kbsl budget analysis

8/14/2019 KBSL Budget Analysis

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28th February 2010

Kredent Budget Analysis


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Budget Focus

Simplifying

Tax

Reforms

AgriculturalProductivity

Fiscal

Prudence

Rural

Development &

Empowerment

Inclusive

Growth


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Key Takeaways (1/2)

Budget Fy10-11 was presented to the parliament on a note that it includes industry andindividuals alike and is formulated to promote inclusive growth

The budget was a shift from earlier year where the entire focus was on AAM AADMIand moved towards fiscal prudence

The Budget also showed as expected that it was in a no hurry to roll-back the stimulus andgovernment is ready to give its support to the recovering economy

The Finance Minister presented a roadmap on disinvestment and re iterated his stance thatthe Government is looking at double digit GDP growth in the near future and will do the

necessary measures to achieve that

The Minister also said that Implementation of GST and Direct Tax Code will take place in

FY11 to make the tax bracket more simpler for the common man and have a uniform taxregime across the country

Key takeaways from the speech were: Implementing measures to combat inflation &improving food security in the nation, increasing spending on social and infrastructural

schemes, no change in the Service Tax rate, increasing expenditure on renewable energy

schemes & Fiscal Deficit seen at 5.5% in FY11and a clear roadmap for fiscal deficitreduction in the coming years


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Key Takeaways (2/2)

The budget gave a positive as well as negative surprise to bond markets. The positive wasthat the net government borrowing figures was less than market expectations and the

negative was the hike in excise on various goods and fuel would lead to a higher double

digit inflation in the near term and could lead to a hike in interest rates by the RBI

One of the key takeaways form the budget was that the government is working towards

bridging the gap between BHARAT & INDIA and there were plenty of reforms announcedwhich could help the government in achieving this

The markets stood by their strength during the speech and broke out once the tax structurewas announced where the Finance Minister announced the change in tax slabs

On a final note the budget was one which had something for both the individual and theindustry and there was no surprise coming out of the budget


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Budget at a Glance

Particulars2007 -2008

Actuals

2008-2009 BE 2008-2009 RE 2009-2010 BE

1 Revenue Receipts 540259 614497 577294 6822122 Tax Revenue (net toCentre) 443319 474218 465103 5340943 Non-tax Revenue 96940 140279 112191 148118

4 Capital Receipts (5 + 6 + 7 )$ 343697 406341 444253 4265375 Recoveries of Loans 6139 4225 4254 5129

6 Other Receipts 566 1120 25958 40000

7 Borrowings andother Liabilities * 336992 400996 414041 3814088 Total Receipts (1 + 4 )$ 883956 1020838 1021547 11087499 Non -plan Expenditure 608721 695689 706371 73565710 OnRevenue Account of which , 559024 618834 641944 643599

11 Interest Payments 192204 225511 219500 248664

12 OnCapital Account 49697 76855 64427 92508

13 Plan Expenditure 275235 325149 315176 37309214 OnRevenue Account 234774 278398 264411 315125

15 OnCapital Account 40461 46751 50765 57967

16 Total Expenditure (9+13) 883956 1020838 1021547 110874917 Revenue Expenditure (10+14) 90158 123606 115192 150025

18 Capital Expenditure (12+15) 90,158 123,606 115,192 150,475

253539(4.5) 282735(4.8) 329061(5.3) 276512(4.0)336992

(6.0)400996

(6.8)414041

(6.7)381408

(5.5)144788

(2.6)175485

(3.0)194541

(3.2)132744

(1.9)

19 Revenue Deficit (17-1)20 Fiscal Deficit {16-(1+5+6)}21 Primary Deficit (20-11)

@ Actuals for 2008-09 are provisional$ Does not include receipts in respect of Market Stabilization SchemeIncludes draw down of cash balance

Note: GDP for BE 2010-2011 has been projected a t Rs 6934700 crore assuming 12.5% growth over the advance estimates of 2009-2010 (Rs 6164178 crore) released by CSO


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Sources of Revenue

Gross tax receipts budgeted at Rs. 7,46,651 crore in BE 2010-11 compared to Rs.641079 crore in BE 2009-10Non Tax revenue Receipts estimated at Rs. 1,48,118 crore in BE 2010-11 compared toRs. 140279 crore in BE 2009-10Tax proposal on direct taxes to be estimated to result in a revenue loss of Rs. 26,000crore

On Indirect taxes ,estimated net revenue gain to be Rs. 46,500 crore for a full year


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Heads of Expenditure

The total allocation for defence increased to Rs !,47,344 crore including Rs 60000 crore for capitalexpenditure

