Union Budget FY16 & Strategy: Finally growth gets a chanceUnionBudgetFY16&Strategy:Finally,growthgetsachance

Strategyteam KapilGupta

+912240635406

kapil.gupta@edelweissfin.comkapil.gupta@edelweissfin.com

February 28 2015February28,2015

UnionBudgetFY16:Finally,growthgetsachance

Fiscalmath:Wegotwhatweaskedfor

Theeconomyhasgotthefiscalpolicyitneeded.FiscaltargetshavebeenrelaxedforFY16from3.6%(underFRBM)to3.9%,andthemediumtermfiscaltargetof3%hasbeenpushedoutbyoneyear.

Thus,fiscalimpetustotheeconomywillturnmildlyfavourableafterbeingadverseforpast5years.Infrastructure(roads,railways)isthekeythrustarea.Crucially,allthisisdonewithoutcompromisingonthecredibilityoffiscalmath.

Policy reforms: The common thread is fiscal consolidation, innovativelyPolicyreforms:Thecommonthreadisfiscalconsolidation,innovatively

Thegovernmentscommitmenttothepathoffiscalconsolidationiswellshowcasedbyitsseriousnesswithregardsto:1)GSTsizeableallocationofGSTcompensationtothestateslastyearandhandsomeprovisionsforFY16;2)swiftprogressondirectbenefittransfersthroughJAMtrinity(JanDhanAadharMobile)tomakesocialtransfersleakageproof;and3)amoresimplifiedtaxstructure(lowercorporatetaxratewhileeliminatingexemptions)toallowforbettercompliance.

Easeofdoingbusiness:Connectingthedots

The finance minister (FM) mentioned several initiatives revamping the bankruptcy law to match global standards introducingThefinanceminister(FM)mentionedseveralinitiatives revampingthebankruptcylawtomatchglobalstandards,introducingthePublicContracts(ResolutionofDisputes)Billtomakeconflictresolutionlesscumbersome;revisitingthePPPmodeltoreduceprivatesectorrisks,andconsideringplugandplaymodelforpower,roads,etc.Allthistakentogethermeansabigpushtotheeaseofdoingbusiness.

Encouragingfinancialsavings

TheBudgetmadeaclearattempttoencouragefinancialsavingsbygivingtaxincentivesonhealthinsuranceandpension,andofferingschemesongold sovereigngoldbond(afinancialassetasanalternativetogold)andthegoldmonetisationscheme,h h ll h l d h ll f h l ld fwhichwillhelpreducetheallureofphysicalgoldasameansofsaving.

2

UnionBudget(Cont)

Whatwedidnotget?

Lackofspecificannouncementwithregardstoaffordablehousing,inadequateprovisionsforpublicsectorbanksrecapitalisationandabsenceofpolicymeasurestoaddresstheissueofexistingstressedassetsweresomeofthedisappointmentsintheBudget.Wehopesomeof theseissueswillgetaddressedoutsidetheBudget.

EquityStrategy:Westickwithwhatwehave

At the cost of being immodest we have got what we were looking for growth rebound with government push privateAtthecostofbeingimmodest,wehavegotwhatwewerelookingfor growthreboundwithgovernmentpush privateconsumptionwillpickupasconsumersreassesshigherrealincomes.

Wehavelittleideawhatmarketswilldointhenearterm,especiallygiventherecentmarketmoves,butstillremainconvincedthatmarketsareaBuywitha1218monthstimeframe.Wehavelongarguedthatapartfromearningsgrowth,valuationswillbepositively influencedbyfallinginterestrateexpectationsandconsequentlylowerriskfreerates thisfundamentallyimpactsvaluations.

Earlycyclicalsremainbestbets.WearegettingmorebiasedtowardsPSUbanksandareevaluatinghigherweightages.EPCi h bi b fi i i f h B dcompaniesarethebiggestbeneficiariesoftheBudget.

3

Fiscalmathcredible

4

Fiscal target relaxed; to be growth supportive after five years

thusfiscalimpulseturnsgrowthsupportiveafterfiveyearsFiscaldeficittargetsrelaxed

1.0

1.5

6.0

7.0Mediumtermfiscaldeficittargetof 3%pushed outby ayear

(0 5)

0.0

0.5

(

%

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G

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3.0

4.0

5.0

(

%

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pushedoutbyayear

(1.0)

(0.5)

FY10 FY11 FY12 FY13 FY14 FY15(RE) FY16(BE)

Fiscalimpulse(asa%ofGDP)

2.0FY10 FY11 FY12 FY13 FY14 FY15

(RE)FY16(BE)

FY17 FY18

GrossFiscaldeficitasa%ofGDP FRBMFiscaldeficittargets

Source:CMIE,EdelweissresearchNote:Fiscalimpulseiscalculatedasfiscaldeficitexcludingassetsales

FiscaldeficittargetforFY16hasbeenrelaxedto3.9%ofGDP(from3.6%)whilecommittingtoachieving3%targetbyFY18(vsFY17plannedearlier)

As a result the fiscal drag seen in last 5 years will end Indeed there will be modest support to the growth from the fiscal sideAsaresult,thefiscaldragseeninlast5yearswillend.Indeed,therewillbemodestsupporttothegrowthfromthefiscalside.

Thisisamuchneededtrendreversal,giventhestateofprivatesector.

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Credibleandgrowthsupportivefiscalmath

Fiscalmathlookscredible,unlikelastcoupleofyearswhenrevenueprojectionsweremissedwildly

Particulars(asa%ofGDP) FY16(BE) FY15(RE) FY14 FY13 FY12TOTALREVENUES 8.7 9.2 9.3 9.1 8.8Taxrevenue(net) 6.5 7.2 7.2 7.3 7.0Gross Taxrevenue 10.3 9.9 10.0 10.2 9.9

Incometax 2.3 2.2 2.1 2.0 1.8

Subsidieswellprovided

Finance Commission (FC) recommendations

Corporatetax 3.3 3.4 3.5 3.5 3.6Customs tax 1.5 1.5 1.5 1.6 1.7Exciseduties 1.6 1.5 1.5 1.7 1.6Servicetax 1.5 1.3 1.4 1.3 1.1Less:Transfertostates 3.7 2.7 2.8 2.9 2.9 FinanceCommission(FC)recommendations

implemented.Taxdevolutiontostatesisupby10%;hencedevelopmentorientedgrantstostateshavebeenreduced

NonTaxRevenue 2.1 2.1 2.1 1.8 1.8Dividends 0.7 0.7 0.8 0.5 0.6Telecomand3G 0.3 0.3 0.4 0.2 0.2Disinvestment 0.5 0.2 0.3 0.3 0.2

