasized the need to accelerate infrastructure development, with a need to revive public investment. The increased outlays towards roads and railways would encourage the transportation and overall logistics segment in India. Also, establishment of the National Investment and Infrastructure Fund and proposal for tax free bonds would provide for the necessary fillip to financing of these projects

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DebtRs. Cr. FY12 FY13 FY14 (A) FY15 (RE) FY16 (BE)

Public Debt 3,400,710 3,941,855 4,425,348 4,970,186 5,530,676

Internal Debt 3,230,622 3,764,566 4,240,767 4,775,900 5,298,217

External Debt 170,088 177,289 184,581 194,286 205,460

Other Liabilities 1,116,542 1,128,747 1,244,833 1,308,668 1,391,315

Total Debt 4,517,252 5,070,601 5,670,181 6,278,854 6,894,991

Debt/ GDP (%) 45.7 45.9 46.0 46.8 46.1

Public debt for FY16 is estimated to increase by 11.3% to Rs.5, 530,676 crore lower than 12.3% growth in FY15 (RE). Of the total public debt, the internal debt accounts for more than 95% at Rs.5,298,217 crore. The share of external debt has been moderating gradually from 5% in FY12 to 3.9% in FY15 (RE). In FY16, the outstanding external debt stock is estimated to grow by 5.8% to Rs.205,460 crore. The other liabilities are estimated to increase by 6.3% to Rs.1,391,315 crore in FY16(BE). The debt to GDP ratio has been increasing gradually over the past few years. However, the same is targeted at a lower rate of 46.1% in FY16 (RE) with an expectation of improving Gross domestic product.

Bond Markets Overall the budget can be taken as being positive for the domestic corporate bond markets. The various measures announced can be viewed as encouraging steps taken towards the strengthening and development of this segment of the country’s financial sector. The tax free bonds for the rail, road and irrigation sectors aimed at providing for alternate sources of funding for infrastructure would not only bring more papers into the bond markets it would also prompt private players to seek funding from the bond markets. The government’s move towards liberalizing capital raising would further aid liquidity and participation in the segment.

The creation of Public Debt Management Agency (PDMA) bringing both external and domestic borrowings together and the proposal of putting equity at par with debt would further help the markets grow. The impact/effectiveness of these measures would however need to be studied as and when they are implemented.

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The Railway Budget for FY16 outlines a vision of a new dimension which will transform the Indian railway system over a period of 5 years with emphasis on creation of robust railway infrastructure and improved customer services. The proposals lay emphasis on safety, decongestion & capacity augmentation, electrification, modernization, technology up gradation and significantly improving operating ratios.

The Railway Minister has laid down in its agenda a set of four goals which include- 1) improving customer service, 2) safety, 3) expansion of rail capacity and 4) making Indian Rail financially self-sustainable.

To achieve the same it proposes five key drivers with focus on eleven thrust areas. The five drivers include adopting a medium-term perspective, building partnerships, leveraging additional resources, revamping management practices, systems, and process and retooling of human resources and setting standards for government and transparency.

Highlights:

• No hike in passenger fares

• The freight structure for the base class-100 has been proposed to be increased by 10%. The rates will be effective from 1st April 2015

• Plan Outlay Proposed at Rs.1, 00,011 crore, increased by 52%. The sources include- Budgetary resources Rs.40,000 crore, Railway Share of diesel cess- Rs.1,645 crore, Market Borrowings- Rs.17,655 crore, Internal Source- Rs.17,793, PPP mode- Rs.5,781 crore and from various institutions- Rs.17,136.

• Allocation for passenger amenities up by 67%

• Proposed to increase track length by 20% from 1,14,000 km to 1,38,000 km:

• Grow annual freight carrying capacity from 1 billion to 1.5 billion tonnes.

• Hot buttons, coin vending machines for railway tickets within 5 minutes, e-catering to select meals from an array of choices

• 200 more stations to come under Adarsh Station scheme; Wi-Fi to be provided at B category stations

• 24X7 helplines for attending passenger problems and security related complaints

• For the safety of women passengers surveillance cameras in suburban coaches

• The speed of nine railway corridors will be increased to 160 and 200 kmph

• 77 new projects covering 9,400 km of doubling/tripling/quadrupling works proposed

• A new department for keeping stations and trains clean under ‘Swachh Rail Swachh Bharat Abhiyan’ to be set up

• Commissioning 800 km of gauge conversion targeted in current fiscal.

Railway Budget 2015-16

15

Financial Performance


Freight Earnings 69,548 85,263 93,906 106,927 121,423

Passenger Earnings 28,246 31,323 36,532 43,003 50,175

Other Coaching 2,717 3,054 3679 4028 4,612

Sundry Earnings 3,643 4,261 5,721 5,241 7,318

Suspense (43) (168) (279) 50 50

Gross Traffic Receipts 104,111 123,733 139,559 159,249 183,578

% growth 10.1 18.8 12.8 14.1 15.3

Miscellaneous Receipts 2,135 2,448 3,656 4,202 4,979

Total Receipts 106,256 126,200 143,227 163,465 188,572

Ordinary Working Expenses 74,537 84,012 97,571 108,970 119,410

Pension outgo 17,610 20,710 24,850 29,225 34,900

Appropriation to DRF 6,520 6,850 7,900 7,775 7,900

Total working expenses 98,667 111,572 130,321 145,970 162,210

Other Expenses 822 1,019 1,144 1,028 1270.25

Total Expenditure 99,489 112,591 131,465 146,998 163,480

Dividend payable to General Revenues 5,630 5,323 8,009 9,174 10,811

Surplus balance 1,137 8,286 3,754 7,294 14,281

Operating Ratio % 95.0 90.2 93.6 91.8 88.5

• Gross traffic receipts- The Rail Minister has targeted 15.3% growth in the gross traffic receipts to achieve Rs 1,83,578 crore for FY16 which would be mostly driven by strong 16.6% growth in passenger fare earnings to Rs 50,175 crore. Given that there has been no change in fare rates, it may be expected that the number of passenger kms would increase during the year. The freight earnings are also targeted to improve 13.56% to Rs 1,21,423 crore in FY16 which would be due to a combination of higher freight rates for selected goods as well as increase in overall volumes.

• Expenses- Ordinary working expenses are to increase at a lower rate of 9.2% relative to gross receipts which has helped to increase the net surplus. Lower crude oil prices have led to moderation in fuel costs for the Railways, and the assumption is that this trend will persist in FY16 too. The Budget has proposed working expenses of Rs 1,62,210 crore, while the appropriation to the Pension Fund of Railway Employees and Depreciation Reserve Fund stand at Rs 34,900 crore and Rs 7,900 crore for FY16. After dividend payable at Rs 10,811 crore for FY16, the surplus is expected to be at Rs 14,281 crore up from Rs 7,294 crore for FY15.

• Operating ratio during the FY16 is expected to improve considerably and come down to 88.5% compared with 91.8% in FY15. If this target is achieved, it would be the lowest ratio in the last 9 years.

Implications on economy and Industry

• Efficiency: The measures to improve the operational efficiency to achieve the target of 88.5% operating ratio of the rail system will leave a larger surplus amount with railways which can be used for expansion purposes.

• Capital formation: The share of railway investment (as per the capital outlay of Rs.65,796 crore) in Gross fixed capital formation (GCFC) was 1.8% in FY15. Under ceteris paribus conditions, the growth rate of GFCF could increase by 0.1%-0.2% (7.4% to 7.5%) in FY16 based on the increase of 52% in capex envisaged in FY16. The share of railways in GFCF will increase under these ceteris paribus conditions from 1.8% to 2.5-2.6%.

• Industrial growth: The expansion by way of additional lines in the railway system will have an indirect and positive impact on growth across various sectors such as cement, steel, Electrical equipment, Railway wagons, cables, etc. This in turn shall positively contribute to the economic growth of the country.

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• Services sector: The use of technology by providing easy access to customers through mobile phones and other e-platforms will provide a boost to the telecommunication and IT industries. Also provision of food and other passenger amenities is likely to boost the overall service industry in particular the tourism industry.

• Inflation: The upward revision in freight rates across various commodities is likely to have inflationary impact of about 0.4-0.5% in WPI inflation (assuming all other factors remain unchanged) when both the direct and indirect impact is taken into account.

• Corporate debt market: The partial funding of railways by of market borrowings of Rs.17,655 crore compared with Rs 12,046 cr in FY15, which would lead to a an increase in activity in the corporate bond market.

17

Industry Snapshot:

As per DGCA, in November 2014, Indigo had 33.5% market share in the domestic market (in terms of passengers carried) followed by Jet Airways which commanded 21.6% market share, while Air India’s and Spice Jet’s market share stood at 18.4% and 18.2%, respectively.

Domestic capacity is expected to expand by around 8-10%, somewhat higher than the projected growth in traffic. Most of this is expected to be driven by start-up airlines such as AirAsia India and Tata-SIA.

Proposal and Impact

Budget proposals Impact on the Industry• Key schemes announced1) Visas on arrival to be increased from 43 to 150

countries in stages.Expected to lead to increased passenger flow into the country.

Impact on Companies

Company Impact Comments

Jet Airways + Expected to lead to increased passenger flow in the country.

Spice Jet +

Airlines

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Industry Snapshot:

As per the Twelfth Five-Year Plan (2012-2017), the total investment expected in the Airport sector is Rs.87,714 crore, which is expected to augment airport infrastructure across the country.