The total allocation under Rajiv Awaas Yojana increased to Rs 1270 crore in FY2010-2011 from Rs150 crore in FY2009-2010 The allocation under Indira Awaas Yojana increased to Rs 10000 crore The allocation to Ministry of Health & Welfare increased to Rs 22,300 crore in FY 2010-2011 The planned allocation for school education increased by 16% to Rs 31,036 crores in FY 2010-2011 The allocation to the power sector excluding RGGVY doubled from Rs 2230 crore in 2009-2010 to Rs5130 crore in 2010-2011


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Understanding the Deficit The budget was one where much of the focus

was on fiscal prudence along with socialdevelopment

The Government has pegged back the fiscaldeficit to 5.5% of the GDP but thought shouldbe given to the fact that the figures are on thebase of 2000-2001 prices where as last yearsfigures were on the base of 1993-1994 prices

The factor which was also important to note

that the Finance Minister gave a clear roadmapon the fiscal deficit for the next two years andwill undertake reforms to bring it down to evenlower levels

There was also more clarity on thedisinvestment issue and it is to be seen thatdisinvestment is here to stay

The Ministry should be applauded for the factthat even after widening the tax slab forindividuals it was able to manage expenditurein such a way that it doesnt becomes a burdenfor the Government

This was received by the markets with athumbs up with investors giving the budget a

thumbs up as was gauged by the initialreaction of the markets


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Financial sector reforms

RBI to consider allotting some additional banking license to privatecompanies

Banking licenses for private, NBFC players to be considered if they meetRBI eligibility criteria

Bank farm loan target is at Rs 3.75 lakh crore

Government has decided to set up apex-level Financial Stability &Development Council

FY2010 capital for PSU banks stands at Rs 16500 crore

Rs 12,000 crore to be allocated to PSU banks for capitalisation

Banks to get Rs 6,000 crore to improve fundamental structure Banks for all villages with a population of more than 2000 to be set up


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Direct Tax Reforms

Income Tax Slabs(In Lakhs)Male taxpayers Rate Female taxpayers Rate Senior citizens Rate

Upto Rs. 1.60 0 Upto Rs. 1.90 0 Upto Rs. 2.40 0

Rs.1.60 to Rs.5.00 10% Rs.1.90 to Rs. 5.00 10% Rs.2.40 to Rs. 5.00 10%

Rs.5.00 to Rs 8.00 20% Rs. 5.00 to Rs 8.00 20% Rs. 5.00 to Rs 8.00 20%

Rs. 8.00 and above 30% Rs. 8.00 and above 30% Rs. 8.00 and above 30%

MAT GST Corporate Tax

Minimum Allocation Tax (MAT) on book profits hasbeen increased from 15 per cent to 18 per cent

enhancing the inter se equity in taxation ofcompanies and also raising the effective tax rate

which is currently around 22.0%.

Goods and Services Tax is to be implemented byApril 2011. He was firm on this even though

government faces problem with stateadministration.

Unchanged. The corporate tax thus continues tostand at 30% but surcharge has been reduced from

10% of the corporate tax to 7.5%. This ispart of the initiative to phase out surcharges.

Education cess remains at 3% of corporate tax.Thus, total tax liability for coporate is down to

33.2175% from 33.99% earlier.

The gross tax to GDP ratio is estimated to improve from budgeted estimate of 10.8% in 2010-11 to 11.5% in 2011-

12 and 11.8% in 2012-13. This would be still lower than tax to GDP ratio of 12 per cent achieved during 2007-08.

Giving a relief to the middle class Finance Minister Pranab Mukherjee revised the tax slabs for the next financial

year. The government aims to implement Direct Tax Code by April 1, 2011. New direct tax proposals to result in

loss of Rs 26,000cr. The FM allowed an additional investment of Rs 20,000 for infrastructure bonds taking the total

of the limit under section 80C from the current Rs 1 lakh to Rs 1.2 lakh. New tax rates are expected to offer relief to

about 60 per cent of tax-payers.


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Agricultural Reforms

Draft of Food Security Bill ready, to be placed in public domain soon

Deficit in food grains storage capacity to be met by private sector participation

Agricultural credit flow target for FY11 increased to Rs 3.75 lakh cr from Rs 3.25 lakh cr last year

Customs duty is being reduced from 7.5% to 5% on specified agricultural machinery such as paddy trans-planter, laser land leveler, cotton picker, reaper-cum-binder, straw or fodder balers, sugarcane harvesters,track used for manufacture of track-type combine harvester etc.