TOTALEXPENDITURE 12.6 13.3 13.7 13.9 14.5Revenue 10 9 11 8 12 1 12 3 12 7

Importantly,theFMhasadequatelyprovidedforGSTcompensation

Revenue 10.9 11.8 12.1 12.3 12.7Interestpayments 3.2 3.2 3.3 3.1 3.0Defence 1.1 1.1 1.1 1.1 1.1Subsidies 1.7 2.1 2.2 2.5 2.4

Foodsubsidy 0.9 1.0 0.8 0.8 0.8Fertil iser subsidy 0.2 0.5 0.8 1.0 0.8

7th paycommissionrecommendationsandhigheroilpricescouldbethemainchallenges

Fertil isersubsidy 0.2 0.5 0.8 1.0 0.8Petroleumsubsidy 0.5 0.6 0.6 0.6 0.8

Policeandpensions 1.0 1.0 1.0 1.1 1.0Grants tostates (FCrecos) 0.6 0.5 0.5 0.4 0.5GSTcompensationtostates 0.1 0.1 0.0 0.0 0.0Developmentrelated 2.8 3.4 3.6 3.7 4.2Others 0.3 0.3 0.3 0.3 0.3

Capital 1.7 1.5 1.7 1.6 1.8Defence 0.7 0.6 0.7 0.7 0.8Developmentrelated 1.0 0.9 1.0 0.9 1.0

FISCALDEFICIT 3.9 4.0 4.4 4.9 5.7

6

Source:Budgetdocuments,EdelweissresearchBE:BudgetEstimates;Note:ForfiscaldeficitsummaryINRbn andYoY%pleaserefertoannexure

TaxRevenues:Prudentbudgetingafteralongtime

Improvedbuoyancyowingtohigherindirecttaxes Sharpjumpintaxrevenuesbudgeted

11.5

12.5

e

a

s

a

%

o

f

Particulars(YoY) FY16(BE) FY15(RE) FY14 FY13 FY12Gross Taxrevenue 16 10 10 17 12Incometax 18 15 21 22 18Corporate tax 10 8 11 10 8

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Corporatetax 10 8 11 10 8Customs tax 10 10 4 11 10Exciseduties 24 9 (4) 22 5Servicetax 25 9 17 36 37

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Source:CMIE,Edelweissresearch

Keychangesinthetaxrateswerehikeinservicetaxfrom12.36%currentlyto~14%inFY16.y g y

TheFY16taxprojectionsarecredible.Grosstaxbuoyancyof1.4isachievablegivenhikesinservicetaxandexcisedutiesonpetroleumproducts.

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Fiscalfederalism:Givingmoreautonomytothestates

Stateswillnowhavemoreautonomytodecidespending%ofGrosstaxrevenue FY15(RE) FY16(BE)Total devolutiontostates 56.0 58.1

Taxdevolution 27.0 36.1Developmental grants to states 22 2 14 1

Source:CMIE,EdelweissresearchNote:Thedivisiblepoolisgrosstaxrevenueminussomeofthecessoneducation,SwatchBharat,etc.

Developmental grants tostates 22.2 14.1Financecommisiongrants 5.2 6.1Others 1.6 1.7

Asperthefinancecommissionrecommendations,theshareofstatesintheoveralldivisibletaxpoolhasincreasedfrom32%to42%(orfrom27%to36%asshareofgrosstaxrevenue)

Hencegiventhehighertaxdevolution,theshareofdevelopmentalgrantstostates(whichweremainlydesignedbycentre)havebeenreducedfrom22%to14%ofgrosstaxrevenues.

8

Expenditure:LooksdepressedundernewFCrecommendations

Expenditure%YoY,withandwithoutFCrecos

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Source:CMIE,Edelweissresearch

ThebudgetedFY16expendituregrowthisjust6%YoY,butthismainlyduetofinancecommissionrecommendations,which

ExpendituregrowthwithoutFCrecommendations

g p g j ydevolvehighertaxestostatesandreducethecentralgovt.sdevlopmentalexpenditure.

IncaseFCrecommendationswerenotimplemented,expendituregrowthwouldbe~14% highestinlastfiveyears.

However a like to like comparison of central govts developmental expenditure is not possibleHowever,aliketolikecomparisonofcentralgovt sdevelopmentalexpenditureisnotpossible.

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Roadsandrailwaysthekeythrustareas

Roadsandrailwaystowitnessasharpjump

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Ontheinfrastructureside,roadsandrailwaysseemtobetheclearfocusareasofthegovernmentwiththetotaloutlay

Roads(%,YoY) Railways(%YoY,RHS)

, y g y(budgetarysupport+internalresources)inthesesectorsexpectedtoincreaseby~52%and175%YoY.

Onthefundingofthetotaloutlay,thebudgetarysupportforboththesesectorswouldaccountforonly30%oftheincrementalfunding.

TheFMhasalsotalkedaboutsettingupNationalInvestmentFund(withgovernmenttransferofINR200bn)whichcanraiseadditionalresources

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Subsidies:Wellbudgeted;oilarrearscleared

Subsidiesas%ofGDPexpectedtodecline

2.6

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Source:CMIE,Edelweissresearch

Subsidiesasa%ofGDPareexpectedtoreduceto~1.7%ofGDPfrom2.1%inFY15.Thereductionismainlyontheoilfront

Food Fertiliser Energy TotalSubsidies(RHS)

(0.3%ofGDP),whereloweroilpriceshaveprovidedasignificantcushion.

WhatsmorehearteningisthatpendingFY14oilsubsidyarrearsof~0.3%ofGDPhavealsobeencleared

Also in order to improve the effectiveness of subsidies government has already rolled out the Direct Benefits Transfer (DBT)Also,inordertoimprovetheeffectivenessofsubsidies,governmenthasalreadyrolledouttheDirectBenefitsTransfer(DBT)schemeforLPG.Goingahead,ifthisisextendedtofooditcouldresultinsignificantsavingstotheexchequergiventheextentofleakages.

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Whatdoesallthismeanformonetarypolicy?

Wedonotthinkrelaxationinfiscaltargetswillunderminethescopeofmonetaryeasing.

WhatDrRajan commentedonfiscaldefict?

