The IBS TIMES-Budget Special Issue

8/9/2019 The IBS TIMES-Budget Special Issue

1/12

JARGONS 1 SECTOR 5 MARKET 12

TABLE 3 UID 10

COVER 4 DTC 11

BUDGET SPECIAL ISSUE 8TH MARCH [MOND

BUDGET TERMINOLOGIES: JARGONS MADE SIMPLER!!

Special Issue on

THE UNION BUDGET 2010-11

''This year, our Finance Minister Mr. Pranab Mukherjee presented the Union Budget 2010-11 on theof Feb, and hence, we bring to you a special coverage and analysis of the Union Budget 2010-11''

Before we start analyzing the Budget, let us first have a quick recap of the various terminologies attawith the Budget.BUDGET is an estimate of expenditure that may and will be incurred over a period of time, with the means (revto meet them.A budget has two sides, Expenditure side and Revenue side. Components of both the sides have been explaibrief, as follows:

REVENUE:A) REVENUE RECEIPTS: It consists of items that do not increase the liabilities or decrease the assets.

Tax Revenue: A compulsory and legal levy on a person by the government.Taxes are of two types: direct tax and indirect tax.

Direct Tax: Like income tax, corporation tax (tax on company profits), property tax, wealth tax, capital gaetc. are those taxes where the impact and incidence are on the same person. The burden is borne by the same perswhom it is levied. Hence, the burden of tax cannot be shifted.

Indirect Tax: Like excise duty, sales tax, VAT, custom duties, are those taxes where the impact and the incare not at the same point (or person). The burden is not borne by the person on whom it is levied first. Thus one pinitially pays it but the burden is wholly or partially passed on to some other individual who ultimately bears itare also called taxes on expenditure.


2/12

JARGONS CONTINUED.Non-tax revenue: Any income which is not a compulsory levy by the government. Classification of Non-tax reis as follows:

B)CAPITAL RECEIPTS: They are those items that either decrease the assets or increase the liabilities.Recoveries of loans: It means the receipt of loans that the government granted in the past. It decreases the de

value of the government. Thus it is a decrease in assets.

Disinvestment: It implies selling of stakes in PSU units of the government. It implies selling of assets.

Borrowing and other liabilities: It implies if government takes loans. it increases the liability of the government

Expenditure:

Revenue expenditure: It implies those expenditures that dont affect the assets or liabilities position of the gment. E.g. interests, payments of salaries, general social economic and defense services, subsidies, grants to stateU.T. and foreign governments.Capital expenditure: It implies that expenditures of the government that either increases the assets or decreasliabilities of the government. E.g. Loans to state and UT, FG, etc. (increase in assets) and Repayment of(decrease of liabilities).Some other terms that we hear repeatedly within the Budget are:

Fiscal Deficit: When a government's expenditures exceed its revenues, causing or deepening a deficit; this espending needs to be financed through borrowing.

GDP: The monetary value of all the finished goods and services produced within a country's borders in a specifiperiod, though GDP is usually calculated on an annual basis.

Fiscal Consolidation: In simple terms, it is reducing government deficits and the level of borrowings.

COMMERCIAL REVENUE ADMINISTRATIVE REVENUE INTERESTS AND DIVIDEND

It is the income of the government

earned by supplying goods and ser-vices like electricity, railway ser-

vices, etc.

It is earned via performing the ad-

ministrative functions of the gov-ernment.

FEES: is the payment earned for

rendering services.

e.g. license fees, school and college

fees, etc.

FINES and PENALTIES: im-

posed for the infringement of law.

FORFEITURE: ceasing of prop-

erty as a result of non payment of

taxes, etc.ESCHEATS: acquisition of prop-

erty of a person who dies without

any legal heir.

Government receives interest

investments made or loans grantand also earns dividends on acqu

sition of shares of a company.