The passenger traffic saw an unprecedented growth during Eleventh Five-Year Plan, it grew from 43 million in FY03 to 159 million in FY13, registering a CAGR of around 14%. The cargo traffic grew from 1 million tonnes in FY07 to 2.2 million tonnes in FY13, registering a CAGR of around 8%. The total passenger traffic in the country grew by around 11% during FY15 (April-October) on Y-o-Y basis, while cargo traffic expanded by around 12% during the same time.

Proposal and Impact

Budget proposals Impact on the Industry• Key schemes announced1) Visas on arrival to be increased from 43 to 150

countries in stages.

Tourist arrival is expected to improve thus leading to non-aeronautical revenue of airports.

Impact on Companies


GMR Infrastructure Ltd + On account of increase in Visa on arrival to 150 countries, non-aeronautical revenue of these airports is expected to have positive impact.GVK Power & Infrastructure

Ltd +

Airports

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Auto Components Industry Snapshot:

Growing income levels during the last one decade translated into strong automobile sales which in turn resulted in high demand for the OEM segment. However, the last couple of years were challenging for the OEM segment due to strained demand for new vehicles from the domestic as well as exports market.

The replacement segment was however marginally impacted by the economic slowdown given the huge existing vehicle population. Moreover, the relatively faster increase in the density of roads has led to greater passenger & cargo movement by roads vis-à-vis rail which too has added to replacement demand. Nonetheless, the industry witnessed difficult period since FY12 as the OEM segment derives majority demand (approximately 80%) for the Auto Component Industry.

Duty Structure

Customs Duty (%) Before After Impact Excise Duty (%) Before After Impact

Engine & engine parts, except the below-mentioned

7.5 7.5 = Engine & engine parts 12 12 =

Silencer, exhaust pipes & radiators

10 10 = Drive transmission, steering, suspension & braking parts

12 12 =

Drive transmission, steering, suspension & braking parts, except the below-mentioned

10 10 = Spark plug, distributors, ignition coils & starter motors

12 12 =

Couplings & seals 7.5 7.5 =Spark plug, distributors, ignition coils & starter motors

7.5 7.5 =

Proposal and Impact

Budget proposals Impact on the Industry

• Key schemes announced1) Excise duty has been revised to 12.5 % from 12%2) Excise duty on ambulance chassis has been reduced

to 12.5% from 24%

Education Cess and Secondary & Higher Education Cess on all excisable goods has been fully exempted, which translated into excise rate of 12.36% during the previous year. Consequently, revised rate of 12.5% will have nominal impact on the industry.This would have a positive impact on profitability of chassis manufacturers

Impact on Companies

Company Impact CommentsBharat Forge Ltd. =

Since there were no major announcements pertaining to the industry, the budget would have a marginal impact on component suppliers

Bosch Ltd. =Exide Industries Ltd. =Motherson Sumi Ltd =Sona Koyo Steering Systems Ltd. =WABCO India Ltd. =

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AutomobilesIndustry Snapshot:

Indian automobile sector witnessed one of the most turbulent phases since FY12. During the period PV and CV witnessed significant decline in demand. Moreover, TW industry demand also moderated during the mentioned period, with voluminous motorcycles segment getting worst affected. Automobile demand has been constrained on account of higher ownership cost of vehicles on account of high fuel and financing costs coupled with lower propensity to spend owing to lower job prospects, low growth in income levels and high inflation level. Although automotive demand witnessed a marginal uptick during FY15 on account of lower base effect and pent-up demand, complete recovery of the sector is vastly aligned to economic turnaround.

Duty Structure


Passenger Cars Small Cars* 12 12.5 =Old 105 105 = Mid-size Cars@ 24 24 =New 100 100 = Large Cars# 27 27 =Two Wheelers SUV 30 30 =Old 105 105 = Buses 12 12.5 =New 60 (75^) 60 (75^) = Trucks 12 12.5 =Commercial Vehicles Two Wheeler 12 12.5 =Old 10 40 - Three Wheeler 12 12.5 =New 10 40 - Hybrid Vehicles 5 5 =

Note:*Indicates cars which have engine capacity less than 1,500cc in case of diesel and 1,200cc in case of petrol and length less than 4 meters. @ Indicates cars which have engine capacity less than 1,500cc in case of diesel and 1,200cc in case of petrol and length more than 4 meters. #indicates cars having engine capacity more than 1,500cc in case of diesel cars and 1,200cc in case of petrol and length exceeding 4 meters. Definition of SUV as per central excise department is a vehicle with engine capacity greater than 1,500cc, length exceeding 4000mm and ground clearance 170 mm and above^ 75% Custom duty is applicable for two-wheeler having engine capacity greater than 800cc

Proposal and Impact


• Key schemes announced

1) Excise duty has been revised to 12.5 % from 12%2) Hike in agriculture credit from Rs.800,000 crore to Rs.850,000 crore

Education Cess and Secondary & Higher Education Cess on all excisable goods has been fully exempted, which translated into excise rate of 12.36% during previous year. Consequently, revised rate of 12.5% will have nominal impact on the industry.This would lead to improved rural liquidity, thereby push demand for Tractors and TWs.

Impact on Companies

Company Impact CommentsMaruti Suzuki Ltd =

Since no excise duty reduction was announced like previous year, the budget would have marginal impact on OEMs

Ashok Leyland Ltd =Hero Motocorp Ltd =Bajaj Auto Ltd. =

21

Banking & Financial ServicesIndustry Snapshot:

Banks During FY14, the banking sector was severely impacted due to slow credit demand, pressure on asset quality on the back

of subdued macroeconomic backdrop and elevated level of interest rates in view of inflationary pressure resulting in Mark to Market (MTM) loss on the investments for the bank. During FY15, interest rates started softening with reduction in inflation and comfortable liquidity in the system. With the recent rate cut by RBI, is expected to further ease the systemic liquidity and enable banks to fund the expected credit growth in view of recovery of sectors post the reforms undertaken by the government. Asset quality pressure continued on banks during FY15 with overall Gross NPA ratio rising to 4.2% as on September 30, 2014 from 3.3% as on March 31, 2013. Though the banks currently remained capitalized, going forward, the banks especially public sector banks would be required to raise additional equity in order to meet the more stringent Basel III norms and also maintain a cushion over the regulatory minimum.

Non Banking Finance Companies (NBFCs) NBFCs also saw moderation in rate of asset growth, rising delinquencies resulting in higher provisioning thereby impacting

profitability. However, comfortable capitalisation levels and conservative liquidity management, continues to provide comfort to the credit profile of NBFCs inspite the impact on profitability. The revised regulatory framework released in November, 2014 by the RBI focuses on strengthening the structural profile of the NBFC sector.

Proposal and Impact

Budget proposals Impact on the Industry• Key schemes announcedNBFCs registered with RBI and having asset size of more than Rs.500 crore will get access to the SARFAESI Act, 2002 in line with banks and HFCs

This will allow NBFCs to improve their recovery from Non Performing Assets (NPA) and provide them a level playing field with banks.

Recapitalization of Banks – Allocation of Rs.7,940 crore (P.Y.: Rs.6,990 crore) for recapitalization of Public Sector Banks

Banks would be required to raise additional capital apart from the budgetary allocation to fund growth and comply with stringent Basel III norms.

An autonomous Bank Board Bureau to be set up to improve the governance of public sector bank which will also help them in devising capital raising strategies – an interim step towards establishing a holding and investment Company for Banks

The proposed Bureau would play a vital role in laying a roadmap for PSBs in terms of capitalisation, holding structure consolidation and governance.

Foreign investments in Alternate Investment Funds (AIF) and tax ‘pass through’ to be allowed to both category I and category II alternative investment funds to tax investors in funds instead of the funds.

This will help AIF in fund raising. Which in turn will increase investment in sectors like SMEs, infrastructure as well as fund start-ups.

Housing for all - 2 crore houses in Urban areas and 4 crore houses in Rural areas

Government’s commitment for providing housing to public is a positive for the housing finance companies as well as banks as this will boost the demand for housing loan.

Postal department with a network of 154,000 point in villages to be converted into payment banks

The proposed Postal Payments Bank would help in achieving financial inclusion.

Establishment of National Investment and Infrastructure Fund (NIIF) with an annual flow of Rs.20,000 crore

This fund will help in resource raising for entities like IRFC and NHB and in turn boost housing finance and financing for railway projects.

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Impact on Companies


Large NBFCs (asset size > Rs.500 crore) + Access to SARFAESI Act, 2002 will allow NBFCs to improve their recovery from Non

Performing Assets (NPA) and provide them a level playing field with banks.

Public Sector Banks + The proposed Bank Board Bureau would play a vital role in laying a roadmap for PSBs in terms of capitalisation, holding structure consolidation and governance.

Private Sector Banks =

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CementIndustry Snapshot:

The Indian cement industry witnessed a dismal demand growth in the past few years. The slowdown in the real estate sector, delay in execution of various infrastructure & industrial projects and the overall economic slowdown adversely affected the offtake of cement. In FY2014, the consumption of cement showed a tepid growth of 3.5% on a YoY basis. However, in the first eight months of FY15, cement production has registered a growth of 8.5% on a YoY basis.

Going ahead, increasing focus by the newly-elected Government on strengthening infrastructure, promotion of low-cost affordable housing, lowering trend of interest rates and expected revival in the overall economic growth will provide respite to the cement demand. Moreover, fall in diesel prices and international coal prices will provide some respite to the cement industry on the cost front.