It i t th t l k d t i t ifi b ifi th b t it i th ll k h th it k fItisnotthatwearelockedtointoaspecificnumberoraspecificpath,butitistheoverallpackagewhetheritmakesforserioushighqualityfiscalconsolidationovertimethatclearlywillimpactinflationaryforcesthatwearemostworriedabout

Media interaction on February 3 2015MediainteractiononFebruary3,2015

ClearlyRBIGovernorwouldseeBudgetasapackageandisnotlookingforspecificfiscaltarget.Theextrafiscalspacegeneratedisanywayusedupinboostingcapacitycreationintheeconomy,whichhasafavorableimpactoninflationinthelongerterm.Thus,RBIshouldseeitfavourably.

Also,apushforGST(throughincreasedcompensationtostates)andDirectbenefitstransfer(DBT)indicategovernmentscommitmenttohighqualitymediumtermfiscalconsolidation.

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Borrowing:LargelyunchangedcomparedtoFY15

Financingoffiscaldeficit(INRbn) FY16(BE) FY15(RE) FY14 FY13Debtreciepts 5,436 5,283 5,220 5,412

Grossmarketborrowing 6,000 5,920 5,637 5,580Net market borrowing 4,564 4,469 4,536 4,674

Fundingofthefiscaldefecit

Netmarketborrowing 4,564 4,469 4,536 4,674Shorttermborrowing 301 512 77 534external assistance 112 97 73 72Securities againstsmall savings 224 333 124 82StatePF 100 100 98 109Others 136 (228) 59 (62)

Source:Budgetdocuments,EdelweissresearchRE:RevisedEstimates,BE:BudgetEstimates

Drawdownincashbalance 120 (157) (191) (506)

Netbudgetedborrowing,hasbeenmoreorlesskeptunchangedcomparedtotheFY15atINR4.6tn.

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Policyreformsandannouncements

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Highqualityfiscalconsolidationoverthemediumterm

WhiletheFMhasrelaxedthefiscaltarget,governmentscommitmenttothepathoffiscalconsolidationiswellshowcasedbyitsseriousnesswithregardsto

CommitmenttoGST:TheFMmadethefirstallocationtowardsGSTcompensationinFY15andprovidedadequately( 1 0b ) i 16 hi i l d d ill h l i b d f i l i f GS ddi i hik i(~INR150bn)inFY16.ThisislongoverdueandwillhelpgettingstatesonboardforimplementationofGST.Inaddition,hikeinservicetaxalsoseemstobeasteptofacilitateGSTimplementation.FurthertheFMreiteratedthedeadlineforGSTimplementationtobeApril2016.

Swift progress on direct benefits transfer: Government has already covered 125mn families under Jan Dhan and is alreadySwiftprogressondirectbenefitstransfer: Governmenthasalreadycovered125mnfamiliesunderJanDhan andisalreadyprovidingLPGsubsidytomorethan10mn beneficiaries.TheagendaistomakethesocialbenefitstransfersleakageproofusingJAMtrinity(JanDhanAadharMobile).Perhapsthenextstepwouldbetoimplementdirecttransfersforfoodsubsidy

Moresimplifiedtaxstructure: TheFMhaslaiddowntheroadmapforreducingcorporatetaxratefrom~30%currentlyto25%overthenext4yearsstartingnextyearwithsimultaneouswithdrawaloftaxexemptionsandincentives.Thiswouldimprovecomplianceandhencegovernmentstaxrevenues

15

Enhancingtheeaseofdoingbusiness

TheFMmentionedaboutseveralinitiativeswithregardstoeaseofdoingbusiness:

Settinguptheebizportal:Thiswouldintegrate14permissionswithonesource

Introducing a Public Contracts (Resolution of Disputes) Bill: The current conflict resolution is time consuming andIntroducingaPublicContracts(ResolutionofDisputes)Bill: Thecurrentconflictresolutionistimeconsumingandcumbersome,whichinturnleadstocostoverruns.Thegovernmentplanstoreducethetimelinesofdisputesettlements.Thisisasignificantpositiveforinfrastructurespace.

RevisitingPPPmodel: Thenewmodelplanstoincreasethesovereignrisk,thusmakingitmoreviablefortheprivatesector.

Plugandplaymodelforpower,roadsetc.: Allclearancesandlinkageswillbeinplacebeforetheprojectisawardedbyatransparentauctionsystem

Revampingthebankruptcylawtomatchglobalstandardsp g p y g

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Otherkeypolicysteps

Boostingfinancialsavings:Budgetshowsaclearattempttoencouragefinancialsavings givingtaxincentivesonhealthinsuranceandpensionandofferingschemesongold sovereigngoldbond(afinancialassetasanalternativetogold),goldmonetizationschemewhichwillhelpreducetheallureofphysicalgoldasameansofsaving.

li f k h d h f f li i li f k i l d hMonetarypolicyframework:TheFMstatedthatprocessofformalizingnewmonetarypolicyframeworkiscompleteandhewouldbelookingtosetupmonetarypolicycommittee,muchonthelinesofwesterncentralbanks.

Fixingtheinverteddutystructure:Theinverteddutystructure(dutiesonfinishedproductarelowerthanonrawmaterials)isone of the deterrents in domestic manufacture of several products In the current budget the inverted duty structure hasoneofthedeterrentsindomesticmanufactureofseveralproducts.Inthecurrentbudget,theinverteddutystructurehasbeencorrectedinsomeofthesectorssuchaselectronics,commercialvehicles,etc.ThisisanimportantstepstowardsrealizationofthePrimeMinistersMakeinIndiacampaign.

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Whatwedidnotget?

Intherunuptothebudgettherewerelotofexpectationsregardingaboosttoaffordablehousing.WhiletheFMreiteratedgovernmentscommitmenttohousingforall,thespecificswereclearlymissing.

GiventhelargerecapitalizationrequirementofthePSBs,theprovisionsmadeinthebudgettowardsthesame(~INR80bn)i i dwerequiteinadequate.

Absenceofpolicymeasurestoaddresstheissueofexistingstressedassetswasalsodisappointing.