1 2 3 4 5 6 7 8 9 10 11 12


3/12

BUDGET TABLE

Now that we are little comfortable with the technical jargons of the Budget, lets analyzBudget with its numbers! As we know, a Budget is a statement of projection of the go

ments expenditures and receipts over the forthcoming fiscal year. Hence, a Budget is l

Profit & Loss Account, wherein the receipts and payments are put against each other antensive planning is done to ensure that the receipts match with the expenses!!

UNION BUDGET- 2010-11

REVENUE EXPENDITURE

1 Revenue Receipts TOTAL

(Rs.

Crores)

1 Revenue Expenditure TOT

(R

Cro

a Tax Revenue 5,34,094 a Interest 2,48,664

b Non-Tax Reve-nue

1,48,118 6,82,212 b Non-Interest 7,10,0609,58,7

2 Capital Receipts 2 Capital Expenditure

a Recoveries ofLoan

5,129 a Loan repaid or loansgranted to otherstates, etc

1,50,025 1,50,0

b Disinvestments 40,000

c Borrowings andother liabilities

3,81,408 4,26,537

TOTAL 11,08,749 TOTAL 11,08

1 2 3 4 5 6 7 8 9 10 11 12


4/12

COVER ARTICLE

PROLOGUE:- "In the previous year, by the time the American consumption party came to an endsomeone asked an expert to comment on the Indian growth story, he might have said something olines of the fact that countries like India were able to achieve these magical growth rates, only becauthe phenomenal consumption rate of America.. or would he? Lets find out.

Mr. Pranab Mukherjee presented the Union Budget for FY 2010-11 on 26 February, and a rare thing happened. The stock m

rose! (In the last 19 years, markets fell for 16 times post budget ceremony). And this was despite the fact that oil, cars, goldcise duty is up. We shall come back to this in a while.FM increased the income tax slabs, thereby giving a good Rs. 50,000 bonus for a person earning Rs 8 lakhs a year. But pthe real message was that from next year onwards the DTC will be implemented, which will change the tax structure once all. He assured the GST implementation from next year! These are moves which can be said to be a Mini 1991. They are b

Private enterprises are always preferred over government ones, and Mr. Mukherjee with his Rs. 40,000 Crores Disinvestmenot only fulfill this want of ours, but it will also have the chicken and egg effect. For disinvestment of this scale to be succthe government has to ensure that the stock markets remain healthy and the markets tend to be in good shape when these are on offer. Both ways this is good for retail investors like you and me!Allocations for Infrastructure and Power are significantly up, with no further tax holidays for the IT sector. This conveymessages. First, the government fully realizes the importance of these two sectors for the Indian growth story, and is tryingprove them at both urban and rural fronts (Bharat Nirman allocation at Rs. 48,000 Crores). Second, the IT sector has now

up to the point where it does not need daddys support to sustain itself (anyways, SEZs will still provide for tax holidays).Another move towards privatization was the announcement to grant new banking licenses, which is good. But again what bad here is the fact that these licenses can again be given only to business houses like Reliance. This is a matter of concecause by privatization one does not mean one private house controlling everything, and dialing-R, time and again, for refoAllocation for the education sector is again up, but one might point out to the fact that this is of no help as the quality of eduis very poor. To this we have two points to make, 1) Budget is not the place from where this can be achieved and 2) We very capable minister, Kapil Sibal, in place for this, who has already sprung onto action!The Nandan Nilekani chaired Unique Identifaction Authority of India, is truly unique in itself. If and when they are able toout with these tamper proof I-cards, the money meant for the poor will actually reach to poor. Not only the poor but all of wish that this becomes a reality, and perhaps some people are working hard to make this a reality.

Now lets come back to rise in oil, cars, gold etc.

