Expectations From Union Budget 2016-17

Presented by:Anirban Chatterjee

Ankita SahaAvishek Mazumder

Sayantan DasSupratim Ghosh

Cement And Steel Sector

India is the second largest producer of cement, employing a million people worldwide.

Market Size: • Cement demand in India is expected to increase due to government’s push for large infrastructure projects,

leading to 45 million tonnes needed in the next 3 to 4 years.

• India’s cement demand is expected to reach 550-600 million tonnes per annum(MTPA) by 2025.

• To meet the rise in demand cement companies are expected to add 56 million tonnes capacity over the next 3 years.

Demand Drivers: • Housing sector is the biggest demand driver of cement, accounting for about 67 percent of the• total consumption in India.

• Infrastructure at 13 percent.

• Commercial construction at 11 percent.

• Industrial construction at 9 percent.

Cement Sector

India is the world’s third-largest producer of crude steel and is expected to become the second-largest producer by 2016. The growth in the Indian steel sector has been driven by domestic availability of raw materials such as iron ore and cost-effective labour.

Market Size:

• India’s crude steel capacity reached 109.85 Million Tonnes (MT) in 2014-15, a growth of 7.4 per cent. Production of crude steel grew by 8.9 per cent to 88. 98 MT.

• The steel sector in India contributes nearly two per cent of the country’s gross domestic product (GDP) and employs over 600,000 people.

• India produced 7.34 MT of steel in the month of September 2015, which was nearly equal to the country's steel production in September 2014.

Steel Sector

It is understood that there has not been any direct benefit for the cement sector from this budget. The first half of FY15 nurtured hopes of better growth but the second half was shot by a slowdown, especially in the quarter ending in March because of the government cutting expenditure. Cement however is the basic ingredient of infrastructure and thus cement is a natural beneficiary of the infrastructure pickup in the country. Impetus offered to infrastructure segment in the budget will certainly help demand scenario to improve going ahead. Hence it is believed that the cement industry in India is on the verge of cyclical upturn from Financial Year 2016 in the backdrop of pickup in infrastructure and real estate activities across the country. Slowing capacity addition in the industry from Financial Year 2016 will further aid industry utilisation.

Authentic Report Based on Union Budget 2015-16: Cement Sector

Production of cement over the last five years

Budget Proposal Impact

• Excise duty hiked to 12.5% from 12% Marginally Negative

• Impetus to infrastructure development Positive

• Clean energy cess increased from Marginally Negative

Rs100/tonne to Rs200/tonne on coal

Propositions Made: Cement Sector

It is expected that domestic steel off-take will remain weak in the near term. But with the government’s thrust on infrastructure, the domestic steel growth is expected to rise in the Financial Year 2016. . However, realizations are under pressure due to cheap imports and hence Net Sales Realization (NSR) is expected to dip over the next two quarters, resulting in steel spreads coming under pressure. The domestic steel industry got a double booster shot from the 5% hike in the customs duty, which will make imported steel costlier, and a major thrust on infrastructure. This duty revision is aimed at curbing import of Chinese and Russian steel and help local firms reclaim market share. However it was felt that the move to double import duty on metallurgical coke to 5% and doubling of coal cess to Rs 200 a tonne will hurt the industry.

Authentic Report Based on Union Budget 2015-16: Steel Sector

Steel Industry in India

Budget Proposal Impact

• Increase in Tariff rate on Marginally Positive Iron & Steel from 10% to 15%

• Increase in Import duty on Marginally Negative

Metallurgical coke from 2.5% to 5%

• Increase in excise duty from 12% Marginally Negative plus education cess and higher education cess to 12.5% all inclusive

• Incremental spend of Rs700 billion Positive on infrastructure

Propositions Made: Steel Sector

• To increase the demand for cement.

• In the cement sector, justice and fairness is called for, as cement despite being an essential commodity is one of the most heavily taxed commodities as if it is a luxury product. Therefore taxation on cement must be brought at par with the steel sector.

• Import duty on inputs for cement is higher than on the finished products and this needs to be addressed.

• Bigger allocation for the much required irrigation projects and infrastructure must be made.

Expectations from Budget 2016-17: Cement Sector

• In the upcoming Union Budget, steel manufacturers are expecting measures to protect the domestic industry from imports.

• Slashing down the prices of products of allied construction industries like cement, steel and other building materials is also necessary for bringing down the overall cost of construction.

• Higher import duty on steel products.

• Increase the demand for steel.

Expectations from Budget 2016-17: Steel Sector

• Targeted schemes to boost housing sector will also help cement demand to regain growth.

• Instead of allowing home buyers tax benefits post possession, the Union Budget should make a provision that allows these from the time they start paying the housing loans.

• The government should increase the tax deduction limit for housing loans, especially for buyers in metropolitan cities.

• Raise house rent deduction limit.

• Make additional allocation for infrastructure which will lead to increased demand for cement and steel.

• Remove the DDT bottleneck in REITs.

How The Expectations Can Be Matched???

• Railway budget 2016 proposes to develop three freight corridors which in turn will increase the demand for cement and steel.

• Demand for cement and steel will also increase due to Railway budget’s proposal to build more terminals.

• Higher import duty on steel products, particularly long and flat steel products.

• Reduction in import duty on coking coal: Coking coal is a key input in steel manufacturing and in the absence of domestic resources, steel manufacturers resort to imports for their coking coal needs. A reduction in the import duty is expected which will help to control the input costs.

Cement Sector Impact

• Higher spend on infrastructure segments Positive for all cement makers. such as roads and highways, irrigation and push to “housing for all scheme”.

• Incremental spend on smart city development. Positive for cement makers.

• Rise in allocation under Pradhan Mantri Gram Positive for cement makers. Sadak Yojana.

• Extension of excise duty exemption. Positive for cement makers.

• No talk of GST Bill. Neutral to negative for all cement makers as they pay 25-26 percent in indirect taxes.

Announcements Made in Union Budget 2016-17

Prediction Announcement

Comparison Between Prediction and Announcement

•Bigger allocation for the much required irrigation projects and infrastructure.

•To increase the demand for cement.

•Change in excise duty structure.

•Taxation on cement must be lowered.

• Total outlay for infrastructure- Rs 2,21,246 cr.

•Demand expected to increase upto 5.5-6% in 2016-17 from an estimated 3.5-4% in 2015-16.

•No change in excise duty structure.

•Tax incentives for housing.

Steel Sector Impact

• Higher investment on infrastructure. Positive for all steel makers.

• Government procurement from domestic Positive. steel sector.

• Announcement on infra growth. Positive.

• Doubling of clean energy cess. Negative.

Announcements Made in Union Budget 2016-17

Prediction Announcement• To increase the demand for steel. Infrastructure spending promised by the govt. will help increase steel demand in the country.

• Higher import duty on steel products. Import duty increased.

• Reduction in import duty of coking coal. No major reduction.

• Measures to protect domestic industry. Recently imposed duties on imported steel are giving breathing space to Indian companies.

Comparison Between Prediction and Announcement

The government is banking on infrastructure spending to kickstart investment and job creation. The major benefits of higher spending in infrastructure, will ensure higher demand for cement and steel which will in turn result in more efficient public transport facilities, public convenience, creation of new jobs for youth, etc. The increase in demand of cement and steel will make the domestic cement and steel sector play an important role to the govt. of India’s schemes of ‘Make in India’ and “Smart Cities” .

Conclusion