Duty Structure


CementOPC/PPC/PSC@- Basic- CVD- Special CVD

Nil124

Nil124

=

Cement*OPCPPCPSC

12 12.5 -

Clinker- Basic- CVD- Special CVD

1012 4

10124

=Clinker

12 12.5 -

*An abatement of 30% on MRP and duty on adveloram basis plus specific duty of Rs.120 per tonne, @OPC- Ordinary Portland cement, PPC- Portland pozzalana cement and PSC- Portland slag cement.

Proposal and Impact

Budget proposals Impact on the IndustryKey schemes announced• Increase in outlays on both the roads and the gross

budgetary support to the railways, by Rs.14,031 crore and Rs.10,050 crore, respectively.

• Investment in infrastructure to increase by Rs.70,000 crore in the year 2015-16, over the year 2014-15 from the centre’s funds and resources of CPSEs.

• Establishing of a National Investment and Infrastructure Fund (NIIF) with a capital of Rs.20,000 crore.

• Vision ‘Team India’ – which includes a roof for each family in India, plans to build 6 crore houses across India by 2022.

Announced measures in infrastructure and housing segments are likely to boost the cement demand. The long-term demand growth of cement is expected remain intact.

• The effective rate of Clean Energy Cess, levied on coal, lignite and peat, is being increased from Rs.100 per tonne to Rs.200 per tonne.

• Increase in freight rates by railway – freight rate on cement increased by 2.7%, freight rate on coal increased by 6.3% and freight rate on slag increased by 2.7%.

Neutral to negative, as the cement companies are expected to pass on some of the increase in cost of production to the end-users.

24

Impact on Companies


UltraTech Cement Ltd. + Various measures announced in infrastructure and housing segments will have a positive impact on the demand which will be beneficial for the companies. Moreover, cement companies are expected to pass on some of the increase in cost of production to the end-users.

ACC Ltd. +Ambuja Cements Ltd. +The India Cements Ltd. +

25

CoalIndustry Snapshot:

Indian coal Industry’s domestic production/off-take was at 567/582 MT in FY2014 (period from April 1, 2013 to March 31, 2014). Against this, the demand for coal stood at 722 MT in FY14 resulting in deficit of 19.3% which was met through imports. During April-November 2014, coal production grew by 9.4% YoY to 369 MT. However, coal imports continue to grow by 20% to 160 MT during the same period.

After deallocation of 214 blocks out of 218 coal blocks, the GoI is in process of reallocating the coal blocks to the eligible end-users. The majority of the blocks shall be allocated on a competitive bidding basis to the power sector, which is a regulated sector. Furthermore, non-power sectors such as steel, sponge iron and cement players have also evinced interest and are bidding for these coal blocks. Thus, CARE believes that the imports are expected to come down in the medium term after auction of these blocks.

Duty Structure

Customs Duty (%) Before After Impact

Non-Coking Coal 2.5% 2.5% = Met coke 2.5% 5.0% =Clean Energy Cess Rs.100/tonne Rs.200/tonne =

Proposal and Impact

Budget proposals Impact on the Industry• Key schemes announced1) Clean Energy Cess is increased from Rs.100 to

Rs.200/tonne of coal to finance clean environment initiatives.

The increase in clean energy cess of Rs.100/tonne of coal is likely to garner Rs.55-60 billion yearly for the exchequer. The impact on the coal Industry remains neutral as cess increase is fully pass-through to end-consumers.

Impact on Companies


Coal India Limited = Since energy cess is pass-through, the company would not be impacted.

26

ConstructionIndustry Snapshot:

Construction is integral to support India’s growing need for infrastructure and industrial development. In the last 10 years, construction as a percentage of gross domestic product (GDP) has been in the range of 7.4%-8.1%. The industry witnessed a slowdown in the last couple of years, mainly on account of slowdown in the economy, delay in project awarding and execution due to environmental clearance hurdles, aggressive bidding by players, land acquisition issues and political instability in some states.

As on March 31, 2014, the multiple of order backlog to the net sales of the major construction companies stood at around 2.9 times.

Duty Structure

Excise Duty (%) Before After Impact

Cement – Retail* 12% 12.5% -Steel 12% 12.5% -

*An abatement of 30% on MRP and duty on ad valorem basis plus specific duty of Rs.120 per tonne.

Proposal and Impact

Budget proposals Impact on the Industry1. Investment in infrastructure has been increased by

Rs.70,000 crore for 2015-16.2. The allocation in the roads sector has been increased by

Rs.14,031 crore and that in railways by Rs.10,050 crore.3. Allocation of Rs.5,300 crore towards micro-irrigation,

watershed development and the ‘Pradhan Mantri Krishi Sinchai Yojana.

4. Corpus of Rs.25,000 crore allocated towards Rural Infrastructure Development Fund (RIDF) set up in NABARD.

5. 5 new Ultra Mega Power Projects, each of 4,000 MW, in the Plug-and-Play mode to be set up. All clearances and linkages will be in place before the project is awarded by a transparent auction system. This involves investment of about Rs.100,000 crore.

6. The government plans to build two crore houses in urban India and 4 crore houses in rural India to ensure ‘house for all’ by 2022.

7. Tax free infrastructure bonds to be launched for the projects in the rail, road and irrigation sectors.

8. National Investment and Infrastructure Fund (NIIF), to be established with an annual flow of Rs.20,000 crore to it from the government. This trust is to raise debt and in turn, invest as equity in infra finance companies like IRFC (Indian Railway Finance Corp. Ltd) and the NHB (National Housing Board).

9. The additional duty of Customs / Excise of Rs.4 per litre, levied on Petrol and High Speed Diesel Oil to be converted towards Road Cess to finance the investment in roads and other infrastructure. An additional sum of Rs.40,000 crore will be made available through this measure.

1. The continued focus of the government on infrastructure development through increased allocation towards roads, railways irrigation, power, etc, would be beneficial for the construction industry. Also, focus of the government on building houses for all will augur well for the industry.

2. Easy accessibility to funds for various infrastructure projects through issue of tax free bonds, additional funding through road cess fund and NIIF and will prove beneficial for construction industry.

27

10. Public Private Partnership (PPP) mode of infrastructure development to be revisited and revitalised.

11. An expert committee to be formed to examine the possibility and prepare draft legislation where the need for multiple prior permissions can be replaced by a pre-existing regulatory mechanism. E-biz portal has been introduced, which integrates 14 regulatory permissions at one source.

3. The initiatives of the government towards encouraging private participation through improving PPP model and fast track the various regulatory approvals by setting up a single window portal will be positive for the industry.

Impact on Companies


Hindustan Construction Company Limited +

Increased allocation towards various infrastructure projects is expected to result in increased order inflow to the construction companies.

NCC Limited +Gammon India Ltd + IVRCL +Sadbhav Engineering Ltd +Simplex Infrastructures Ltd +Patel Engineering Ltd +

28

Consumer DurablesIndustry Snapshot:

Consumer durables industry is highly correlated to economic scenario as the industry demand is largely dependent upon disposable income. Urban market account for about 65% of the revenue for the consumer durable industry in India. The rising demand from rural and semi-urban markets is likely to drive the consumer durables industry. The key growth drivers are rising income levels, easy availability of consumer credit, various policy support from the government like relaxation in customs duties and excise duty, awareness of brands and products, change in lifestyle, new model launches with technological improvements and ease of shopping through various online formats.

Duty Structure


Organic LED (OLED) TV panels 10 0 +Components used (magnetron) for the manufacture of microwave oven 5 0 +

Proposal and Impact

Budget proposals Impact on the Industry• Key schemes announced1) Reduction in custom duty on Organic LED (OLED) TV

panels. 2) Reduction in customs duty on magnetron used for

manufacture of microwave.

The said measures likely to have marginally positive impact on demand of OLED TV and microwave ovens.

Impact on Companies


Bajaj Electricals Ltd = The Proposed reduction in custom duty for components used in the manufacturing of microwave oven would reduce the input cost which may be passed on the consumers.Mirc Electronics Ltd =

29

EducationIndustry Snapshot:

Education sector in India is a mix of government-operated & privately operated educational institutions and allied education products & services providers. The sector is highly influenced by the various government schemes and policies launched primarily to improve the quality of education and the planned expenditure by the government through several schemes including the Sarva Shiksha Abhiyan (SSA) and Rashtriya Madhymik Shiksha Abhiyan (RMSA) to improve the quality of education and eventually the literacy level in the country.

Government’s focus on education has continued in the Union Budget 2015-16 with a budget outlay of Rs.68,968 crore with allocation towards different schemes. An amount of Rs.22,000 crore (Rs.28,635 crore in the budget 2014-15) has been allocated towards SSA and Rs.3,565 crore (PY: Rs.4,966 crore) for RMSA.

Duty Structure - Not Applicable

Proposal and Impact

Budget proposals Impact on the IndustryKey schemes announced• To upgrade over 80,000 secondary schools and add

or upgrade 75,000 junior/middle schools to senior secondary level so as to ensure there is a senior secondary school within 5 km reach

This continued focus on school education with an objective of increasing gross enrollment ratio is expected to result in increase in enrollment in the higher education segment. Given their significant presence in higher education, private sector educational institutions are likely to benefit

• To set up a fully IT-based Student Financial Aid Authority to administer and monitor Scholarship as well as Educational Loan Schemes, through the Pradhan Mantri Vidya Lakshmi Karyakram.

Creation of dedicated institution/authority to provide easy access to funds to help the deserving students would improve demand in higher education institutions

• A separate Skill Development and Entrepreneurship Ministry which would be launching National Skills Mission

Focus on skill development as a priority to empower and skill the youth would result in increased opportunities for private players offering skill development courses.