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SectorwiseAnnouncements

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Automobiles

Sector Industry/marketwishlist Edelweissexpectations AnnouncementsinBudget Impactonsector/companyAuto Providesubsidies toboostelectricvehicles Canprovidebothdirect(lowerprice)

andindirectsubsidies (infrastructureetc)

AllocatedINR750mnforElectricvehicles;

PositiveforM&M

Raised customs duty on CVs from 10% No major impact as there is veryRaisedcustoms dutyonCVs from10%to40%

Nomajorimpactas thereis veryl imitedimports ofCVs

RationalisehigherexciseratestructureonSUVs

CanbeapartofroadmapforGST GSTtobeimplementedfromApril 2016

PositiveforM&M

Incentives topromoteexports/R&D Partof"MakeInIndia"campaign Positiveforindustry

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BFSI

Sector Industry/marketwishlist Edelweissexpectations AnnouncementsinBudget Impactonsector/companyBFSI Givearoadmapforreductionof

governmentstakeholdinginPSUbanks (PSBs)andimprovedgovernance

Itis widelyexpectedthatgovernmentwill worktowards reducingits interferenceinPSBs (as this was oneofthekeyissues discussedinGyan

Governmenthas proposedtosetupBankBoards Bureau(BBB,toappointandempowerindividual bankboards)structureandthenmovetoBank

ThecreationofBBBandBICwill helpinselectionofanindependentboardthatwill furtheraidinvarious longertermobjectives ofcapital raising,y y

Sangam).Thereis alsoapossibil ityofreducinggovernmentstakebelow51%inPSBs

InvestmentCommittee(BICstructure,inl inewithNayakcommitteerecommendation).

j p g ,various consolidationaspects andHRpolicies amongothers.However,lowerthanexpectrecapitalizationbenefitforthePSUbanks (INR79.4bnversus INR112bnannouncedinprevious yearbudget)waskeydissapointment.

Givearoadmapprovidingsolutiontoassetqualityproblems forthebankingsystem

Weexpectannouncements ofafewreforms withrespecttosettingupofaNational ARCandenhancingpowers

Announcedtostrengthenvarious recoverymechanismcomprehensivebankruptcycodetobeimplemented

This will beapositiveforPSUbanks whicharecurrentlyreelingunderassetqualitypressure.

ofDRTandSARFESI(reducinglegal hurdles)

byFY16(frameworkforthesamewill comeoutinnearfuture).

SARFAESIwill bemadeapplicabletoNBFCs

CurrentlySARFAESIActwas NOTavailabletoNBFCs andHFCs incorporatedafter2005:nowthesecompanies beingconsideredfinancial institutions and resort to SARFAESIinstitutions andresorttoSARFAESIwill beverypositiveforNBFCs havingexposuretomortgages andbusiness loans

Sometaxsops withregardtoaffordableh i

Givenvisiontoprovideaffordableh i f l l b 2020 t

Noannouncementonthis front This was asurprisegivengoevrnmentth t ff d bl h ihousing housingforall by2020,weexpect

sometaxsops tobeannouncedtowards thesame

thrustonaffordablehousing.

DTCimplementation GovernmentannouncednomajorincentiveforDirecttaxcode(DTC)

This will bepositiveforInsurancecompanies (MaxIndia,Bajaj Finserv

21

implementation etc)as DTCsoughttoincreasethetaxrateforthem

BFSI(contd)

Sector Industry/marketwishlist Edelweissexpectations AnnouncementsinBudget Impactonsector/companyIntroductionofcompositecapforforeigninvestment

Governmentproposingtointroduceacompositecapforforeigninvestment(FDI+FII)withthis thesectorcapof49%inbanks will goaway

This will bechangeforbankwhichhavehit49%FIIcapbuthavel imits onoverall Foreigninvestmentcapof74%providingroomforFIIg y p ginvestmenttogoup.Webelieveitwill bepositiveforYes BankandAxis Bank.Furthertothis weseeitwill improveonYes banks chances togetincludedintheMSCIindexgiventheFIIinvestmentbenefitavailable

MergerofFMCandSEBI Governmenthas proposedtomergeFMC(whichregulates forwardtradingofcommodities)withSEBI(capital marketregulator)

Weseethis as abigpositiveforMCXas FMCpresentlyinthepresentavatardoes nothaveanyinfrastructure,theydon'thavemanpower,theydon'thaveanyraidandpanel provisions totakeactionagainsttheDabbatraders.SothebiggestbenefitincasethemergerofFMCwithSEBItakes placethenthat

i l l SEBI hpowerwill comeSEBIhasabandwidthorthemergerwill betherightstep,andinvestorconfidencemightcomebackas theregulatorwill haveastrongpanel action.Interms of introduction of options forofintroductionofoptionsforcommodities andparticipationofinstitutions incommoditytrading,SEBIwill bemoreproactiveinallowingthesametherebyaidingvolumes

22

CapitalGoods

Sector Industry/marketwishlist Edelweissexpectations AnnouncementsinBudget Impactonsector/companyCapital Goods

AnnouncementonSmartCities withspecificimpetus onrailways,T&Dnetwork,solarpoweretc.

ExpectingspecificpoliciespromotingSmartCities withreasonablefundallocation

Noannouncement Negative

Announcement of new power generation NA Identification of 5 UMPPs of 4000 It is positive for players like BHELAnnouncementofnewpowergenerationprojects inUMPPcategory

NA Identificationof5UMPPs of4000MWeachinplugandplaymode

Itis positiveforplayers l ikeBHEL,L&T.Alsowithplug&playmodel projectexecutioncouldalsobebetter.

BoosttoRenewablepower NA Targetof175GWofrenewal capacityby2022(additionof145GWover8years) across solar wind hydro & bio

Positiveforequipmentplayers l ikeSuzlon,AlstomIndia,BHEL

years)across solar,wind,hydro&biomass

Higherrail &roadbudgetaryallocation NA Hikeinallocationforrailways byINR100bnandroads byINR140bn,resp

PositiveforL&T,Siemens,ABB,Cummins.

Defence CreationofdefenceSEZs/infrastructurestatus todefencemanufacturing

Reasonableprobabilityfortheseannouncements

Noannouncement Negative

Higherallocationforcapital spending Expecthikeinallocationforcapital equipmentespeciallyforhiendequipmentprocurement

Capital expenditureincreasedby15.4%toINR946bn.Theproportionofcapital expenditureintotal defence

Whileitis generallypositiveforthesector,itwill bepositiveforbothlargecompanies l ikeBEL,L&T,and

budgetincreasedto38.3%against36.9%lastyear.Positiveforthedefencesector.

componentsuppliers l ikeWalchandnagar,CentumElectronics,AstraMicrowaveandBharatForgeetc.

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Cement

Sector Industry/marketwishlist Edelweissexpectations AnnouncementsinBudget Impactonsector/companyCement Uniformrateofexcisedutyoncement:For

bettercomplianceandtoavoidl itigation,industryhadsuggestedthatexcisedutyoncementandclinkershouldbeprescribedon

Nochange Effectiveexcisedutyincreasedfom12.36%to12.5%andthefixedcomponentofINR120/tincreasedtoINR125/t

Negligibleimpact

padvalorembasis only.

