post budget report 2012-13

8/1/2019 Post Budget Report 2012-13

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Post Budget Analysis 2012-13 Page 1 of18


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About SCMHRD

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SCMHRD was established in 1993. Ever since its inception, SCMHRD has strived to bring Indian ethos,

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EDITORIAL

What does a Finance Minister do - when his party is perceived to have lost 3 state elections; inflationis raising its head again; tax revenues are falling short of expectations; subsidies are ballooning; and

when those saner voices, who should seek fiscal consolidation, are advocating another populist

measure (read the Food Security Bill) that might sink the economy altogether? Pranab Mukherjee, or

Pranabda, does nothing in particular. Or, perhaps, he does! He avoids anything remotely

controversial altogether.

Budget 2012-13 was the last chance of the UPA-II to write up anything substantial on the pro-reform

side of its report card. The next Budget will come on the eve of the general elections and will be

totally voter catchy. There was complete unanimity among all about this. Though no one was sure

what he could do given the lefter-than-the-Left Mamata's track record of objecting anything seen tobe business friendly. Besides, issues like slow economic growth and high global oil prices were also

adding to the gloomy scenario. The Budget only reinforced the gloom.

It lacked major reforms and future direction. On the whole, it tried to appease many but was not a

bold and forward looking one, as Mr. Mukherjee's colleague Dinesh Trivedi, the railway minister

proposed in his rail budget.

Many experts believe that the growth projections in the budget are on the optimistic side and the

fiscal deficit target of 5.1 per cent of GDP is unlikely to be met. The bond market reacted adversely

with a 9 basis point rise in the 10 year benchmark yield, 6 bps rises in the 5 year rate and 7 bps in the

1 year rate. Easing of funding for stressed sectors through the ECB route, lower customs duties and

increase in personal tax cheered the markets. Doubling the amount of recapitalization at public

banks and making interest of Rs.10, 000 on saving bank accounts tax free were seen as some good

measures by Bankers. The Rajiv Gandhi equity scheme and STT reduction were seen among few

positives to enhance retail investor participation in equity markets.

The agriculture sector received a big push from the North Block in terms of increased outlay and

reduced interest rates for the farmers. However, lack of clear roadmap on fiscal consolidation, on

subsidies and strong reforms to bring India's growth to 8% had raised investors' concerns that

caused more than a per cent fall in SENSEX and NIFTY. There was nothing much for the

manufacturing and service sectors to cheer about. The lack of new steps for manufacturing was an

unpleasant surprise given the government's stated objective to enhance its share in GDP from the

current near 16% to 25%. The transition in the Service Tax regime to move from a positive list to a

negative list is a step towards introduction of GST, and make unviable the prospect of keeping

services like those of lawyers from out of service tax net, without any justification, save for the

political clout of lawyers. The fertilizer sector has gained the most with cheaper farm credit, increase

in subsidies and cutting down of import duties. There airline industry received the much needed

push with direct import of aircraft turbine fuel (ATF) being permitted. Textile sector received a

further boost with a number of major clusters proposed to be set-up in states of Andhra Pradeshand Jharkhand.


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The budget proposal to hike excise duty to 12 per cent from 10 per cent is likely to increase steel and

non-ferrous metal, pharmaceuticals and paper prices with the end burden being passed onto the

consumer. Increase in excise duty and customs on the automobiles will make automobiles dearer for

the middle class. Increase in cess on production of crude oil will make domestic oil production

dearer.

The education sector saw a few positive announcements like exemption from service tax which will

make education affordable. Infra funding and housing proposals will boost cement demand. The 2

year waiver of duty on imported coal will also aid the power sector.

The budget missed important opportunities to set a clear roadmap for implementation of GST. But

he did take baby steps towards stepping a framework for Central GST by bringing both excise and

service tax rates at par. The road map for implementing DTC is still not clear. Major policy reforms

like FDI in retail are still awaited.

The budget mentioned a lot about improving the infrastructure. The doubling of issuance of tax-free

infrastructure bonds to Rs 60,000 crore to be issued by the infrastructure sector will reduce funding

constraints and boost investments. The access to viability gap funding for irrigation projects is

expected to facilitate private sector participation in the sector. Increased allocation towards NHDP

will favourably impact road construction companies.

It is believed that the revenue growth projections in the budget are on the optimistic side and the

subsidies may increase on account of oil due to price spike and food due to the Food Security Act.