• To set up All India Institutes of Medical Sciences(AIIMS) in 5 states, IIT in one state and to upgrade Indian School of Mines, Dhanbad into a full-fledged IIT.

Focus on higher education

Impact on Companies


Aptech + The government has reemphasized its focus on school education to add and upgrade infrastructure in all segments from secondary to senior secondary level. This is expected to result in higher inflow of orders to the private sector players especially for companies engaged in information and communication technology segment of education.

NIIT +

Tree House +

30

Engineering & Capital GoodsIndustry Snapshot:

The main demand drivers for engineering and capital goods include infrastructure spending by large government and private players. Over the past few years, a large number of players had curtailed their capex owing to the general slowdown in economy, overcapacity, strong rise in imports (~40% of capital goods in India are imported), high interest rates, delays in statutory approvals and general execution challenges.

However, during the current financial year, the capex announcements have increased on revival in growth prospects and on expectation of positive government policies. Translation of these developments into new orders and subsequently into better performance for the sector would, however, take some time, as would tying up funds for these projects. CARE expects the capex cycle to show improvement in the medium-term, with growing business confidence, decline in stalled projects and support from government policies.

Duty Structure


Construction equipment 7.5% 7.5% = Construction equipment 10% 10% =Textile machinery 7.5% 7.5% = Textile machinery 10% 10% =Stamping and lamination 5% 5% = Stamping and lamination 12% 12% =Copper winding wire 7.5% 7.5% = Copper winding wire 12% 12% =

Proposal and Impact

Budget proposals Impact on the IndustryKey schemes announced1) Capex of public sector units of Rs.3.17 lakh crore in FY162) 5 Ultra Mega Power Projects, each with a capacity of 4,000 Mega

Watt (MW) to be awarded post all clearances3) Tax free infrastructure bonds for projects in rails, road and

irrigation4) Allocation of Rs.0.25 lakh crore for rural infrastructure and creation

of 6 crore rural and urban housing units by 20205) Revitalisation of public-private-partnership (PPP) model of

infrastructure alongwith an increase in the public investment and higher risk assumption by the sovereign.

6) Conversion of excise duty of Rs.4 per litre on petrol and diesel, into road cess, resulting in mobilisation of Rs.0.40 lakh crore.

7) Thrust on renewable energy with an increase in renewable energy capacity target to 1.75 lakh MW by 2022 and electrification of 0.20 lakh villages including off-grid solar power generation by 2020.

8) Increase in defence expenditure from Rs.2.22 lakh crore for FY15 to Rs.2.27 crore in FY16.

9) Creation of ‘National Investment and Infrastructure Fund’ with an annual contribution of Rs.0.20 lakh crore, which would be used to raise further funds from the market and invest as equity in entities such as Indian Railway Finance Company and National Housing Board.

This is higher by around Rs.0.80 lakh crore compared with FY15 Revised Estimates and is likely to provide impetus to the sluggish investment cycle.In the medium-term this will result in increased demand for power equipment.This could help mobilise much needed long-term funds for the sector which could help catalyse the growth in the sector.This will result in increased demand for construction equipment.This could provide boost to the PPP model, which has seen low interest from the private sector over the past few years.The additional investible amount allocated directly to road and other infrastructure projects could translate into more projects being awarded on EPC basis, rather than on the PPP basis. In line with the government’s vision to provide power to all by 2019, the thrust on increased generation and better connectivity could help manufacturers of power equipment.This will result in increased demand of capital goods.This fund could be used to fund some key infrastructure and housing projects.

31

Impact on Companies

Company Impact CommentsABB India Ltd. = StableAction Construction Equipment Ltd. + Investment in road infrastructure could see improved demand for construction

equipment.Alstom India Ltd. = Stable

Bharat Heavy Electricals Ltd. + Given its large capacity in the power equipment this could see new order flows.

C.R.I. Pumps Pvt. Ltd. = Stable

Eimco Elecon (India) Ltd. = StableElecon Engineering Company Ltd. = Stable

Engineers India Ltd. + Increase in PSU capex could translate into higher demand for the company’s services.

Kalpataru Power Transmission Ltd. = Stable

KEC International Ltd. = Stable

Larsen & Toubro Ltd. = Focus on capacity building and infrastructure could see higher order flow

Shanti Gears Ltd. = Stable

Siemens Ltd. = Stable

Sterlite Technologies Ltd. + Thrust on establishment of optical fibre cable network and rural electrification could see higher demand for cables.

Texmaco Rail & Engineering Ltd. + Growth in annual freight carrying capacity could translate into increased order

flow for rolling stock.Thermax Ltd. = Stable

TRF Ltd. = Stable

Voltamp Transformers Ltd. + Focus on rural electrification and improvement in power quality could see higher demand for distribution transformers.

32

FertilizersIndustry Snapshot:

Domestic fertilizer sales volume reduced by 4% y-o-y in FY14 to 51 million metric tonnes (MMT) driven by reduction in demand of P&K fertilizers by 10% y-o-y, while the urea consumption remained stable at 30 MMT. However, in FY15, the sales volume for P&K fertilizer is likely to increase by 15% - 20% due to substantial reduction in channel inventory carried forward from FY14 and increase in imports, while the urea consumption is expected to remain unchanged. The fertilizer subsidy budget of Rs.72,900 crore for FY15 would continue to fall short against the total outlay.

The key challenges faced by fertilizer industry are skewed usage of nitrogen nutrient (urea), high cost of regasified liquefied natural gas (RLNG) and inadequate subsidy budget leading to delays in subsidy payments.

Duty Structure


Urea 5% 5% = Urea 12.36% 12.50% =DAP 5% 5% = DAP 12.36% 12.50% =MOP 5% 5% = MOP 12.36% 12.50% =Ammonia 5% 5% = Ammonia 12.36% 12.50% =Phosphoric Acid 5% 5% = Phosphoric Acid 12.36% 12.50% =Sulphur 5% 5% = Sulphur 12.36% 12.50% =Sulphuric acid 7.5% 5% = Sulphuric acid 12.36% 12.50% =Rock Phosphate 2.5% 2.5% = Rock Phosphate 12.36% 12.50% =

Proposal and Impact

Budget proposals Impact on the Industry• Key schemes announced1) Overall fertilizer subsidy budget remains stable at

Rs.72,968 crore; Within overall budget, subsidy for domestically produced urea increased by Rs.2,200 crore and for decontrolled fertilizers reduced by the same amount

2) Support to soil health card scheme and agriculture ministry’s organic farming scheme ‘Pradhanmantri Krishi Vikas Yojana’

3) Improved access to irrigation through ‘Pradhanmantri Gram Sinchai Yojana’ and ‘Pradhanmantri Krishi Sinchai Yojana’ with an outlay of Rs.5,300 crore

4) Enhanced credit to the farm sector through agriculture credit outlay of Rs.8.5 lakh crore

Fertilizer subsidy budget over the past few years have fallen short of the actual requirements. This is expected to continue in FY16 also.The benefit of increased subsidy allocation for urea manufacturers is expected to offset the increase in rail freight by 10% as urea price is not expected to change

Move towards improving the soil fertility and productivity and balance usage of nutrients would lead farmers to use more of P&K fertilizers suiting the soil need rather than opting for low-cost urea.

The move is expected to reduce dependence on monsoon and would entail stable demand for fertilizers

Fertilizer demand would to get a fillip on account of easier credit availability and may also influence farmers to use complex fertilizers.

33

Impact on Companies


Indian Farmers Fertilizer Cooperative Ltd = The stable allocation to fertilizer subsidy budget would continue to result in mismatch between subsidy requirement and allocationThe move towards reducing the skewed usage of nitrogen nutrient (urea) and soil productivity would lead to increase in agriculture yield and also to increase in demand of non-urea (P&K) fertilizers The easier farm credit would also influence farmers for balance use of fertilizers

Rashtriya Chemicals & Fertilizers Ltd =Chambal Fertilizers & Chemicals Ltd =Gujarat Narmada Valley Fertilizers & Chemicals Ltd. =

Gujarat State Fertilizers & Chemicals Ltd = Improved access to irrigation would lead to reduced dependence on monsoon and stabilize demand of fertilizers

34

FMCGIndustry Snapshot:

The size of the Indian FMCG industry was estimated to be at around $37 billion in 2013. Most of the FMCG companies in the past two years witnessed a subdued volume growth on account of elevated inflation and subdued economic growth. However, the long-term prospects for the industry remains healthy on the back of favourable demographic profile, expected growth from rural demand with rising penetration in these areas and improvement in GDP growth rate.

Duty Structure


Fatty acids/crude palm stearin and specified industrial grade crude oil used for manufacturing of soaps

0 0 = Mineral water and aerated waters containing added sugar

12 18 -

Crude glycerine for manufacturing of soaps

0 0 = Non-filter cigarettes(not exceeding 65mm)

990(Rs./1000

sticks)

1280(Rs./1000

sticks)

-

Non-filter cigarettes(exceeding 65mm but not exceeding 70mm)

1995(Rs./1000

sticks)

2335(Rs./1000

sticks)

-

Filter cigarettes(not exceeding 65mm)

990(Rs./1000

sticks)

1280(Rs./1000sticks

-

Filter cigarettes (exceeding 65mm but not 70mm)

1490(Rs./1000

sticks)

1740(Rs./1000

sticks)

-

Filter cigarettes (exceeding 70mm but not 75mm)

1995(Rs./1000

sticks)

2335(Rs./1000

sticks)

-

Other cigarettes 2875(Rs./1000

sticks)

3375(Rs./1000

sticks)

-

Excise duty on cut tobacco

Rs.60 per kg

Rs.70 per kg

-

35

Proposal and Impact


• Key schemes announced1) Increase in excise duty on cigarettes, tobacco2) Increase in excise duty on mineral water and

aerated water containing added sugar

The hike in excise duty if passed on the end-consumers could marginally impact demand for cigarettes and other tobacco products.The increase in excise would lead to marginal decline in demand for these products.