/

Increaseinservicetaxfrom12.36%to14%

Theincreaseinservicetaxonfreightwill leadtoamarginal (~1%)increaseinthefreightcostforcompanies.

Cl E C i d b Th & f l t f iCleanEnergyCess increasedbyINR100/t

Thepower&fuel costofcompanies will increasemarginallyby

ConsumerGoods

Sector Industry/marketwishlist Edelweissexpectations AnnouncementsinBudget Impactonsector/companyConsumerGoods

Noincreaseinexcisedutyoncigarettes Theconsecutivehikes inexicsedutyinthepast3budgets coupledwithVATratehikes areimpactingvolumes oftheindustry.As seenfromQ3FY15

Tookaweightedaveragehikeof~16%incigarettes whichis thefourthconsecutivesharphike.Excisedutyhas beenhikedby25%forcigarettes

Negativeforall thecigarettecompanies as itis thefourthconsecutivehike.Thoughcompanies will beabletopass onthedutyy

results,excisecollectionwas flattishforthegovernmentas volumes havedeclinedsignificantly.Weexpectthis yeartheexcisedutyhikeoncigarettes will besoftercomparedto1172%

y gbelow65mmcategorywhileforothercigarettesizethehikeis by15%.

p yincreasebutitwill haveaimpactontheirvolumegrowthandtherebyearnings.

hikes inFY14

GSTdeadlinetobeannounced WeexpectGSTdeadlinetobeset,thoughimplementationis key

ExpectedtobeimplementedfromApril 2016

GSTwill helpsimplifytaxstructure,reducesignificanceofunorganisedplayers,makinginventoryplanningmorerobustandreduceblackmarketing

Initiatives oninfrastructuredevelopment Goingbythegovernment's manifestoweexpectincreaseinhousingandinfrastructuredevelopmentpolicies

Housingforall thefamilies inIndiaby2022.Thegovernmenttargets 20mnhouses inUrbanand40mnhouses inrural by2022.

Positiveforpaintcompanies l ikeAsianpaints,BergerPaints etcandforPidil iteIndustries.

Cutintaxes Reductioninthecorporatetaxratefrom30%to25%over4yeartimeframe.Alsoreductioninthecorporateexemption.

PositiveformostoftheFMCGcompanies whichpaytaxrateatthemaximummarginal rateof30%.

Rural initiatives on income generation We expect this to continue though Continues support to increasing the Positive for most of the companiesRural initiatives onincomegeneration Weexpectthis tocontinue,thoughgrowthcouldmoderateasmorefocus will beonurbanrevival

Continues supporttoincreasingtherural wages throughrural initiatives andrural specificfunds.AllocatedINR347bntowards MGNREGA.

Positiveformostofthecompanies

25

Construction

Sector Industry/marketwishlist Edelweissexpectations AnnouncementsinBudget Impactonsector/companyConstruction Formulatingguidelines forchannelising

funds fromforeigninvestors as well as domesticsavings towards infrastructurefunding

Likely EstablishmentofaNational InvestmentandInfrastructureFund

Positive

Governmentwill introducearegulatoryreformlawtoamendtheregulatoryframeworkinvarious sectors ofinfrastructure

Positive

Public contract dispute resolution Act PositivePubliccontractdisputeresolutionActtobeintroducedwhichwill aimatreducingl itigations/disputes ininfraprojects.

Positive

Anadditional sumofRs.40,000crorefor investment in roads and other

Positiveforinvestmentinroads andotherinfrastructurewill bemadeavailablethroughconversionofexistingexcisedutyonpetrol anddiesel totheextentofRs.4perl iterintoRoadCess

G t il l it t f P itiGovernmentwill permittaxfreeinfrastructurebonds fortheprojects intherail,roadandirrigationsectors

Positive

26

IT

Sector Industry/marketwishlist Edelweissexpectations AnnouncementsinBudget Impactonsector/companyIT Relieffromapplicabil ityofbothservicetax

andVATonsoftwarel icencesGivengovernment's aimtoreducehurdles,this couldbeimplemented

Nochange Lowertaxburdenandeliminationofoperational hurdles forITcompanies

Clarityondefinitionofexportturnover Restorationoftaxbenefitsoratleastclarity in SEZ revenue classification

Nochange Will smoothentheexecutionandhavea positive impact of marginclarityinSEZrevenueclassification

will ensureahasslefreebusiness environment

apositiveimpactofmargin

27

Media

Sector Industry/marketwishlist Edelweissexpectations AnnouncementsinBudget Impactonsector/companyMedia Abatementforpaymentofservicetaxand

entertainmenttaxWheneverGSTis implemented,servicetaxandentertainmenttaxshouldbesubsumedunderGST.Anyannouncementregardingthe

GSTis expectedtobeimplementedinApril 2016.

IfGSTis implemented,this will beahugepositiveforDTHandmultiplexes.

timelines ofimplementationofGSTwill beawelcomestep

Reductionof10%customs dutyondigital headends andsettopboxes

This is unlikelygiventheemphasis ofthegovernmentondomesticprocurementofsettopboxes

Nochangeincustoms dutyondigital headends andsettopboxes.

NA

BlackLightUnitModuleforuseinthemanufactureofLCD/LEDTVpanels from10%toNil.OrganicLED(OLED)TVpanels from10%toNil.

IndirectlypositiveforDTHcompanies andMSOs,especiallyinPhase3andPhase4areas as TVpricesis expectedtocomedownduetolowerrawmaterial costmaterial cost.

LaunchedtheDigital IndiaprogrammetomakeIndiaaknowledge&innovationbasedsocietywithBroadbandconnectivitybeingtakento all vil lages

Slightlypositiveforbroadbandoperations ofMSOs l ikeHathway,DENNetworks andSITICable.

toall vil lages

TheeffectiveincreaseinServiceTaxratewill befromexistingrateof12.36%(inclusiveofcesses)to14%.

Servicetaxincreasedfrom12.36%to14%is negativeforcompanies l ikePVR,DishTV.PVRcannotsetofftheservicetaxonrental againstentertainment taxentertainmenttax.

28

Metals&Mining

Sector Industry/marketwishlist Edelweissexpectations AnnouncementsinBudget Impactonsector/companyMetals andMining

Steel Sectorincreaseinimportdutyto10%fromcurrent7.5%and5.0%forflatproducts andlongproducts,respectively

Highprobability Inl inewithourexpectation,theimportdutyonall types ofsteel havebeenincreasedto10%.