Thus the expected fiscal deficit target of 5.1 per cent of GDP seems unrealistic. Much like the Budget

last year, where a domestic slowdown caused actual revenue collections fall short of targets and a

more than expected hike in oil prices bled oil companies dry. But there are international pointers

today that may gladden the FinMin's heart. American employment is highest in three years. And the

trend is expected to continue. The 5 state elections are expected to add half a percentage point to

the GDP growth, given the bad habits of our politicians and voters alike!! Euro seems to have sorted

out its mess, at least for now. Till it again reaches breakpoint, Pranabda can solve other problems of

the government. The election of the President and Vice President, Mamata's tantrums, Rahul

Gandhi's launch, Narendra Modi's possible re-election in Gujarat, replying to the BJP's taunts about

inaction on black money can occupy his mind space. Or perhaps he could just sit down with Dr.

Manmohan Singh and talk about the drift this government finds itself in. Three years ago, the superb

performance of the Congress in Lok Sabha elections was attributed to the PM. Maybe Da could tell

him that this slog over of his 2nd term as PM is his final chance at redemption. Either the

government willingly performs and boldly reforms the economy, or Dr. Singh risks proving true the

BJP's attack of his being the weakest PM ever.

We have covered some of the important sectors in our analysis and have tried bringing you a

wholesome picture of impact of various announcements made by Pranabda. We invite your valuable

suggestions and feedback at [email protected].

Abhishek Maheshwari

Anshu Saboo

Jatin Gajwani

Samira Vemparala


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Sectors Covered

Coal 6

Energy 6

Education 7

Taxation 8

Telecom 9

Pharmaceutical 9

Retail 10

Steel 11

Cement 12

Automobile 12

IT & ITES 14

Infrastructure 14

Aviation 15

Agriculture 16

Banking 17

Power 17


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COAL

The 2012-13 budget has been favourable tocoal industry though doesnt give any major

boost to coal industry.

Announcements and Impact

The tax on imported coal of 5.1% hasbeen waived off for a period of 2

years to boost coal imports and meet

the growing energy demands.

However, coal industry players feel

that it will not raise imports

significantly due to high price

differential between domestic and

international coal prices, which

cannot be passed onto the

consumers. The waiving off tax will

reduce revenue for the government

and thus, may add to fiscal deficit.

The budget has also been generous topower sector, which consumesmaximum of coal for generation of

power. The import tax waiver will

boost power sector which has

received favourable initiatives such as

additional depreciation on new

machinery, 100% profit based

deduction and also reduced tax

withholding rates on interest on ECB

from 20% to 5%.

Coal India aims to produce 464 milliontonnes of coal in 2012-13 from 440

million tonnes in 2011-12.

The budget also proposes to providefull exemption from basic customs

duty and a concessional CVD

(Countervailing Duty) of 1% to steam

coal for a period of two years till

March 31, 2014. This would increase

the import of non-coking coal byaround 1 million ton. According to

the Planning Commission, the

demand-supply gap for coal in the

ongoing year is likely to touch 142

MT, with domestic availability being

only 554 MT against the requirement

of 696 MT.

Saurabh Singhania

Yashwardhan Goenka

Vibhu Gangal

Jyoti Sharma

Harichandana Madira

ENERGY


The provision for cash subsidy provided tostate-owned oil firms by the government

for selling fuel below cost has been

revised to Rs. 65,000 crores in current

fiscal which was at the level of Rs. 20,000

crores in the previous years. Raised

compensation will result in the

government paying oil marketing

companies like Indian Oil Corp, Hindustan

Petroleum Corp and Bharat Petroleum

Corp for selling diesel, domestic LPG and

kerosene to Rs. 65,000 crore for current

fiscal as against Rs. 20,000 crore

provisioned in the budget estimate for

2011-12.

Currently the crude producing companiesin India pay a cess of Rs. 2,500 per ton of

crude produced to the government which

is at these levels from the year 2006-07

when it was last revised in the budget.

Now they have to shelve out Rs.. 4500 per

ton for the same which is an increase of

80 percent. This increase in cess will be

reflected in the cost of production ofcrude in the country which is likely to go


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up by $ 5 -7 per barrel. It will further add

pressure on the public sector Oil

Manufacturing Companies (OMC) which is

also impacted by sharing of under

recoveries of oil marketing companies.

OMC are currently incurring daily under

recovery of Rs. 474 crore on sale of diesel,

kerosene and LPG.