Firstly, Oil. The excise duty which was raised in this budget, was actually (technically speaking) restored and not raised.the oil had hit levels north of $125 a barrel, the government has cut the excise duty. So when the oil prices are no longer ping at those levels, the government certainly can restore it. Moreover, if the Parikh Committee recommendations are to lowed (which is the need of the hour), the oil prices will be de-regulated, and then they will move in tandem with the prices. And if one looks at the coming years, it only means that they will be going northwards. So, when this happens, thewill we blame?Now coming to cars. It is a lesser hyped fact that one month before the Budget, all the car makers have themselves increaseprices by 1-2 %, and the sales were not at all impacted. So, when that neither created a hype nor adverse affect, then how wpercentage point increase in duty will?For Gold/Platinum etc., the duty has been raised by just Rs. 100 (from previously Rs. 200 to Rs. 300 now for gold and platwhich are probably are too minuscule to bother about given the prices of these commodities!Talking about Excise duty, Thank God nobody is debating over this modest restoration of the duties, so we also should notabout it (up 2%).All in all this is a budget which has a medium to long term vision in place, whether it is about the Fiscal consolidation or nreforms or trying to include the poor in the growth story. Current inflation levels are not that high so as to take away the crethese wholesome efforts (unless you are working for the Opposition)!

EPILOGUE:- Next year and in years that follow, when India is able to attain around 8.5 % to doubleGDP growth rates, while we see the American economy still struggling to recover, then perhaps we wi

be needing answers from any expert to come to the opinion that: OUR INDIA IS DEFINITELY GOFORWARD TO BECOME A GLOBAL POWER HOUSE IN ITSELF!!!

1 2 3 4 5 6 7 8 9 10 11 12


5/12

SECTOR ANALYSIS

SECTORS IMPACT BUDGET PROPOSAL IMPACT COMPAN

AUTOMOBILES Excise duties increased by 2%Favorable change in personal income taxslabs

Higher allocation for rural development andNREGA SchemesWeighted deduction increased in in-houseresearch and development (R&D) from150% to 200%

As per expectationHigher disposable Income will leadto increased demand for commer-cial vehicles

Will increase rural disposable in-come leading to increased demand

Will lead to savings in tax therebyaiding EPS growth

Bajaj Auto, HHonda, MM&M

Restoring basic duty of 7.5% and levy ofcentral excise duty of Re 1/litre on dieseland petrol

Profit of fleet operators will be af-fected, so will affect demand forcommercial vehicles and will alsolead to increased cost

Bajaj Auto, HHonda, MM&M

FMCG Favorable change in personal income taxslabs Higher disposable Income will leadto increased demand for consumergoods

Nestle, ITC

Increase in MAT rate from 15% to 18%Increase in excise for cigarettes and tobaccoproducts

Companies that are under MAT maysee an adverse earning impact

Slab-wise increase in various cate-gories of cigarettes will lead tooverall 15% hike in excise

Dabur, GCPLITC

INFRASTRUCTURE Roadsallocation hiked by 13.5%Railwaysallocation hiked by 6%Powerallocation hiked by 130%Bharat Nirmanallocation hiked 17.4%Urban developmentallocation up 80%Deduction u/s 80C specifically for invest-ments in infrastructure bonds, in additionto the existing Rs 100,000 limit

Hike in IIFCL disbursement targets by Rs.250 cr over next 3 years

Higher defence sector allocation (including

Rs 600bn for capital expenditure)Project import status to Monorail projects

for urban transport at a concessional basicduty of 5% granted

Will increase the demand and henceearning of the companies

Will facilitate the availability of

long term capital

All InfrastruCompaniesBEML, TitagWagons (Rai

HCC, NagarjConstrcution(IIFCL)L & T (Defen

Increase in MAT rate from 15% to 18% Will impact the earnings, effectivetax rate, cash flows and profitabil-ity (IRR) of infra developers

IRB, GVK, G

1 2 3 4 5 6 7 8 9 10 11 12


6/12

SECTOR ANALYSIS


TELECOM Favorable change in personal income taxslabs

Higher allocation for rural development and

NREGA SchemesExemptions from basic, CVD and specialadditional duties are now being extended to

parts of battery chargers and hands-freeheadphones (till March 31st, 2011)

It will lead to higher disposableincomes and hence higher spend-ing on mobile phone usage/dataand VAS

Will lead to increased subscriber in

rural areasThis would translate into reducedcost.