Inl ightoftherisingimports,themoveis asentimental positiveforthesector.However,domesticsteel prices areunlikelytoimproveas theyarey p yalreadyatapremiumtoimportedsteel.As aresultofthehikeinimportduty,thepremiums onflats will reducefromINR4.6/ttoINR3.9/twhileonlongs,thepremiums will reducefromINR3.5/ttoINR2.1/t.

Steel SectorEliminationofsteel imports fromfreetradeagreements (FTA)

Possible Nochange

Steel SectorReductioninimportdutyoni f 2 5% t ' i l '

Lowprobability Nochangeironorefrom2.5%to'nil '

Steel SectorReductionincustoms dutyoncokingcoal

Lowprobability Nochange

Ironoreminers reductioninexportduty(currently30%)

Highprobability Nochange( y )

Cleanenergycess oncoal increasedfromINR100/ttoINR200/t

NoimpactonCoal Indiasinceitis apass through.Marginal increaseof

Oil&Gas

Sector Industry/marketwishlist Edelweissexpectations AnnouncementsinBudget Impactonsector/companyOil &Gas Hikeincrudeoil importdutyfrom0%to5% Reasonableprobabilityofthis being

implementedgiventhesharpfall inglobal crudeoil prices andpressureonthegovernmenttoaugmentits

Nohikeinoil customduty Crudeoil producers:CairnIndia,ONGCandOIL,couldhavebeenbeneficiaries givenimportparitypricing.Removes theoverhangfrom

income refiners (expectedfall inGRM,ifcustomdutyoncrudehadbeenlevied).

HikeinLPGprices byINR50/cylinderandINR23/litrehikeinkeroseneprices

Aroadmaptofurthersubsidyreductionmaybel ikely

Nopricehikes onLPGandKerosene CouldhavebeenpositiveforHPCL,BPCL,IOCL,ONGC,OILIndia/ p y y , , ,

Excisedutychanges Changes areunlikelyas thegovernmenthas hikedpetrol anddiesel duties sharplyaheadofthebudgetalready

Total incidenceofexciseduties onpetrol anddiesel remains unchanged.Rejigintheoverall excisedutystructure:Roadcess onpetrol &diesel increased by INR4/litre while

NoimpactonHPCL,BPCL,IOCL,ONGC,OILIndia

diesel increasedbyINR4/litrewhilebasicexcisedutycutbythesimilaramount.Educationcess whichwas leviedseparatelyhas nowsubsumedandis nowincludedinthebasicexciseduty.Overall maintainthesametaxdutyas earlier.

GovernmenttoprovidereasonablesubsidyprovisionforFY16

FY16subsidyprovisionof~INR125bnandFY15allocationof~INR550bn.Weexpectoverall gross underrecoveryof~INR280bnforFY16.

Oil subsidyprovisionforFY16atINR300bnwhichis muchhigherthanourestimateofRs 124bn.INR603bnforFY15is reasonable.

PositiveforONGC,OILas governmentbudgetedprovisionforFY16camehigherthanexpectations andprovides sufficientbufferforoil y psubsidies.Upstreamsubsidyburdencouldberationalized/relaxed.

30

Pharmaceuticals

Sector Industry/marketwishlist Edelweissexpectations Impactonsector/companyPharma Rollingoutofuniversal access programme

toessential medicinesDonotexpectanysignificantchangeinpolicy

Additional budgetedamounttoimproveHealthcare.

Overthelongterm,focus will beonincreasinghealthcareexpenditureas %ofGDP;overall positiveandwill boostgrowth

IncreaseweighteddeductiononR&Dto300%fromcurrent200%

Nochange

RevisittheMATcurrentlybeingleviedonSEZs,givenindustryhas veryhighinvestment with SEZs

Nochange

investmentwithSEZs

RemoveexcisedutydisparitybetweenAPIandformulations

Noannouncement

Section32AD:Additional incentives forinvestments inStates ofAndhra

d h d l b Y16

Postivefortheindustry

PradeshandTelenganabetweenFY1620.(15%ofcostofnewassetacquired/installedbyanassessee)

Section32(1)(i ia):20%additional depreciationallowedoverandabove

Postivefortheindustry

Section32(1)(i i)toIncentiviseinvestmentinnewplant/machinery.Inthestates ofHyderabadandTelengana,35%allowanceversus 20%inrestofIndia.ValidFY1620.

31

Pharmaceuticals(Contd)

Sector Industry/marketwishlist Edelweissexpectations Impactonsector/companyHealthcare(hospitals)

Increaseofexemptionl imitunderSection80Dforhealthinsurance

Donotexpectanysignificantchangeinpolicy

Increases across theboard:INR25,000fromINR15,000earlierINR30,000fromINR20,000earlier(SeniorCitizens)

Postiveforsectorandwill leadtoincreaseinpatientvolumes intheorganisedsector

DeductionofINR30,000forVerySeniorCitizen(>80years)whennotcoveredbyinsurancefortreatmentexpenditureDeductionofINR80,000fromINR60,000earlier(VerySeniorCitizens towards expenditureonaccountofspecifieddiseases)Section80DDand80U:l imitofdeductionincreasedtoINR75,000from INR 50 000 (INR 125k from INRfromINR50,000(INR125kfromINR100kearlierincaseofseveredisabil ity)

Prioritysectorstatus tohealthcareincludinghospitals anddiagnostics

Noannouncement

BasicCustoms DutyandCVDis beingfullyexemptedonartificial heart(leftventricularassistdevice)

Positivefortheindustry.

Excisedutyonchassis forambulances is beingreducedfrom

Positivefortheindustry.

24%to12.5%subjecttoactual usercondition.

Amends onCapital gains favorableforREITSstructureformationforHospitals.

Positiveatthemargin.However,thestampdutytobepaidwhiletransferringtheassets makes the

32

REITStaxstructureinefficient.Hence,noimpact.

RealEstate

Sector Industry/marketwishlist Edelweissexpectations AnnouncementsinBudget Impactonsector/companyReal Estate Taxbreaks forREITs abolishMATon

Capital Gains TaxontransferofassettoREIT

Likely Exemptionoflongtermcapital gains forsponsors exitingatthetimeofl istingoftheunits ofREITs andonsaleofunits receivedinl ieuofshares

Significantpositive.Will eliminatekeyroadblocks thatis preventingdevelopmentofaREITmarketinIndia.DLF(HOLD),BRGD(BUY),PEPL

ofSPV,subjecttopaymentofSecurities TransactionTax(STT).Also,therental incomeofREITs fromtheirownassets will havepass throughfacil ityas well.