Full exemption from basic customs dutyand a concessional CVD of 1 per cent to

Steam coal for a period of two years

This excise duty reduction seeks to

address the coal shortage affecting the

power and steel sectors; government has

announced a slew of measures forenhancing its availability in the Budget.

Coal imports unlikely to spike despite tax

cut as Global coal prices are about 40%

more than domestic price, so imports will

still be far more expensive than domestic

coal.

Liquefied Natural Gas import tax hasbeen abolished. This move still may not

spur imports due to limited infrastructure

to get the fuel to power plants.

Pay for gas now, get money back later -The gradual roll out of a scheme that

would make people pay market rates for

LPG cylinders and then receive partial

payments in their accounts depending on

the subsidy they are eligible for. It will

allow direct transfer of subsidies to the

needy and allow the government save

wasteful expenditure on subsidies. Lower budgeted fuel subsidy for 2012-13

at Rs..43, 000crores reduced by Rs..25,

000croresto bring subsidy to 1.7% of GDP

in next 3 years. Reduction in fuel subsidy

hints towards deregulation of petroleum

product prices, especially diesel.

Ankit Maggu

Nitin bansal

Rachit JainRavi Matalia

EDUCATION

A lot of announcements were made for the

education sector to boost the level of literacy

in the country.

Announcements

In 2012-13 INR 25,555 crore providedfor Right to Education Act-Sarva

Siksha Abhiyan (RTE-SSA)

representing an increase of 21.7 per

cent over 2011-12.

6,000 schools proposed to be set upat block level as model schools in

Twelfth Plan.

To ensure better flow of credit tostudents, a Credit Guarantee Fund

proposed to be set up.

INR 3,124 crore provided for RashtriyaMadhyamik Shiksha Abhiyan (RMSA)

representing an increase of 29 per

cent over BE 2011-12

INR 1000 crore allocated for NationalSkill Development Fund in 2012-13.

In order to incentivize companies toinvest on skill development projects in

the manufacturing sector, it is

proposed to insert a new provision in

the Income-tax Act to provide

weighted deduction of 150 per cent of

expenses (not being expenditure in

the nature of cost of any land or

building) incurred on skill

development project.

Impact

A thumbs up to the Government forbeing more concerned towards the

aim of educating everyone in the

country! Focus on RTE, SSA gives a

hope of literacy campaign of the

government.


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The allocation to the National SkillDevelopment Fund will help in

capacity building and developing a

quality workforce to meet its ever

growing demand.

Also, the setting up of the CreditGuarantee Fund will be a boost for

students across the country as

guaranteed access to finances will

ensure that no deterrents hinder their

progress, especially the economically

weaker sections of the society.

But the budget failed to address few concerns

like Industry expectation to grantinfrastructure status to education sector, no

focus on quality education and higher

education and Education sector allocation to

GDP is still low comparing to other developed

countries.

Jimit Shah

Chandni Chaterjee

Debi Prasad DashSatyabrata Pal

TAXATION

In his Budget for 2012-13, presented to

Parliament amid hope of reforms after a year

of policy stasis, the Finance Minister has

increased tax rates in almost every area with

the aim of controlling the fiscal deficit and his

only form of relief has been for the individual

tax payers.

The other area for which much needed

reforms have been presented is the stock

market trading where all the processes

(Foreign Investments) have been simplified

and costs for trading have been reduced. TheFinance minister has introduced measures for

increasing foreign participation in the Indian

market.

These new taxation measures are to mop up

net additional revenue of Rs. 41,440 crore

(which is coincidently around the figure the

RBI has released into the economy with the

reduction in the CRR to avoid the liquidity

crunch this year due to the advance tax).

Direct Taxes

The basic slab for income tax hasbeen proposed to be raised to Rs.. 2

lakhs from the current Rs.. 1.8 lakhs.

Introduction of new tax slabs. Unexplained money will be at taxed at

the highest rate of 30%

Tax exemption of Rs. 5000 forexpenses incurred on preventive

health check-up

Corporate taxes have been leftuntouched. While this is good for

corporate profits, a moderate

increase would have been very good

for fiscal deficit and that could havelowered interest rates.

Indirect Taxes

Central excise duty rate up to 12% 17 services on negative list STT cut by 20%This was an intelligent more by the

finance minister as raising excess revenue

from indirect taxes does not requireParliamentary approval.

Scheduled for later this year

DTC Bill to be enacted at the earliestafter expeditious examination of the

report of the Parliamentary Standing

Committee.