Impact on Companies


ITC Ltd, Godfrey Philips India Ltd, VST Industries Ltd -

Hike in excise duty would have a negative impact on the revenues due to decline in volume growth for these products as well as negatively impact margins as the hike may not be fully passed on to the end-users instantly.

36

Gems & JewelleryIndustry Snapshot:

India overtook China to become the largest consumer of gold in the world during CY14 on the back of good festival and wedding related demand in Q4CY14. A predominant portion of gold jewellery manufactured in India was meant for domestic consumption. However, cut and polished diamonds (CPD) and diamond jewellery segment is largely export-oriented and has been a major contributor to the country’s Foreign Exchange Earnings (FEEs).The Government of India (GoI), has always incentivized the industry in the past, with measures such as interest rebates, extension of credit periods (for pre-shipment and post-shipment credit) and export duty benefits so as to make it competitive. During CY14, the total export of gems and jewellery (G&J) industry was USD 35.1 billion (USD 35 billion during CY13).

Indian consumer demand for gold remained largely undeterred by government measures and regulations such as imposition of 80:20 rule of linking import of gold to exports (wherein nominated banks and agencies had to set aside 20% of the total imported quantity for exports) and gradual increase in import (custom) duty on gold to 10% in order to reduce current account deficit (CAD) and curb inflation. The demand for gold jewellery in India increased by 8% to 662.10 tonnes during CY14, while investment demand reduced by 50% to 180.60 tonnes; lowest in the last five years. However, during Q3FY15, the government removed the 80:20 rule thereby liberalising gold imports which resulted in improved supply of gold in India and consequent reduction in local price premium on gold.

Duty Structure


Semi-processed, half cut or broken diamonds 2.50 2.50 =Cut and polished diamonds and coloured gemstones 2.50 2.50 =Gold and Silver 10 10 =Gold and Silver Jewellery 15 15 =

Proposal and Impact

Budget proposals Impact on the Industry• Key schemes announced1) Introduce gold monetization scheme2) Develop Indian-made gold coins (which will carry the

Ashok Chakra on its face)

It can help recycle local gold reserves and thereby improve domestic supply of gold for the G&J industry.

Impact on Companies


Asian Star Company Limited =The Union Budget 2015-16 will have a neutral impact on the G&J industry as duty structure in the industry remains unchanged.

Hari Krishna Exports Private Limited =P.C.Jewellers Limited =Khazana Jewellery Private Limited =

37

Hospitals & HealthcareIndustry Snapshot:

The Indian healthcare industry is estimated to cross Rs.5,000 bn by FY17 (refers to the period April 01 to March 31). The Hospital and Health services segment is its largest component, comprising 70% of the industry and is expected to continue to dominate the industry. With 69.5% of total expenditure on health being funded through private means in CY11 (Source: WHO), it is likely to remain the single-biggest determinant of healthcare spending in the near-future.

Duty Structure


Healthcare equipment 7.5 7.5 = Healthcare Equipment 12.36 12.5 =

Proposal and Impact

Budget proposals Impact on the Industry• Key schemes announced1) All India Institutes of Medical Sciences in

Bihar, J&K, Punjab, Tamil Nadu, Himachal Pradesh and Assam

2) Increase in health insurance premium to Rs.25,000 (senior citizens: Rs.30,000)

This should help augment medical facilities in these underserved states.It is expected to bring expensive medical treatments under enhanced policy amount.

Impact on Companies


Apollo Hospital Enterprise Ltd + Schemes announced to have a positive impact on the demand.

Fortis Healthcare Ltd +

38

HotelsIndustry Snapshot:

On account of huge additions of inventory coinciding the overall sluggishness in the economy in the recent past, the ARR and OR for hotels remained under pressure during FY11-13 period. However, during FY14, the occupancy rates showed some improvement, which rose to about 58.9% from 57.8% in FY13. The average room rates, however, continued to remain under pressure owing to the fact that majority of the new supply being of a lower positioning coupled with average rate pressures being faced by older hotels. Also, the companies focused more on improving occupancy rather than improving ARR in FY14.

Duty Structure


Hotels NA NA NAHotels- Room service- Foods and Beverages

7.424.94

7.424.94

=

Proposal and Impact

Budget proposals Impact on the IndustryKey schemes announced1. Tourist Visa on Arrival (TVoA) to be extended to 150

countries from existing 43 countries.2. Proposal for development of the following heritage

sites; Elephanta Caves; old churches in Goa; Varanasi temple town; Hampi in Karnataka, etc

Extension of TVoA to give boost to Foreign Tourist Arrivals (FTA’s), which in turn is expected to spur the Occupancy Rates (OR) for the hoteliers. Development of heritage sites also to spur tourist arrivals in the long run.

Impact on Companies


The Indian Hotels Co. Ltd +Extension of TVoA to have a positive impact on OR of hotelier’sEIH Ltd. +

Hotel Leela Ventures. Ltd +

39

IT & ITeSIndustry Snapshot:

The Indian IT-BPM industry in aggregate is estimated at USD 146 billion in FY15, export segment of which is expected to reach USD 98.5 billion, according to NASSCOM. IT Services exports is expected to grow at a moderate pace of 12-14% in FY2016. This would be against 13-15% growth estimated for FY15 by NASSCOM. The lower growth estimation is attributable to mixed set of economic data from the western markets which account for about 80% of income of Indian IT exporters and currency headwinds. While U.S. economy has recorded notable recovery, economic fluctuation in Europe has been a cause of concern. Meanwhile, rupee which had marginally depreciated against US dollar in the last one year, had appreciated sharply against Euro (17%) and British Pound (7.5%) which could stress the profitability of contracts from these regions.

Duty Structure

Customs Duty (%) # Before After Impact Excise Duty (%) Before After Impact

Parts, Components & accessories used in tablet computer manufacturing

- - = Tablet computer 12.4 12.5 =Components 12.4 Nil +

# the above carry a Countervailing Duty (CVD) of 10% which is being exempted now.

Proposal and Impact

Budget proposals Impact on the Industry• Rs.1,000 crore for promotion of start-ups and

entrepreneurs in the technology sector.• Exemption of basic customs and CVD and excise

duty on parts, components and accessories for use in the manufacture of tablet computers.

• No specific announcement for the IT services sector but for government setting aside Rs.1,000 crore for promotion of start-ups in the sector. This is expected to create opportunities and benefit technology start-ups.

• For domestic component manufacturers, the decision to exempt CVD and excise duty is a positive development. Presently, an inverted duty structure prevails with effective tax rate on finished product less than tax on imported components. However, the proposal for exemption of CVD and excise is likely to boost domestic production and reduce the dependence on imports.

Impact on Companies


TCS =

No specific announcement for the IT services sector.Infosys =Wipro =Mphasis =

40

Media and Entertainment Industry Snapshot:

The Indian media and entertainment industry estimated to be at Rs.918 bn witnessed an overall growth of 11.8% in CY2013 (period from January to December 2013). Of the total market size, the share of television and print media remained the highest at 45.1% and 27.3% respectively during CY2013. Other segments such as animation & visual effects (VFX), gaming and digital advertising, though still at nascent stage of growth, continue to grow at healthy rates. Given the impetus introduced by digitization, continued growth of regional media, strength in the film sector and fast-increasing new media businesses, the industry is estimated to cross the Rs.1,000 billion mark in the near term. The benefits of Phase 1 cable digital access system rollout, and continued Phase 2 and 3 rollout are expected to contribute significantly to strong continued growth in the Television sector revenues, which will drive the growth of the industry.

Proposal and Impact

Budget proposals Impact on the Industry• Key schemes announced1) Service-tax increased from 12.36% to 14% to

facilitate transition to GST.

Media & Entertainment, being predominantly a services industry would be impacted by the rise in service tax, as it would increase the tax outgo of the companies. However, the same would largely be passed on to the end-consumers.

Impact on Companies


Zee Entertainment =The impact of rise in service tax to 14% would be neutral on the media companies.Sun TV =

Balaji Telefilms =

41

Mining and MineralsIndustry Snapshot:

The mining and metallurgical sector remains vital to the development and economic growth of the developing countries and India remains geologically endowed with a number of mineral resources. Currently, India produces around 87 minerals, which include 4 fuel minerals, 10 metallic, 47 non-metallic, 3 atomic and 23 minor minerals. However, the mining sector in India in dominated by coal comprising around 80% of the mined reserve, while the balance 20% comprises various other minerals which includes copper, iron, lead, bauxite, zinc, gold, uranium, etc.

Although the country is more or less self reliant with respect to a number of minerals, a significant gap exists with regards to a large number of critical minerals and metals such as coal, uranium, copper ore, etc, for which the country is partly or largely dependent on imports. Various inefficiencies in the sector including policy lacuna, political interference, stringent government regulations, environmental issues, lack of infrastructure and financing mechanism have hampered the growth of the sector. Accordingly, the share of Indian mining and quarrying sector (around 2% of its GDP) vis-à-vis other mining nations (around 5-6% of its GDP) has remained significantly low. Furthermore, exposure of various illegal practices being prevalent in mining sector led to closure of a number of mines, which in turn resulted in attracting increased vigilance and government regulations for the sector.