Rcom, BAirtel, othermobile pmanufacturer

Increase in MAT rate from 15% to 18%Increase in Diesel Charges

Cash flow and earnings will beimpacted

Increase network operating ex-penses for all telecom players

B h a r t i , Rcom, others

OIL & GAS5% hike in customs duty on crude oil, 7.5%

on petrol & diesel, and 10% on other re-fined products

Payment of subsidy in cash to the OMCsrather than by way of oil bonds

Lead to increase in the import duty

differential for the refineries,which will enable them to enjoymarginally higher refining margin

Help the PSUs

ONGC and O

5% hike in customs duty on crude oil, 7.5%on petrol & diesel, and 10% on other re-fined products

Levy of central excise duty of Re 1/litre ondiesel and petrol.

Increase in MAT rate from 15% to 18%

Gross Under Recoveries will in-crease on account of increase inRefinery Transfer Price andhigher excise imposition.

Project Internal Rate of Return willbe affected

RIL, EssarMRPL

RIL and

India

POWER Planned allocation for Power sector in-creased by 152%Proposed set up of a Coal Regulator

Plan outlay for Ministry of New and Renew-able Energy increased by 61%

Exemption of excise duty on key compo-nents for manufacture of rotor blades for

wind power

Full exemption from central excise dutyextended to goods supplied to mega power

projects awarded through tariff-based com-petitive bidding

Will help to fund the equity re-quirements

Lead to transparency and increasedparticipation from private playersIncreased demand for equipmentmanufacturers

Reduces cost and increases earn-ings

Will reduce the cost of the project

KEC, Jyoti tures, CroGreavesSuzlon EnMoser BaerBP Solar

Suzlon Energ

NHPC, JP Hy

Clean energy cess of Rs 50/MT on coal(domestic and imported)

Competitive bidding for coal minesIncrease in MAT rate from 15% to 18%

Increase costIncrease costWill negatively impact profitabilityof merchant power plants

Tata power, Lanco, APower

1 2 3 4 5 6 7 8 9 10 11 12


7/12

SECTOR ANALYSIS

SECTORS IMPACT BUDGET PROPOSAL IMPACT COMPA

INFORMATIONTECHNOLOGY

States will have access to Rs.3,675 crores forelementary education under the ThirteenthFinance Commission grants for 2010-11

Process of service tax refund of accumulatedcredit to exporters, especially in the area ofInformation Technology and Business Proc-ess Outsourcing simplified

Prepackaged IT software to be exempt fromservice tax subject to conditions

Increases earnings of Companies inEducation and IT

Benefits the entire Sector

Will increase the earnings of sellersand users of prepackaged software

Educomp, & NIIT

All players

Increase in MAT rate from 15% to 18%

Exemption from excise duty withdrawn onMicroprocessors and duty of 4% levied

Negatively affect the cash flows andwould increase tax out of IT com-

panies especially smaller and midtier companies

Increase cost of computers

Infosys, TCMahindra Mahindra S

PHARMACEUTICALS Higher weighted average R&D deduction (in-house) 200%

Higher weighted average R&D deduction(specified institutions) 175%

Reduction in corporate tax surcharge 7.5%

Can claim more decuction, Taxoutgo declines and net earningsincreases, will continue to supportR & D

Can claim more decuction, Taxoutgo declines and net earningsincreases

Positively impact earnings

R a n b a x y ,Reddys, Cadila, Piramal Life

Increase in MAT rate from 15% to 18%Hike in excise duty on APIs

Will impact bottomline of mostPharma Cos

API manufacturers may pass on therise to formulation manufacturers

Sun, Cadilcon, GleLupin

MEDIA & ENTERTAIN-

MENT Project import status to initial set up ofDigital Head End by MSOs with conces-sional customs duty of 5% and full exemp-tion from special additional duty