Drafting of model legislation for theCentre and State GST in concert with

States is under progress.


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GST network to be set up as aNational Information Utility and to

become operational by August 2012

The finance minister has done a good job of

balancing the rebates and levies. He has givenrebates on personal tax at the cost of levying

higher taxes on all the commodities.

Anshu Saboo

Gunjot Singh

Parmesh A V

Tanvi Choudhary

Tejasvini Vijayaraghavan

TELECOM

The budget for the year 2012-13 has had its

share of good and bad news for the

telecommunication industry. The second

largest telecom industry in the world

continues to be seen as a revenue earning

sector by the Indian Government. The trend

set by the previous year budget seems to

continue with an emphasis on growth in the

rural sections of the country. However, this

has been coupled with fixed network for

telecoms and towers coming under eligible

sectors for viability gap funding, thereby

providing an incentive for telecom companies.


Budget 2012 also proposes a lawasserting the states right toretroactively tax cross-borders share

sales in which the underlying asset is

located in India. This comes as a move

against the Supreme Courts recent

ruling in support of Vodafone.

Overall, the impact is expected to beneutral or mildly positive. Focus on

the rural economy could improve

rural connectivity, which could drive

up sales of the telecom companies.

This will increase rural penetration of

telecommunication services and

serve the social cause and aim of the

budget.

Service tax hike will be seen a slightnegative for the sector. It is already

highly taxed and the costs will go up.

It is expected that this will increase

costs for mobile phone users.

With inclusion in viability gapfunding, telecom infrastructure will

improve and chances of more

investments will increase. This will

contribute to further growth of the

sector. The exemption from customs duty on

mobile phone parts could boost the

mobile handset industry. This will

make mobile phones cheaper and

hence, contributing to further market

penetration.

Anshu Saboo

Aparna P

Haripreetha PNandini

Shweta Shukla

PHARMACEUTICAL

The overall impact is neutral on

Pharmaceutical Industry and growth is likely

to depend on the exports only.


The concessional 5 per cent basiccustoms duty has been extended to

six life-saving drugs/vaccines and to

bulk drugs used to manufacture the

said drugs. Impact is likely to be

neutral. These drugs account for a

small proportion in the Indian


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pharmaceutical market, so it is not

likely to affect the market.

Increase in the excise duty onformulations from 5 per cent to 6 per

cent and increase in the excise duty

on bulk drugs from 10 per cent to 12

per cent. There will be no significant

impact. Pharmaceutical players will

pass on the duty increases to

consumers.

200 per cent weighted deductions forin-house R&D expenses are extended

for 5 years. It is assumed to be of little

benefit to the pharmaceutical players,

as R&D expenditure forms less than 5per cent of their net sales.

Saurabh Singhania

Smit Shah

Bhaveka Arora

Divya Katre

RETAIL

Announcements

While the decision on FDI in the multi-brand sector has been suspended, the

government has gone ahead with

increasing foreign investment level in

single-brand retail to 100 per cent

from the earlier 51 per cent. Similarly,

no announcements regarding the roll

out of GST were made.

Increase in standard excise duty from10% to 12%. Excise duty on branded

apparels would now be levied after an

abatement of 70% on MRP instead of

55%. However, there will be a

reduction in excise duty on soya food

products to 6%.

Increase in the service tax rates fromexisting 10% to 12% and introduction

of negative list in service tax.

Provision has been made for subsidiesdirectly to farmers.

Unbranded jewellery will be subjectto excise duty levy of 1 per cent.

Removal of education cess on CVDcomponent of customs duty will result

in reduction in effective rate of

customs duty. The basic customs duty

on wool waste and wool tops would

be reduced to 5 per cent from 15 per

cent, currently.

Impact

Increase in service tax to 12 percent islikely to have an adverse impact on

the already wafer-thin margins of

retail companies, especially since

service tax is not offset-able against

VAT. The service tax increase will

cause a rise in price of products such

as apparel, luggage, electricity and

even electronic appliances. Prices of

electronics items are likely to increase

by 2-4% amid the slowdown in thedemand also. Similarly, increase in

standard excise duty from 10 percent

to 12 percent may increase the prices

of products.

Branded garments will becomecheaper despite hike in its excise duty

as a result of the government raising

the abatement from 55 per cent to 70

per cent. Thereby the effective excise

duty would stand reduced to 3.6 percent from 4.5 per cent. However, the

benefits are expected to be

minuscule.