In this backdrop, the government in the 12th Five-Year Plan (2012-2017) is focussing on exploration, search of strategic, scarce and deficit minerals to reduce imports. Furthermore, the Ministry of Mines has recently framed a new draft Mines and Minerals (Development and Regulation) Bill 2011, which would replace the MMDR Act 1957 and emphasises on benefit sharing and local area development, which would lead towards sustainable development of the sector amidst environmental security and industrial growth.

Duty Structure


Iron ore 2 2 =Coking Coal 2.5 2.5 =Bauxite 2.5 2.5 =Manganese Ore 2.5 2.5 =Chrome Ore 2.5 2.5 =Limestone 5 5 =

Proposal and Impact

Budget proposals Impact on the Industry1) 6.3% increase in Railway freight for carrying coal.2) 0.8% increase in Railway freight for carrying iron

ore.

Neutral- Increase in the mining, royalty or freight cost for the domestic miners is passed on to the end-user industry. Hence, the overall impact of increase in transportation cost stands neutral.

Impact on Companies

Company Impact CommentsNMDC Limited =

Increase in the mining, royalty or freight cost for the domestic miners is passed on to the end-user industry. Hence, the overall impact of increase in transportation cost stands neutral.

Sesa Sterlite Limited =OMDC Limited =MOIL Limited =

42

Non-ferrous MetalsIndustry Snapshot:

The base metal industry is bearing the brunt of the downward revision in global macroeconomic outlook. Muted industrial activity along with sluggish demand outlook from the developing economies and the persisting concerns of the slowing Chinese economy are exerting pressure on the overall demand and subsequently the prices of these metals. However, the changing socio-economic conditions and expected recovery of demand from the developed markets are likely to stabilize the demand for these metals in the medium term.

CARE expects prices of all base-metals to remain volatile on the back of the ongoing macroeconomic development in the Euro zone and other major developing countries. Chinese economic outlook and the strengthening of the US dollar vis-à-vis the other major currencies in the world is also likely to have its effect on the global base metal prices.

Duty Structure


Bauxite 5 5 = Alumina 12 12 =Aluminium Scrap 5 5 = Caustic Soda 12 12 =Alumina 5 5 = Aluminium Ingots 12 12 =Caustic Soda 7.5 7.5 = Copper Concentrates 12 12 =Aluminium Ingots 5 5 = Refined Copper 12 12 =Copper Concentrates 2.5 2.5 = Zinc Concentrates 12 12 =Copper Scrap 5 5 = Refined Zinc 12 12 =Refined Copper 5 5 = Lead Concentrates 12 12 =Zinc Concentrates 2.5 2.5 = Refined Lead 12 12 =Refined Zinc 5 5 = Non-Coking Coal 12 12 =Lead Concentrates 2.5 2.5 = Petroleum Coke 12 12 =Refined Lead 5 5 = Calcined Petroleum Coke 12 12 =Steam coal 2.5 2.5 -Petroleum Coke 2.5 2.5 =Calcined Petroleum Coke 2.5 2.5 -

Proposal and Impact

Budget proposals Impact on the Industry1) Reduction in Special Additional Duty (SAD) of

Customs on copper scrap, brass and aluminium scrap from 4% to 2%

2) 6.3% increase in Railway freight for carrying coal3) Increase in Clean Energy cess levied on coal, lignite

and peat from Rs.100 per tonne to Rs.200 per tonne

Positive - For the secondary producers. Negative – For the primary producersNegative- Increase in railway freight is likely to marginally increase the cost of production Negative- This is likely to further increase the cost of production of the Non-ferrous metals producer

43

Impact on Companies


Hindustan Zinc Ltd - Since, power cost accounts for a significant share of the overall cost of production for non-ferrous metals, increase in the cost of coal used by captive power plants on account of increase in freight rate and Clean Energy Cess is likely to increase the cost of production of these players.

Hindalco Industries Ltd -National Aluminium Company Limited (NALCO) -

44

Oil and GasIndustry Snapshot:

Indian Oil & Gas sector comprises primarily three segments, namely, Exploration & Production (upstream), Midstream and Downstream (Refining & Marketing). The size of the oil and gas industry in terms of turnover stands at about US$ 180 billion, contributing about 15% to the national GDP.

Prices of sensitive petroleum products (Diesel, LPG, Kerosene) are regulated by the government hence oil marketing companies (OMCs) incur huge under-recoveries. The under-recovery during FY14 stood at Rs.1,399 billion.

India’s oil import dependency was at 85% in FY14 indicating the economy’s high dependence on imported crude oil. Indian crude oil demand is expected to grow at a steady rate of 2-3%. However, domestic crude oil supply is not expected to keep pace with rising demand, making India vulnerable to not only international crude oil prices but also to exchange rates.

India’s natural gas industry is also characterised by a supply deficit due to low domestic production and inadequate distribution infrastructure. Domestic gas production has been on a declining trend particularly due to fall in Reliance Industries’ KG-D6 production. Decline in most of the country’s ageing fields has further compounded the supply deficit. Going forward, domestic gas supply is expected to grow at a CAGR of 6% in the next two fiscal while gas demand to grow at a CAGR of 17% during the same period; thus, aggravating the deficit situation. India is expected to continuously rely on expensive imported LNG to meet its energy needs. LNG imports are anticipated to grow at a CAGR of 29% during the same period to partially meet the shortfall.

Duty Structure


Crude oil 0 0 = Petrol Rs.8.95/litre Rs.5.46/litre =

LNG 5 5 = Diesel Rs.7.96/litre Rs.4.26/litre =

Naphtha# 4 2 +Liquefied Butanes 5 2.5 +Ethylene dichloride, Vinyl Chloride Monomer, Styrene

2.5 2.0 +

* basic excise duty has reduced, however total effective aggregate taxes remains unchanged at Rs.17.46/litre and Rs.10.26/litre for petrol and diesel, respectively#Special Additional Duty

Proposal and Impact


Petroleum subsidy down to Rs 30,000 crore

Petroleum subsidy has been halved to Rs 30,000 crore for 2015-16 from estimated Rs 60,270 crore in the current fiscal. However, going ahead in case of increase in crude oil prices, under-recoveries may increase, which may impact oil and gas PSUs.

45

Impact on Companies

Company Impact CommentsRefining and marketing companies - Indian Oil Corporation Ltd (IOCL), Bharat Petroleum Corporation Limited (BPCL), Hindustan Petroleum Corporation Limited (HPCL), Oil and Natural Gas Corporation Limited (ONGC), Oil India Limited (OIL)

=

Government subsidy for FY16 is budgeted at Rs 30,000 crore which seems to be lower compared to estimated Rs 60,270 crore subsidies for FY15. Any increase in crude oil prices would lead to higher under-recoveries on petroleum products and would thus, increase subsidy burden on ONGC and OIL.

Various petrochemicals units like Reliance Industries Limited (RIL), IOCL +

Naphtha, liquefied butane, ethylene dichloride, vinyl chloride monomer and syrene are feedstock/intermediates to petrochemicals. Thus, decrease in custom duty would be positive for petrochemicals companies like RIL and IOCL.

46

PaperIndustry Snapshot:

The Indian Paper Industry has three segments: Packaging paper and boards, Printing and Writing, and Newsprint. Domestic paper consumption is directly correlated to GDP growth, with the growth multiple estimated to be 0.9x. The Indian Paper Industry is highly fragmented and competitive in nature. Large paper manufacturers have established their dominance in high-value segments like copier, coated packaging & board, while smaller units cater to low value segments such as creamwove, kraft paper, etc. Raw-material, energy and stores and spares (including chemicals) forms about 75-80% of the total operating costs for the paper industry.

Duty Structure


Finished products Finished products

Paper & Paperboard- Basic- CVD

56

56

=Paper & Paperboard 6 6 =

Newsprint 0 0 = Newsprint 0 0 =Raw materials Raw materials

Wood pulp- Basic- CVD

06

06

=Wood pulp 6 6 =

Wastepaper*- Basic- CVD

06

06

=Wastepaper 0 0 =

Steam Coal- Basic- CVD

2.56

2.56

=Coal 6 6 =

* Custom duty on wastepaper is Nil

Proposal and Impact

Budget proposals Impact on the Industry• Key schemes announced1) No major announcement Neutral

Impact on Companies


Ballarpur Industries Ltd =

No major impact from the budget.J K Paper Ltd =West Coast Paper Mills Ltd =International Paper APPM Ltd =

47

PharmaceuticalsIndustry Snapshot:

The Indian pharmaceuticals industry clocked revenues of around Rs.1,660 billion in FY14, witnessing 14% growth. It has acquired global recognition, with increasing exports of generic products to regulated markets. In a sign of improving prospects, several Western governments have stated their intent to rely on cheaper, generic imports to reduce their bloated health budgets. Simultaneously, improving healthcare infrastructure, increasing incidence of life-style diseases and recent price-control regulations would lead to higher demand for pharma products in the domestic market.

Duty Structure


Bulk drugs 5 5 = Bulk drugs 12.36 12.5 =Formulations 10 10 = Formulations 6 6 =Medical devices 7.5 7.5 = Medical devices 12 12 =

Proposal and Impact

Budget proposals Impact on the Industry• Key schemes announced1) Three new National Institutes of Pharmaceutical

Education and Research (Maharashtra, Rajasthan, and Chhattisgarh)

2) Extension of validity of form for import of life-saving drugs to 1 year (to avail full exemption of Basic Customs Duty)

3) No need to seek separate certificate from Excise authority for bulk drugs used in manufacture of specified drugs (if already obtained from Customs authorities)

This would help in innovation and research for formulation of new drugs.