( ), ( ),(Unrated),PHNX(NotRated)tobekeybeneficiaries.However,upsideforDLFcanbepotentiallycurtailedduetotheunderl itigationbanfromaccessingcapital markets.

Restorationoftaxincentives toaffordablehousingundersection80IB

Likely Nochange

Raisel imitofdeductionofinterestpaidonhomeloanfromINR200,000toINR300,000

Unlikely Nochange

Relaxl imits fordeductions ofprincipal repaymentonhomeloanincreasel imitundersection80Corprovideseparateexemptioncomparedtocurrentclubbingwithvarious taxexemptions undersection80C

Unlikely Nochange

80C

ReduceMATonSEZs from20%to10% Likely Nochange

33

Retail

Sector Industry/marketwishlist Edelweissexpectations AnnouncementsinBudget Impactonsector/companyRetail Easingimportdutyongold Weexpectimportdutyongoldtobe

rationalisedfromcurrent10%Noreductionintheimportdutyofgold

Status quomaintained.Reductionintheimportdutywouldhavereducedsmugglingofgoldas theygetgoldatapricelowerthanwhatis paidbythep p yorganisedretailers

Improvementinthesupplyofgold Introductionofthegoldmonetisaitonschemeandimpetus onproducinggoldcoininIndia

Positiveforjewellers as itwill improvethesupplysituation.Will encouragerecyclegoldbyencouraginggoldcoins.g g g

RequirementofPANforpurchaseofgoods aboveINR0.1mnbycash

Negativeforthejewellers especiallyinthoseareas wheretheconsumerdoesnthaveaPANcard.Implementationwill remainachallenge.

Excisedutyreduction Reductionintheexcisedutyontheleatherfootwearto6%

Positiveforthefootwearcompanies l ikeBataIndia,RelaxoFootwearetc.HowevertheabatementasapercentageofRetail SalePriceis beingreducedfrom35%to25%forall footwear.

Increaseintheservicetaxfrom12.36%to14%

Servicetaxincreasedfrom12.36%to14%is negativeforretail companies l ikeShoppers Stop,FutureRetail,Jubilantfoodworks andjewellery

Rationalisationoftheservicetax

j ycompanies l ikeTitan,PCJewelleretcas theyhavetobeartheadditional serivetaxlevy.

34

Retail(Contd)

Sector Industry/marketwishlist Edelweissexpectations AnnouncementsinBudget Impactonsector/companyAnupwardrevisionintheincometaxexemptionl imit

Weexpectanincreaseas itwill beastepforwardtowards directtaxcode

Norevisionoftheexemptionl imits Moretaxexemptions wouldhaveledtomarginallyincreasingdisposableincomes oftheurbanpoor/urbanmiddleclass whichwill boostconsumerspendingtosomeextent

GSTdeadlinetobeannounced WeexpectGSTdeadlinetobeset,thoughimplementationis key

ExpectedtobeimplementedfromApril 2016

GSTwill helpsimplifytaxstructure,reducesignificanceofunorganisedplayers,makinginventoryplanningmorerobustandreduceblackmarketing

35

Telecom

Sector Industry/marketwishlist Edelweissexpectations AnnouncementsinBudget Impactonsector/companyTelecom Rationalizationofmultiplelevies toputa

simpleindustryfriendlytaxstructure.Nochange

Servicetaxhikedto14%from12%(12 36% including cess)

Higherservicetaxwill leadtolowertalk time and higher bil ls for the(12.36%includingcess) talktime,andhigherbills forthesubscribers.

36

AgriandFertilisers

Sector Industry/marketwishlist Edelweissexpectations AnnouncementsinBudget Impactonsector/companyFertil isers Increasingureaprices orintroductionof

nutrientbasedsubsidyschemeforureaLowprobability None Ifapproved,itis apositiveforthe

sectorbecausethegovernmentsubsidywill decline.Directbeneficiaries would be urea playersbeneficiaries wouldbeureaplayers l ikeRCF,Chambal,etc.

Reductionincustomdutyonsulphuricacidforuseinthemanufactureofferti l izers

Positivefornonureaplayers l ikeCoromandel International,Zuari Agrochemicals etc.

A i lt Hi h l i iti ti t t f W t thi t ti th h M d t i i l l ti iAgriculture Higherrural initiatives tosupportfarmincome

Weexpectthis tocontinue,thoughgrowthcouldmoderate

Moderateincreaseinallocationinacross theschemes

Higherspendingonirrigationprojects Likely ReducedallocationfromINR5600crtoINR5300crunderPradhanMantri Krishi Sinchai Yojana.However,

PositiveforJainIrrigation

allocationformicroirrigationhas increasedfromINR30crtoINR1800crunderthis scheme.

37

Others

Sector Industry/marketwishlist Edelweissexpectations AnnouncementsinBudget Impactonsector/companyCreditRating

Bondissuances undersectors l ikeroad,railways andirrigationshall furtherdeepencorporatebondmarkets :positiveforcreditratingagencies

Chemical Importdutyreductiononchemical feedstockandplasticmaterials

Reductionofimportdutyformethanol feedstock

BasicCustomdutyreductioninonethylenedichloride(2.5%to2%),vinyl chloridemonomer(2.5%to2%),styrenemonomer(2.5%to2%),butyl

Announcementfordutystructurereductioncampaignarebelowexpectations.However,thereductionis apositiveforPVCresiny ( ), y

acrylate(7.5%to5%),anthraquinone(7.5%to2.5%).SADonnaphtha,ethylenedichloride,vinyl chloridemonomerandstyrenemonomerformanufactureof

pmanufacturers l ikeFinolexIndustries.AlsopositiveforSupremePetrochemandApcotexIndustries astheybuyStyrenemonomer.

excisablegoods is beingreducedfrom4%to2%

Aviation Infrastructurestatus toaviationindustry Status couldbeprovidedwithriderforborrowings

Noinfrastructurestatus akeynegative.ReductioninallocationtoAirIndia(thoughpartlyduetolower

Nomeaningful change.

fuel prices)will reducemarketcompetition

Tourism Increasebudgetallocations forcircuitdevelopment,improvewaterways andreduceluxurytax

Budgetallocations fortourismsectorespeciallycircuitdevlopmentcouldincrease

Noannouncementofcircuitdevelopment;onlyl istofcultural heritagesites tobeimproved.No

Positiveinlongterm.Neutral inshortterm.Thomas Cook,Cox&Kings andIndianHotels tobenifitfromforeign

majorjumpinallocations touristarrival growth.Indianhotels will alsobenefitfromlowerincreaseincompetitionwithmaintenanceofinfrastructurelendingeligibil ityatINR2bn

38

Others(Contd)

Sector Industry/marketwishlist Edelweissexpectations AnnouncementsinBudget Impactonsector/companyTextile Reductioninexcisedutyonmanmadefibre

(MMF)andfi laments to6%from12%Unlikelygiventhecurrentcottonstockandpricesituation.