If the concept of making subsidiesavailable directly to the retailers and

farmers is realized, a substantial

amount of money that is otherwise

lost to the middlemen (and probably

invested in other sectors including

real estate) would be available in the


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hands of the farmers. Going by some

of the estimates of this amount, it

could be significantly large and impact

the consumer product companies

very positively. This would lead to an

increase in consumption in small

towns and villages, strengthening an

already burgeoning buying class in the

rural areas.

Prices of gold and platinum jewelleryare set to go up by at least 2%,

making them that much costlier for

the consumer. Jewellers also fear that

the increase in basic customs duty

would increase the likelihood ofsmuggling in gold.

Reduction in basic customs duty onpro-biotic from 10% to 5% would

benefit the likes of Amul. However,

the increase in excise duty on ice-

cream and flavoured milk from 1% to

2% at the onset of the summer season

may not augur well for the largest

maker of ice-cream.

From a direct tax perspective, nosignificant announcements have been

made to meet the expectations of the

retail sector. Though increase in the

basic exemption limit for individuals

to INR 2 lakh is likely to marginally

increase the disposable income in the

hands of the consumers which could

benefit the retailers.

The message that this Budget reallycarries is that there will be a lot of

opportunities in rural markets in the

long term. Several measures such as

providing subsidies directly and

reduction of interest rates in some

areas will mean additional income for

rural consumers. This calls for a

strategy of penetrating this segment

through better reach and the right set

of products.

STEEL

Announcements

Steel sector of India has a Favourablebudget this year, with Expected cut in

duties and protecting the interests of

Domestic steel Producers.

Propose to reduce basic customs dutyon plant and machinery imported for

setting up or substantial expansion of

iron ore pellet plants or iron ore

beneficiation plants from 7.5 per cent

to 2.5 per cent. This move will

encourage enrichment of low-grade

iron ore, of which India has huge

reserves,

Basic customs duty on coatingmaterial for manufacture of electrical

steel has been reduced from 7.5 per

cent to 5 per cent

Budget has reduced basic customsduty on nickel ore and concentrateand nickel oxide/ hydroxide from 2.5

per cent or 7.5 per cent to Nil

Enhance export duty on chromiumore from INR 3000 per tonne to 30

per cent ad valorem

Enhance basic customs duty on non-alloy, flat-rolled steel from 5 per cent

to 7.5 per cent. The move would

discourage imports and thus and go a

long way in protecting the interests of

the domestic industry

Ashok Reddy Y

Niladri Dey

Rishi Shah


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CEMENT

Announcements

Excise Duty has been raised from 10%to 12%

Specific duty component has beenreduced from Rs.. 160 to Rs.. 120 per

tonne for non-mini cement plants

There is no change in VAT and customduty on the raw material.

Goods and Services tax (GST) will beoperational by August 2012

Impact

Price Hike in cement will come ineffect very soon

Property prices are expected to rise inthe coming days

The net impact will vary for eachcompany based on the extent of its

dependence on imported coal.

The proposal to exempt importednon-coking coal from basic customs

duty (earlier at 5 per cent) to have a

positive impact of 1-1.5 per cent on

the cement industrys operating

profit.

Jimit Shah

Rishu Sukhija

Maithili Kolamkar

Pooja Singh

AUTOMOBILE

The automobile sector is one of the fastest

growing sectors in the country. Though largely

dominated by the small cars segment, the

auto sector is characterised by the presence

of large variety of different types of vehicleswhich includes passenger cars, multi-purpose

vehicles, utility cars, commercial vehicles,

goods carriers, two wheelers and three

wheelers etc. The automobile sector of the

country has a critical role to play in Indias

external trade sector which also has made a

significant impression as the fourth largest

auto exporter in the world, behind South

Korea, Thailand and Japan

Announcements

Basic Excise duty hiked to 12 per centfrom 10 per cent Budget 2012.

Excise duty on large cars from 22 percent to 24 per cent.

Large cars to attract up to 27 per centduty, MUVs, SUVs enhanced

Hybrid Vehicles Components Gets TaxSops

Custom Duty on CBU (CompletelyBuilt Unit) Imported Cars Increased

From 60% to 75%

Income tax exemption limit raised toRs.. 2 lakh

Customs duty on bicycles and partsincreased Standard excise duty rate raised from

10 per cent to 12 per cent, to

add additional revenue of Rs.