This exemption already exists, and the extension of tenure does not impact the pharma industry.

This is expected to simplify the process for the pharma industry.

48

PipesIndustry Snapshot:

The Indian pipe Industry is one of the top manufacturing hubs globally with presence across all categories of pipes viz steel, cement and plastic. Due to economic slowdown in domestic as well as global markets during last few years, demand for pipes has remained subdued. However, CARE expects that the demand for pipes in India would remain healthy in the long term, on the back of increasing demand arising from oil and gas, infrastructure, water supply and sanitation projects.

Duty Structure


Steel pipes 10 15 + Steel pipes 12.36 12.5 =Plastic pipes 10 10 = Plastic pipes 12.36 12.5 =Cement pipes 10 10 = Cement pipes 12.36 12.5 =Polyvinyl Chloride (PVC) 7.5 7.5 = Polyvinyl Chloride (PVC) 12.36 12.5 =High-Density Polyethylene (HDPE)

7.5 7.5 = High-Density Polyethylene (HDPE)

12.36 12.5 =High-Density Polyethylene (HDPE)

7.5 7.5 = High-Density Polyethylene (HDPE)

12 12 =

Proposal and Impact

Budget proposals Impact on the Industry1) Union Budget has called for each house in the

country to have basic facilities of 24-hour power supply, clean drinking water, a toilet, and be connected to a road by the year 2022 which will be the 75th year of Indian independence.

2) Union Budget has allocated Rs.5,300 crore via “Pradhan Mantri Krishi Sinchayee Yojana (PMSKY)” scheme to support micro-irrigation and watershed development in the country with a view to increase agricultural productivity.

3) Tax-free infrastructure bonds for the projects in the rail, road and irrigation sectors.

During the year 2011-12, out of total area under cultivation only 46.35% of the land was irrigated (Source: Center for Monitoring of India Economy). Covering more than 50% of farmland will require investments in pipeline infrastructure.

Also, easy accessibility of funds through issue of tax-free bonds for irrigation should increase investment in irrigation sector which would lead to higher demand for Ductile Iron and plastic pipes for water supply to farms.

Impact on Companies


Indian Hume Pipe Co. Ltd. +The company primarily operates in cement pipes. Proposal in the budget to provide sanitation facility to every household till the year 2022 is expected to increase the demand for cement pipes.

Jain Irrigation Systems Ltd. +Jain Irrigation Systems is engaged in manufacturing of micro irrigation systems, PVC pipes, HDPE pipes and other agricultural inputs. The finance minister’s proposal to support irrigation via PMKSY scheme will create demand for its plastic pipes and other irrigation systems.

49

PortsIndustry Snapshot:

The total volume of traffic handled by all the major Indian ports during FY14 was about 555 million tonnes as compared with about 546 million tonnes handled in FY13, a Y-o-Y growth of about 2%.

The key challenges faced by the sector are significant differences in utilisation rates at the major ports, draft constraints and operating inefficiencies. On the other hand, development of new minor ports has been affected by inadequate connectivity with the hinterland and the differential royalties and revenue sharing at various ports.

As a result of allowance of the 100% FDI in the port sector, the port privatisation has gained momentum. While in the past, most of the private initiative in ports was restricted to development of container terminals, the past couple of years have witnessed significant investment in the minor ports, dominated by bulk capacities added in Gujarat and the eastern coast, predominantly through PPP projects.

The Planning Commission has estimated the total traffic growth at about 14% during the 12th Five Year Plan (2012-2017). However, given the plethora of issues surrounding the projects in the power, steel and coal sectors coupled with the slowdown in overall economic growth, CARE expects the total annual traffic at all ports to grow at a cumulative annual growth rate (CAGR) over of 6.2% over the period FY14-FY17, thereby reaching a level of 1,232 million tonnes by FY17.

Duty Structure NA

Proposal and Impact

Budget proposals Impact on the IndustryKey schemes announced1) Ports in public sector will be encouraged, to

corporatise, and become companies under the Companies Act to attract investment and leverage the huge land resources.

2) Service-tax exemption for construction, erection, commissioning or installation of original works pertaining to an airport or port withdrawn.

Positive: Corporatisation of major ports is expected to make them more efficient both financially as well as operationally in turn increasing the competitive environment ultimately benefiting the consumers.Negative: The withdrawal of service tax exemption will increase the project cost for new ports.Overall, the budget focuses on capacity enhancement in existing ports along with improvement in operational parameters rather than creation of additional ports.

Impact on Companies

Company Impact CommentsGujarat Pipavav Port Ltd - Over the long run, the competition is expected to gather pace with corporatization

of major ports which shall come with the attendant benefits. This can impact the cargo attracting capability of private players.

Adani Ports & Special Economic Zone Ltd

-

50

PowerIndustry Snapshot:

The all-India installed capacity on January 31, 2015 was 258.7 Giga-Watts (GW).

In FY2013, the base power deficit was 8.7%, which declined to 4.2% in FY2014, while peak deficit also narrowed by 550 bps to 4.5% over the same period. During 9MFY15, base deficit has declined by 0.5% YoY to 3.9%. On the other hand, peak power deficit has increased by 0.5% YoY to 4.7%.

The sector is still plagued by weak health of power distribution companies, fuel-related issues and transmission constraints.

Encouraging policy framework in renewable energy (RE) sector has resulted in rising share of capacity addition for RE from 5.9% (7.7 GW) in FY2007 from 12.9% (31.7 GW) in FY2014. The re-instatement of accelerated depreciation for wind has provided a fillip to wind power capacity addition. In 9MFY15, the capacity addition was 2.1 GW v/s 1.9 GW (9MFY14).

Duty Structure


Clean Energy Cess Rs.100/Tonne

Rs.200/Tonne

+ Pig iron (SG Grade) used for cast components of wind operated electricity generators

12 0 +

Proposal and Impact


Increase in clean energy cess

Increase in clean energy cess from Rs.100/tonne to Rs.200/tonne on production of coal is expected to raise Rs.50-60 billion for the purpose of National Clean Electricity Fund in FY2016. The part of the funds would be utilised for implementation of renewable projects.

Impact on Companies


Wind Independent Power Producers (IPPs) + The reduction in excise duty in pig iron used for cast components of wind operated

electricity generators will reduce the costing for wind power plants (per MW cost).

Various Power IPPs (such Tata Power Ltd., NTPC Ltd, Reliance Power Ltd., Adani Power Ltd.)

+5 new Ultra Mega Power Projects, each of 4,000 MW, would be implemented with majority of clearances obtained prior to bidding (in the Plug-and-Play mode). However, overall structuring which ensures that majority of challenges faced by the developers of previous UMPPs are addressed, shall be critical.

51

Real EstateIndustry Snapshot:

The Indian real estate industry is the second-largest employment-generating sector after agriculture; contributing about 5-6% to India’s GDP. Not only does it generate a high level of direct employment, but it also stimulates the demand in over 250 ancillary industries such as cement, steel, paint, brick, building materials, consumer durables and so on. The sector has been witnessing demand in slow down due to high inflation, higher borrowing cost and weak economic sentiment affecting buyer’s confidence.

Duty Structure


CementOPC/PPC/PSC@- Basic- CVD- Special CVD

Nil124

Nil124

=

Cement*OPCPPCPSC

12 12.5 -

Clinker- Basic- CVD- Special CVD

1012 4

10124

=Clinker

12 12.5 -

*An abatement of 30% on MRP and duty on adveloram basis plus specific duty of Rs.120 per tonne, @OPC- Ordinary Portland cement, PPC- Portland pozzalana cement and PSC- Portland slag cement.

Proposal and Impact

Budget proposals Impact on the Industry• Key schemes announced1) Rationalisation of taxes of Real Estate Investment Trusts

(REITs).2) Housing for all by 2022.3) Allocation of Rs.12,000 crore for Delhi-Mumbai Industrial

Corridor (DMIC).4) Corporates taxes to reduce from 30% to 25% over a period

of 4 years starting next year with exemptions going away.5) Increase in service tax from 12.36% to 14% on under

construction properties.

The tax rationalisation of REITs will provide another source of funding for real estate players with assets in commercial real estate segment. Development of DMIC will lead to increase in real estate demand in towns along the corridor. Reduction of corporate taxes to positively affect corporates in general. However, increase in service tax will have a marginal negative impact, as the buyers will have to pay more, which in turn will impact the demand for property.

Impact on Companies

Company Impact CommentsDLF Ltd +

The developers with completed commercial properties will have an immediate positive impact due to tax rationalization on REITs. Also, housing for all and other infrastructure development measures will have a positive impact for the overall real estate sector.

Indiabulls Real Estate Ltd. +Prestige Estates Projects Ltd +Shobha Developers Ltd +Kolte Patil Developers Ltd +Godrej Properties Ltd +

52

Roads & HighwaysIndustry Snapshot:

India has an extensive road network of 4.7 million km – the second largest in the world. However, India’s road density is only 3.7 km per 1,000 people, as compared with a global average of 6.7 km per 1,000 people. In the Twelfth Five-Year Plan (2012-2017), the investment in the road sector is expected to be around Rs.9,150 billion with 33% of the investments to be contributed by the private sector. Whilst there are positives articulated in the form of thrust from government to clear the backlog of the under implementation projects, premium restructuring for few high value projects, introducing enabling clauses for easy exit to developers and improving co-ordination among various clearing authorities, the challenges for the government to kick-start stalled projects and attract capital from private players for new projects continued to deter new investments. As a result, the proportion of investment from the Government [in the form of Engineering Procurement Construction (EPC)-based contracts] is expected to be higher than envisaged in order to achieve the ambitious target of constructing 30 km /day.