Excisedutykeptconstant NegativefortheMMFsector.However,itdoes notputanyadditional pressureonalreadylowcottonprices.

Textile AllocatedINR15bntoTechnologyUpgradationFundScheme(TUFS),18%decreaseoverrevisedFY15estimates ofINR18.6bn

Donotseenegativeimpactas theindustryitselfhas beenspendingless oncapexforspinning.FY15TUFschemewas underutil ised.

Logistics Clear roadmap for GST implementation Except the government to stick to the Government has reaffirmed its Positive: Implementation of GST willLogistics ClearroadmapforGSTimplementation Exceptthegovernmenttosticktotheproposedroll outdateofApril 01,2016

Governmenthas reaffirmedits intentiontoroll outGSTbyApril 01,2016.

Positive:ImplementationofGSTwill beagamechangerforthesector

Logistics Industrystatus andaseparateregulatorforthesector

Alongstandingdemandwhichhas notbeenaddressedti l l now

Noannouncementrelatedtothis Negative

L i i h ll i f I 2b d f iLogistics FreshallocationofINR2bnmadeforassistancetomajorandnonmajorports undertheSagarmalaProject.

Postive

Logistics GrantofINR2.3bntoInlandWaterTransportAuthorityofIndia,a132%i i d Y1 i

Postive

increaseoverrevisedFY15estimates ofINR1bn.

PeanutButter

Implementedexcisedutyof2%withoutCENVATcreditor6%withCENVATcreditis beingleviedon

t b tt l i i l

NegativeforAgrotechFoods

peanutbutterversus earliernilPlastic Cutincustomdutyinstyrene

monomerfrom2.5%to2%andSADfrom4%to2%

PositiveforSupremeIndustries

39

Annexures

40

Fiscaldeficit(INRbn)

Particulars(INRbn) FY16(BE) FY15(RE) FY14 FY13 FY12TOTALREVENUES 12,218 11,685 10,566 9,198 7,884Taxrevenue(net) 9,198 9,085 8,159 7,403 6,298Gross Taxrevenue 14,495 12,514 11,387 10,362 8,892

Incometax 3,274 2,786 2,429 2,015 1,645C t t 4 706 4 261 3 947 3 563 3 228Corporatetax 4,706 4,261 3,947 3,563 3,228Customs tax 2,083 1,887 1,721 1,653 1,493Exciseduties 2,298 1,855 1,702 1,765 1,449Servicetax 2,098 1,681 1,548 1,326 975Less:Transfertostates 5,240 3,378 3,182 2,960 2,594

NonTax Revenue 3 020 2 601 2 407 1 795 1 586Non TaxRevenue 3,020 2,601 2,407 1,795 1,586Dividends 1,007 888 904 538 506Telecomand3G 429 432 401 189 174Disinvestment 695 314 294 259 181

TOTALEXPENDITURE 17,775 16,812 15,594 14,104 13,044Revenue 15,360 14,888 13,718 12,435 11,458

Interestpayments 4,561 4,114 3,743 3,132 2,732Defence 1,521 1,404 1,244 1,113 1,030Subsidies 2,438 2,667 2,546 2,571 2,179

Foodsubsidy 1,244 1,227 920 850 728Fertil isersubsidy 300 603 854 969 685Petroleumsubsidy 730 710 673 656 700

Policeandpensions 1,403 1,298 1,170 1,068 943Grants tostates (FCrecos) 889 647 553 453 440GSTcompensationtostates 149 108 19 0 42Developmentrelated 3,929 4,244 4,066 3,753 3,783Others 469 407 377 346 310Others 469 407 377 346 310

Capital 2,414 1,924 1,877 1,669 1,586Defence 946 820 791 705 679Developmentrelated 1,458 1,094 1,080 921 901

FISCALDEFICIT 5,556 5,126 5,029 4,906 5,160NOMINALGDP 141,089 126,609 113,551 101,133 90,097

41

Source:Budgetdocuments,EdelweissresearchRE:RevisedEstimates,BE:BudgetEstimates

, , , , ,

Fiscaldeficit(%,YoY)

Particulars(%,YoY) FY16(BE) FY15(RE) FY14 FY13 FY12TOTALREVENUES 4.6 10.6 14.9 16.7 (4.3)Taxrevenue(net) 1.3 11.4 10.2 17.5 10.5Gross Taxrevenue 15.8 9.9 9.9 16.5 12.1

Incometax 17.5 14.7 20.5 22.5 18.3Corporatetax 10.5 8.0 10.8 10.4 8.1Customs tax 10.4 9.7 4.1 10.7 10.0Exciseduties 23.9 9.0 (3.6) 21.8 5.2Servicetax 24.8 8.6 16.7 36.0 37.3Less:Transfertostates 55.1 6.2 7.5 14.1 16.2

NonTaxRevenue 16.1 8.0 34.1 13.2 (37.5)Dividends 13.4 (1.8) 68.2 6.2 5.5Telecomand3G (0.7) 7.6 112.2 8.6 (85.6)Disinvestment 121.7 6.7 13.4 43.1 (20.8)

TOTALEXPENDITURE 5.7 7.8 10.6 8.1 8.9Revenue 3 2 8 5 10 3 8 5 10 1Revenue 3.2 8.5 10.3 8.5 10.1

Interestpayments 10.9 9.9 19.5 14.7 16.7Defence 8.4 12.9 11.8 8.0 11.9Subsidies (8.6) 4.7 (1.0) 18.0 25.7Policeandpensions 8.1 11.0 9.6 13.3 11.2Grants tostates (FCrecos) 37.4 17.0 22.2 2.9 39.5( )GSTcompensationtostates 38.8 454.4Developmentrelated (7.4) 4.4 8.3 (0.8) (0.9)Others 15.4 7.9 8.8 11.9 5.3

Capital 25.5 2.5 12.5 5.2 1.3Defence 15.4 3.6 12.2 3.8 9.4

Source:Budgetdocuments,EdelweissresearchBE:BudgetEstimates

Developmentrelated 33.3 1.3 17.3 2.2 1.9FISCALDEFICIT 8.4 1.9 2.5 (4.9) 38.1NOMINALGDP 11.4 11.5 12.3 12.2 15.7

42

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