18,650 crore

No extra tax for diesel vehicles,Impact

Basic Excise duty hiked to 12 per centfrom 10 per cent Budget 2012.The

announcement means that the

profitability of the transport sector

will reduce further. Also it is likely that

the Indian auto companies may

increase their prices in order to pass

on the hike in excise duty to the

customers. This will add additional

burden on customers which will lead

to a drop in automobile sales. Thetruck sales will also get a hit. The Auto


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Component Manufacturers

Association (ACMA) has announced

that the excise hike will add to input

costs due to excise hike on flat rolled

steel.

Excise duty on large cars from 22 percent to 24 per cent. Large cars

attracted an excise duty of 22%

earlier, now they will attract a duty of

24% which is 2% higher which will

roughly increase the price of most

cars in sedan segment and above by

about 2%. For a car which coasted

about Rs.. 10 Lakhs before budget will

approximately cost Rs.. 20,000 morepost April 2012.this will have a

negative impact on the international

brands trying to expand in India.

Mixed Excise Vehicle Excise IncreasedFrom 22% + Rs.. 15000 to 27%Cars

which attracted mixed excise rate of

22% + Rs.. 15,000 will attract higher

tax rate of 27% which will increase the

price of larger cars and SUVs.

Hybrid Vehicles Components GetsTax Sops Import of components for

development and manufacturing

of Hybrid vehicles like Lithium ion

batteries etc. has been provided

exemptions from excise and import

duties to promote the use of hybrid

and eco-friendly cars in India. The

excise duty on specified parts of

hybrid vehicle is being reduced to 6per cent from 10 per cent.

Custom Duty on CBU (CompletelyBuilt Unit) imported cars increased

from 60% to 75%CBU or completely

built units or cars which are imported

into India completely assembled from

abroad will attract more duties and

taxes which will increase the price of

most high end luxury cars in India.

This is done to encourage more of

local assembling of the cars and

promote Indian automobile industry.

The matter of relief is that there has

been increase by 15%.

Income tax exemption limit raised toRs.. 2 lakhAlthough, the excise duty

hike has taken a wrong turn in the

auto sector, an increase in income tax

exemption limit to Rs.. 2 lakh may be

of some sort of relief by improving the

per capita income which should in

turn increase the two/four wheeler

sales.

No extra tax for diesel vehicles :Thiscomes as a relief for the customersand the manufacturers. With no tax

on diesel cars, it is likely that the

companies will consider increasing

investment on diesel side now as

demand on diesel vehicles remains

robust.

No impact on auto components aswell as tyres industries Auto

component and tyre manufacturers

are expected to fully pass on the

increase in basic excise duty. Further,

a reduction in the excise duty on

replacement batteries for electric

vehicles from 10 per cent to 6 per

cent, and decrease in the customs

duties for specified parts of hybrid

vehicles will have no major positive

impact on demand for auto

components, given the lowpopulation of eco-friendly vehicles in

India.

As predicted, the reduction in excise duty

from 10 per cent to 6 per cent on specific

parts supplied to manufacture of electrical

and hybrid vehicles will promote the growth

of environment friendly cars. Excise duty on

lithium ion battery packs for supply to electric

vehicle or hybrid vehicle manufacturers hasalso been reduced to 6 per cent from 10 per


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cent. Also, the new budget has bought

changes in the tax slabs as predicted. The

taxable income has now increased to Rs.. 2

lakhs.

Jimit ShahRakesh Kumar Singh

Vishal Jojowar

IT & ITES

Announcements

No changes to Minimum AlternativeTax (MAT).

No extension of the tax holiday forSoftware Technology Parks of India

(STPI) units under section 10A and

10B.

Allocation of Rs. 14000 crore forUnique Identification Authority of

India (UIDAI) for FY12 for enrolment

of 40 crore Indians by June 2013.

Advance Pricing Agreements to beintroduced

Faster refunds of service tax andscope for input credits for service tax.

Impact

The MAT was hoped to be decreasedso as to give the bleeding IT & ITES a

competitive advantage, but a status

quo means companies will have more

impact on the bottom line; the

smaller firm being most hit.

The STPI will end on March 31 2012;bring to an end the heavy incentives

given to the sector. The non-renewal

of STPI and MAT are likely to nullify

any incentive received by the sector

due to SEZs and DTC.

More allocation to UID-Aadhar projectis likely to translate more into

revenues for this sector and act as a

precedent for many such projects in

the future.

Advance Pricing Agreement whichwas long overdue will help on more

clarity on Transfer pricing front and

give a respite from the tax woes faced

by the IT firms.