Duty Structure

Excise Duty (%) Before After Impact

Cement 12.00 12.50 =Steel 12.36 12.50 =

Proposal and Impact

Budget proposals Impact on the IndustryKey announcements1) Allocation of the Ministry of Road Transport and

Highways for road development has been increased by Rs.14,031 crore.

2) Conversion of existing excise duty on petrol and diesel to the extent of Rs.4 per litre into Road Cess to fund investment through which additional Rs.40,000 crore shall be made available for financing.

3) Setting up of National Investment and Infrastructure Fund (NIIF) with annual outlay of Rs.20,000 crore from Government which shall be invested in Infrastructure Finance Companies to aid the latter in leveraging and funds mobilisation.

4) Issuance of tax-free bonds for roads.5) Modification in the risk sharing under Public Private

Participation (PPP) model with major risk to be borne by sovereign.

Continued impetus and thrust on development of infrastructure is reflected in the budget proposal with additional fiscal space proposed to be made available for funding infrastructure investment. The key proposal such as increase in availability of funds from sovereign through hike in road cess apart from increase in gross budgetary allocation, and formation of NIIF shall provide significant boost in augmenting the capital resources.The modifications in risk sharing in PPP combined with proposed ‘plug-and-play’ mode of awarding projects are expected to reduce the risks associated with timely execution of projects, and witness increased participation in PPP and Engineering Procurement Construction (EPC) space. This shall ultimately lead to lowering of cost of creation of infrastructure assets.

Impact on Companies


L&T Infrastructure Development Pvt Ltd. +The proposed modification in risk sharing coupled with the availability of long-term funds shall augur well for the infrastructure players having substantial exposure in roads sector projects.

Reliance Infrastructure Ltd. +IL&FS Transportation Networks Ltd. +IRB Infrastructure Developers Ltd +

53

SteelIndustry Snapshot:

For four consecutive years, India has been world’s fourth largest steel maker. With 65.19 million tonnes (MT) production, the country remained the world’s fourth largest steel producer in the first nine months of the current year (FY14-15). India’s crude steel capacity and production was ~95 MT and ~85 MT respectively in 2013-14.

An improvement in overall business sentiment, the government’s announcements on big-ticket investment in infrastructure and a post-monsoon pick-up in demand led India to post the fastest growth in steel production globally in October 2014. The government is aiming at rejuvenating the steel sector and removing the hurdles in steel production by scaling up capacity to 300 MT by 2025 from the 95 MT in 2013-14. However, CARE believes, only about 21 mn tonnes of steel capacity is likely to get added in the next 3-4 years.

The demand for steel in India is expected to increase by 3-5 per cent this year and touch a compounded annual growth rate (CAGR) of 6 per cent after FY17. Given the government’s high focus on jump starting stalled projects, followed by pushing large flagship projects, including the freight and industrial corridors, it is expected that India will begin moving back on the path of materials intensive growth by the end of this year.

Duty Structure

Customs Duty (%) Before After Impact Tariff Rate (%) Before After Impact

Metallurgical coke 2.5 5.0 - Tariff rate of Basic Customs Duty (BCD) on iron & steel and articles of iron or steel, falling under Chapters 72 and 73 of the Customs Tariff

10 15 +

Excise Duty (%) Before After Impact Bituminous coal 55 10 +Basic excise duty 12 12.5 -

Proposal and Impact


Increase in basic customs duty on Metallurgical coke from 2.5% to 5.0%

Negative impact on domestic steel players, who are dependent on imported coke Positive for domestic Metallurgical coke manufacturers

Tariff rate of Basic Customs Duty (BCD) on iron & steel and articles of iron or steel, falling under Chapters 72 and 73 of the Customs Tariff, from 10% to 15%. However the existing effective rates of BCD on these goods are being retained.

Positive impact for domestic steel players since it will curb the flow of steel imports from China & Russia

Special Additional Duty of Customs (SAD) on melting scrap of iron or steel, stainless steel scrap for the purpose of melting, copper scrap, brass scrap and aluminium scrap is being reduced from 4% to 2%.

Positive impact on domestic steel & aluminum players

Clean energy cess on coal increased from Rs.100 per metric tonne to Rs.200 per metric tonne to finance clean environment initiatives.

Marginal negative impact on domestic steel players

54

CVD and SAD are being fully exempted on coils (steel) for use in the manufacture of pacemakers.

Positive impact for steel coil manufacturers supplying to pacemakers industry

Increase in basic excise duty from 12.00% to 12.50% Marginal negative impact on domestic steel players

Impact on Companies


SAIL Ltd., Tata Steel Ltd., JSW Steel Ltd., JSPL, Usha Martin Limited

=

Increase in tariff rate of Basic Customs Duty (BCD) on iron & steel will boost the domestic steel demand Reduction of SAD on melting scrap of iron or steel and reduction in tariff of BCD of bituminous coal will have positive impact Increase in basic customs duty on Metallurgical coke is likely to result in increase in cost of production of steel players dependent on imported coke.

55

SugarIndustry Snapshot:

ISMA estimates the sugar production for SS 2014-15 at 26.0 million tonnes (SS 2013-14 at 24.4 million tonnes). This marks the fifth consecutive season where India’s sugar production surpasses consumption. Owing to surplus supply, sugar prices have remained low and in most states below the cost of production primarily attributable to the high cane prices set by State Government resulting in sugar mills suffering losses. Export market has also not been conducive.

Duty Structure


Raw Cane Sugar 25 25 = Raw Beet Sugar 12.4 12.5 =Refined Sugar 25 25 = Raw Cane Sugar 12.4 12.5 =

Refined Sugar 12.4 12.5 =

Proposal and Impact


• There were no Budget proposal which directly impacted the sector. However, pre budget announcement with CCEA clearing the extension of export subsidy for raw sugar at Rs.4,000/tonne on export of 1.4 million tonnes for sugar season SS14-15.

• Export incentive of Rs.4,000/tonne (higher than subsidy of Rs.3,371/tonne in the previous season)could bring some relief to the industry reeling under excess supply. Given the weak global prices, raw sugar export was viable only with this incentive. The export could help reduce inventory and help recover the domestic prices.

Impact on Companies


K.C.P Sugars and Industries Corporation Ltd =The export incentive for raw sugar of Rs.4,000/tonne will help the sugar companies reduce the inventory and improve their cash flow.

Bajaj Hindustan Ltd =Balrampur Chini Mill Ltd =Bannari Amman Sugars Ltd =Shree Renuka Sugars =

56

TelecomIndustry Snapshot:

India continued to have the second largest wireless subscriber base globally with 943.97 million wireless subscribers as on December 31, 2014. The total telecom subscriber base also comprises an additional 27 million wireline subscribers. As on December 31, 2014, the overall wireless tele-density was 75.43 with an urban wireless tele-density of 142.46 and rural wireless tele-density of 45.47. The number of broadband subscribers was 85.74 million as on December 31, 2014 including 70.42 million wireless broadband subscribers.

Duty Structure


HDPE(for use in manufacturing of telecommunication grade optical fiber cables)

7.5% Nil + Mobile Phones 6% with CENVAT Credit or 1% without CENVAT Credit

12.5% with CENVAT Credit or 1% without CENVAT Credit

+

Proposal and Impact

Budget proposals Impact on the Industry• Key schemes announced1) The budget proposes to reduce the rate of income tax on royalty and fees

for technical services from 25% to 10%.2) Fibre network of 7.5 lakh kilometres in 2.5 lakh villages will be further sped

up by allowing willing states to undertake its execution on reimbursement of cost determined by the Department of Telecommunications.

This is expected to enhance demand for such services.This will lead to new opportunities for telecom equipment and infrastructure players

Impact on Companies


Bharti Airtel +

Service providers will benefit from the increased expenditure on telecom services.Reliance Communications +Idea Cellular +Bharti Infratel +

57

Warehousing and LogisticsIndustry Snapshot:

The sector is expected to benefit from the proposed implementation of the goods and service tax (GST). A complicated tax regime coupled with poor infrastructure has led to high logistics costs in India at around 14% of the total value of goods against 7-8% in developed countries. GST, when implemented, will free the decisions on warehousing and distribution from tax considerations, which, henceforth, would be based purely upon operational and logistics efficiency, thus leading to development of various logistics hubs and overall improved efficiency in the sector.

Duty Structure


Service Tax 12.36 14.00 -

Proposal and Impact

Budget proposals Impact on the Industry• Key schemes announced1) Implementation of Goods and Service Tax (GST) from April 01, 2016.2) Ports in public sector will be encouraged, to corporatize, and become

companies under the Companies Act.3) Additional funds for Delhi Mumbai Industrial Corridor (DMIC) would be

made available by the government on requirement basis.

Expected to improve operational efficiency and development of logistics hubs.Expected to attract investment and leverage the huge land resources.This would expedite work on DMIC and hence further improve transportation efficiency.

Impact on Companies


Gati Ltd = No direct impact as there were no big ticket announcements related to logistics and warehousing industry. However, increase in Service tax might have negative implications.Gateway Distriparks Ltd =

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