Agriculture seeds exempt from service tax

Setting up of cold storages exempted from service tax External Commercial Borrowings (ECBs) now made available for food processing sector

To set up 5 more mega food parks

Nutrient based subsidy policy for the fertilizer sector (resulting an increase in agricultural productivity andbetter returns for farmers) will become effective from April 1, 2010

Under the Debt Waiver and Debt Relief Scheme for farmers, the period for repayment of loan amount

extended by 6 months from December 31, 2009 to June 30, 2010 Rs 400.0cr provided to extend the green revolution to the eastern region of the country

Rs 200.0cr provided to sustain the gains already made in the green revolution areas through conservationfarming


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Indirect Taxes

New indirect taxes changes are likely to yield a gain of Rs. 45,000.0cr.

Central Excise Duty

Excise duty increased from 8% to 10%

Duty on petrol and diesel increased by Re. l per litre

Duty increased on cigarettes and other tobacco products

Ad-valorem component of excise duty on large cars, Multi Utility Vehicles and Sports Utility Vehicles increased from 20% to 22%

Duty on cement hiked from 8% to 10% Full or partial excise duty exemptions/concessions available to many items have been withdrawn and duty imposed on them @

4% or 10%.

Service TaxService Tax remains at 10.0%Eight new services are being brought under the service tax net

Custom Duty Duty on non-agricultural items remain at 10.0% In the petroleum sector, customs duty has been increased on: crude petroleum from Nil to 5%; petrol and diesel from 2.5% to

7.5%; and other specified petroleum products from 5% to 10% Duty on silver raised to Rs 1500 per kg and on gold raised to Rs 750 per 10 gram Duty of one of the key component of microwave oven reduced


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Sector Analysis (1/3)

S e c t o r A n n o u n c m e n t I m p a c t S t o c k sFert i l i sers

u r e n a s e s u s y p o c y o r e r s e r s e c o r a p p ro v e y . .

A p r il 1 , 2 0 1 0 P o s i t i v e R C F

D e c is io n o n K ir it h p a r ik h c o m m it te e r e p o r t t o b e t a k e n in d u e c o u r s eN e u t r a l O M C ' sR e s t o re t h e b a s i c d u t y o f 5 % o n c r u d e o i l, 7 . 5 % o n d i e s e l & p

o t h e r r e f in e d p r o d u c t s . C e n t ra l E x c i s e d u t y o n p e t ro l & d ie s e l

l i tre P o s i t i v e O M C ' s

R e c a p it a lis e r e g i o n a l r u r a l b a n k s t o p r o m o t e le n d i n g P o s i t i v e

C o n s i d e r i n g g r a n t i n g a d d i tio n a l b a n k i n g l ic e n c e t o p r iv a t e s e c

a l s o to b e c o n s i d e r e dP o s i t i v e

R e li a n c e C a p i ta l , IFs um o s c ro re o e p ro v e o e n s u re s a re

T i e r 1 c a p it a l b y m a r c h 3 1 , 2 0 1 1 P o s i t i v e

Te xt i l e sx e n s o n o e x s n g n e re s s u v e n o n o o r m o re a n

e x p o r t s P o s i t i v e

o n u s r e s , o m

d y e in g , R a y m o n d

C e n t ra l e x c is e d u t y h ik e d f r o m 8 % t o 1 0 % N e g a t i v e A l l a u t o c o m p a n ie s

E x c i s e d u t y o n la r g e c a r s , M U V ' s & S U V ' s in c r e a s e d b y 2 % p o i n tsN e g a t i v e

T a t a m o t o r s , A s h o k l e

M & M

M e t a ls & M i n i n g C e n t ra l e x c is e d u t y h ik e d f r o m 8 % t o 1 0 % N e g a t i v e A l l M e t a l C o m p a n ieC e m e n t

e s p e c c ra e s o u y a p p c a e o p o r a e c e m e n a n c

a d ju s te d u p w a rd s p ro p o r t io n a te ly A C C , U lt ra te c h

T o d o u b le t h e a m o u n t le n t b y I IF C L f r o m R s 3 0 0 0 c r o r e in t h e c u r r e n t y e a r P o s i t i v e I D F C

A s u m o f r s 1 , 7 3 ,5 5 2 c r o r e to b e p r o v id e d t o w a r d s i n f ra s t ru c t u r a l d e v e l o p m e n tP o s i t i v e I D F C

A l lo c a t io n t o w a r d s r o a d t r a n s p o r t in c r e a s e d b y o v e r 1 3 % t o rs 1 9 8 9 4 c r o r eP o s i t i v e G M R In f r a , P u n j L l o

M o n o r a i l p r o je c t s t o b e g r a n t e d a c o n c e s s io n o f 5 % P o s i t i v e L & T , R e l ia n c e in f r a