Overall the Budget 2012-13 was a very

mediocre one for the IT & ITES sector. There

were a lot of expectations on areas like STPI,

MAT and DTC which were not fulfilled and tax

still continues to be a major factor in the

development in IT & ITES sector.

Saurabh Singhania

Ajit Yadwadkar

INFRASTRUCTURE

Announcements

During Twelfth Plan period,investment in infrastructure to go up

to Rs..50 lakh crore with half of this to

be from private sector.

More sectors added as eligible sectorsfor Viability Gap Funding under the

scheme Support to PPP in

infrastructure.

Tax free bonds of Rs..60, 000crore tobe allowed for financinginfrastructure projects in 2012-13.

IIFCL has put in place a structure forcredit enhancement and take-out

finance for easing access of credit to

infrastructure projects.

Allowing ECB for low cost housingprojects and setting up of a credit

guarantee trust fund.


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Impact

Credit enhancement will easefinancing constraints faced by certain

infrastructure segments.

Viability gap funding will help improveprivate sector participation.

Measures for housing to address theshortage of housing for low income

groups in major cities.

Moves to reduce withholding tax oninterest payments for ECBs from 20

per cent to 5 per cent will be a

positive for the roads and ports

sectors.

Tax free bonds will boost investmentin this sector and will help improve

retail investor participation.

AVIATION

Announcements

Unlike the last years budget, this year the FM

gave a sigh of relief to the aviation sector. This

sector which has been in distress since a long

time, with most of the airlines in the red; this

budget will definitely help ease out some

pain.

The highlights with respect to the Airlines and

Aviation Sector (incl. Civil Aviation):

The airline industry is facing financialcrisis. The high operating cost of the

sector is largely attributable to thecost of Aviation Turbine Fuel (ATF). To

reduce the cost of ATF, Government

has reiterated direct import of

Aviation Turbine Fuel (ATF) for Indian

carriers as actual users.

To address the immediate financingconcerns of the Civil Aviation sector, it

has been proposed to allow aviation

companies to raise money (up to

US$1bn) through ECBs for their

working capital requirements for a

period of one year.

A proposal to allow foreign airlines toparticipate up to 49 per cent in the

equity of an air transport undertaking

in the form of FDI is also underconsideration.

Airline is one of the sectors in whichthe rate of withholding tax on interest

payments on ECBs is proposed to be

reduced from 20 per cent to 5 per

cent for three years. This has been

done to provide low cost funds to this

distressed sector.

The central plan outlay for CivilAviation Ministry in 2012-13 is

estimated at Rs. 7,293 cr. and ademand for plan allocation of Rs.

4,000 cr. to Air India in the next

financial year has also been proposed

in the budget.

CIVIL AVIATION

India has potential for establishingitself as a hub for third-party

Maintenance, Repair and Overhaul

(MRO) of civilian aircrafts. To realizethis potential, a proposal to fully

exempt companies from basic

customs duty on parts of aircraft and

testing equipment imported for this

purpose. As a measure of support to

the airline industry, it is also proposed

to fully exempt both new and

retreaded aircraft tyres from basic

customs duty and excise duty.

Impact

Companies, such as Spice Jet, withrelatively healthy balance sheets and

good repayment history may be

benefitted from this.

This has come as a disappointment forcompanies under severe financial

stress, as they were relying on FDI to

raise capital for running their

operations because FDI is still kept

under consideration.


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This move is positive for aviationcompanies, as it would reduce ATF

cost, which accounts for 50% of the

total operating cost of a company.

However, this development has a low

probability of benefiting aviationcompanies in the short term, as we

believe companies do not have the

required infrastructure or capital to

build the infrastructure required to

import and store ATF directly.

1. third party maintenance, repair andoverhaul of civilian aircraft.

2. Direct import of Aviation Turbine Fuelpermitted for Indian Carriers as actual

users.

3. ECB to be permitted for workingcapital requirement of airline industry

for a period of one year, subject to a

total ceiling of US $ 1 billion.

4. Proposal to allow foreign airlines toparticipate up to 49 per cent in the

equity of an air transport undertaking

under active consideration of the

government.

Akshay Narang

Harshal Patkar

Vikas Gupta

AGRCULTURE &

RELATED SECTORS

Announcements

Basic customs duty reduced forcertain agricultural equipment and

their parts.

Full exemption from basic customsduty for import of equipment for

expansion or setting up of fertiliser

projects up to March 31, 2015.

Plan Outlay for Department ofAgriculture and Co-operation

increased by 18 per cent.

Outlay for AshtrayKrishiVikasYojana(RKVY) increased to Rs..9,217crore in

2012-13.

Target for agricultural credit raised byRs..1, 00,000crore to Rs..5,

75,000crore in 2012-13.

Interest subvention scheme forproviding short term crop loans to

farmers at 7 per cent interest per

annum is to be continued in 2012-13.

Additional subvention of 3 per cent

available for prompt paying farmers. Kisan Credit Card (KCC) Scheme to be

modified to make KCC a smart card

which could be used at ATMs.

A new centrally sponsored schemetitled National Mission on Food

Processing will be started in 2012-13

in co-operation with State

Governments.

Allocation for AIBP in 2012-13stepped up by 13 per cent to Rs..14,

242crore.

Impact

Interest subvention for farmers willhelp lower the rate of interest of

borrowing for farmers.

A number of measures will increasedemand for fertilizers and improverevenues and profitability for fertilizer

players.

KCC smart cards will help improveliquidity for farmers, by providing

them more timely access for loans if

implemented in a sophisticated

manner.

Experts believe that although anumber of measures have been

proposed for agricultural schemes,


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many of them are believed to be

superficial and the need of the hour is

to have better agricultural

infrastructure to meet the challenge

of rising input costs for farmers.

BANKING

Announcements

To protect the financial health ofPublic Sector Banks and Financial

Institutions, Rs..15, 888crorehas been

proposed to be provided for

capitalisation.

Possibility of creating a financialholding company to raise resources to

meet the capital requirements of PSU

Banksis under examination.

As per the Union Budget 2012-13,Rs10, 000crore will be allotted to

NABARD for refinancing of regional

rural banks (RRBs). Official amendment to The Pension

Fund Regulatory and Development

Authority Bill, 2011, The Banking

Laws (Amendment) Bill, 2011 and

The Insurance Law (Amendment) Bill,

2008 to be moved in this session.

Impact

The capitalization of PSU banks willhelp them and take them closer to the

goal of capital adequacy as proposed

by BASEL III Norms.

The refinancing of RRBs is a positivestep in the direction of financial

inclusion.

RBIs ability to cut interest rateswould be impeded by the high fiscal

deficit which could negatively impact

investments and credit growth in

2012-13.

POWER

Announcements

A proposal to extend the sunset datefor setting up power sector

undertakings by one year for claiming

100 per cent deduction of profits for

10 years.

Abolition of customs duty on steamcoal and LNG. CVD reduced to 1%from 5% on steam coal. Both these

reductions will be available till 2014.

Full exemption from basic duty hasbeen provided for certain fuels for

power generation.

There will be nonimposition ofimport duty on power equipments

Allowance to part finance Rupee debtof existing power projects via ECB .

Rate of withholding tax on interest

payment on ECB to be reduced to 5%

from 20% for 3 years.

80IA benefits to be extended by oneyear.

Impact

Easier access to funds, extension of80IA and availability of cheaper fuel

will benefit power suppliers and EPC

players.

No customs duty on importedequipments is a negative for some

domestic players , but at the same

time will help curb capital costs in this

sector.

Reduction of interest payments onECBs will encourage funding.


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The Finance Club

The Finance Club of Symbiosis Centre of Management & HRD is a student initiative which started in

2005. The Finance Club functions as the interface between the student community and the financial

world. Its objective is to enable prolific interactions among the student community, coupled with

valuable inputs from the faculty, the academia and representatives from the industry. The club

provides a platform for all students to come together and explore the field of finance, leading to

awareness amongst students with respect to the current financial aspects surrounding the economy

and the industry.

Activities of the Finance Club

Finalyst - The Monthly Finance Journal of the Finance Club Knowledge Series Bizfluence Pre Budget and Post Budget Analysis

Events

Past Events

First Academic Summit on Valuation and Financial Modeling - Nov 2010 Integrated Risk Management Seminar-2009 Banking Conclave-2005 Research Seminar on Commodity Market-18th Feb2012

Members

Abhishek Maheshwari

Anshul Sood

Charul Mahajan

Samira Vemparala

Sumit Dawra

Anshu Saboo

Jimit Shah

Ravi Matalia

Saurabh Singhania

Sudip Bain

Surbhi Bhandari

Taha Lanewala

post budget report 2012-13

Documents