B F S I

O i l & G a s

A u t o m o b i l e s

I n fra s t ruc ture


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Sector Analysis (2/3)Sector Announcment Impact Stocks

Allocation for power sector excluding RGGVYdoubled from Rs 2230 crore in

09-10 to Rs 5130 crore in 10-11 Positive

Introduce competetive bidding process for captive coal mining blocksPlanned outlay for renewable energy increased by 61%to rs 1000 crore in FY

10-11 Positive Suzlon, Moser Baer

Solar & Hydro power projects worth rs 500 crore to be set up in Ladakh Positive NHPC, JP Power

Provide a concessional customs duty of 5%for equipment used in

construction of photo voltaic cells & solar power generation and also exempt

them from Central excise Duty. Ground source heat pumps to be exempt from

customs & additional duty Positive

Moser baer, Webel SL

Energy

Exempt inputs required in manufacture of rotor blades for Wind Energy from

Central Excise Duty Positive Suzlon

Central Excise duty on LED lights reduced from 8%to 4%to bring at par with

CFL Positive MIC ElectronicsPlan Allocation for school education increased by 16%to Rs 31,036 crores in

FY10-11 Positive Educomp, Everonn, Edserv

States will have access to Rs 3675 crore for elementary education Positive

Planned allocation to Ministry of health & Welfare increased to rs 22,300 crore

in FY10-11 Positive

Weighted average deduction on expenditure incurred on in house R&D

expenses enhanced from 150-200%, on payments made to National

Laboratories from 125-175% Positive All pharma companies

Uniform concessional basic duty of 5%, CVD of 4%with full exemption from

special additional duty prescribed on all medical equipments Positive Siemens

Allocation under Indira awaas Yojana increased to rs 10000 crore

Allocation for urban development increased by 75%to rs 5400 crore in 2010-

11 Positive

Allocation for housing and Urban poverty Alleviation raised to Rs 1000 crore Positive HDIL, Unitech

Scheme of 1%interest subvention on housing loan upto Rs 10 lakh extended

upto 31 March 2011. Asum of rs 700 crore earmarked for this project Positive HDFC, LIC Housing Finance

Allocation under Rajiv Awaas Yojana increased to Rs 1270 crore from Rs 150

crore Positive

Pending projects to be completed within a period of 5 years instead of 4 years

for claiming a deduction on profits Positive HDIL, Unitech, DLF

Power & Energy

Education

Healthcare

Housing


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Sector Analysis (3/3)

S ec tor A n n ou n c m e n t Im p ac t S to c k sService tax reta ined at 1 0% Posit ive

MAT increased f rom 15% to 18% Negat iveNo extension of tax benef i ts under STPI Act Negat ive

Defenseoca on or e ense ncrease o rs , , cro re nc u ng rs

capex Posit ive BEL, BEML, LT

MAT increased f rom 15% to 18% Negat ive All Telecom CompanieExem pt ion to man ufacturers f rom ba sic, CVD and spec ia l dut ies exte

other parts and a lso extended t il l March 31, 2011 Posit ive Spice mo biles

Tobacco Hike in excise duty on tobacco an d non tobacco sm oking products Negat ive ITC, Godfrey P hi l ips

Hote ls Benef i ts of investment l inked de duct ion under the Act extended to neTwo-Star categor ies and ab ove on a p an India basis Posit ive Hotel leela, EIH

Consumer Durable sBasic customs duty on o ne of key com ponents in product ion of m icro

ovens, namely mag netrons, reduced f rom 10% to 5% Posit iveRelaxat ion in pe rsonal income tax Posit ive

Extension of exist ing in terest subvent ion of 2% for more than one ye

exports Posit ive

Gitanjali, Titan, Ra jesh

ExportsRates of precious me ta ls indexed as fo l lows : Gold & p lat inum at Rs

from Rs 200/g and Si lver at Rs 1500/kg f rom R s 1000/kg Negat ive Gitanjali, Titan

Basic customs duty on R hodium w hich is used to pol ish jewelery reduced to 2%Posit ive Gitanjali, Titan

Relaxat ion in personal income tax slab an d cont inued focus on socia l

schemes wil l he lp in improving dem and for these goods Posit ive Britannia, Nestle, Dabu

Service tax remains unch anged at 10% Posit ive Britannia, Nestle, Dabu

All IT com paniesnformat ion Technology

Te lecom

Gems & jewelery

F M C G

The Government has retained the service tax at 10% MAT has been increased from 15% to 18%

Surcharge levied for the companies has been decreased to 7.5% from 10%


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kbsl budget analysis

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