Online news agencies exempt from servicetax

Will reduce operational and set-upcost and increase the earnings. Itwill provide stimulus to the fastgrowing digital cable industrythrough increase in investments bythe MSOs

Increase the penetration of onlinenews medium

Multi-servicerators

------------------------------------------- ----------------------------------- --------------

1 2 3 4 5 6 7 8 9 10 11 12
http://images.google.co.in/imgres?imgurl=http://www.enovapharm.com/Pharmaceutical.jpg&imgrefurl=http://www.enovapharm.com/&usg=__gYgy0SfN1ZDqYqmxLmtbCLq4hEs=&h=2304&w=3456&sz=408&hl=en&start=5&itbs=1&tbnid=mhNcgVXnO6yp2M:&tbnh=100&tbnw=150&prev=/images?q=phar


8/12

SECTOR ANALYSIS

SECTORS IMPACT BUDGET PROPOSAL IMPACT COMPA

AVIATION------------------------------------------- ----------------------------------- ---------------

Levy of service tax on passenger fares

Increase in customs duty on Fuels

Will increase passenger travel costand thus negatively impact passen-ger traffic and load factors for air-line companies

Will increase the operating cost

All playeAir India, fisher, Spiand others

BANKING AND FINAN-

CIAL SERVICES RBI to issue new branch license to privateplayers and NBFCs

Increase in allocated amount for capital infu-sion in state-owned banks in order to main-tain Tier I capital of at least 8%

6-month extension for repayment of loansunder Agri-debt relief scheme

Extension of 1% interest subvention by oneyear for home loans up to Rs 1mn and homecost of up to Rs 2mn

Increase the market share of Privateand NBFC players.

Commitment to recapitalise the pub-lic sector banks is likely to helparound 1/3 rd of these banks whichhave a current Tier I capital ade-quacy of less than 8% as on Dec-09

More provisions for write backs andNPAsWill increase demand of Home loansand prompt repayment by farmerswill improve the credit culture

Private and playersDena Bank,Bank, BanMaharashtra

BOB, PNB,

Dewan Hou

6-month extension for repayment of loansunder Agri-debt relief scheme

More loan repayment delays fromfarmers

BOB, PNB,

1 2 3 4 5 6 7 8 9 10 11 12


9/12

SECTOR ANALYSIS


RETAIL Favorable change in personal income taxslabs

Customs duty cut on raw material(Rhodium) for jewellery polishing -2%

Removal of special additional duty onwatches, garment imports (pre-packed)

Higher disposable Income will leadto increased demand

Would reduce the cost

Would reduce the cost of the retailcompanies

All retail Westside, loon, ShoStop and oth

Titan & Gita

Customs duty hike on gold bars, coins- Rs300/10gm

Customs duty hike on other forms of gold-Rs 750/10gm

Excise duty levied on sunglasses (those notused for corrective vision)

Will increase the cost of the com-pany

Titan & Gita

REALTY Rajiv Awas Yojana (RAY) for slum dwell-ers and urban poor to extend support tostates that are willing to provide propertyrights to slum dwellers, increase of 700%

Allocation for housing and urban povertyalleviation raised-Rs 100 crPending projects given another year forclaiming deduction on profits u/s 80IB(10)

FDI regime for ownership and control rec-ognised as central to the FDI policy

Will increase the demand for Hous-ing Projects in Urban areas

Will increase the demand for hous-ingBig players earnings will increase

Will increase FDI in real estate

HDIL

All Real Players EDLF, Sobha

Sec 65(105) made mandatory which signi-fies imposition of service tax on rentalcomplexes

Sec 25(d) of service tax amended such thatconstruction of new buildings intended forsale are deemed to be service provided bythe builder to buyer

Will affect the annuity businessmodel

Earnings will be impacted

All Real Players EDLF, Sobha

1 2 3 4 5 6 7 8 9 10 11 12


10/12

UNIQUE IDENTIFICATION PROJECT(UID)

It is a multipurpose national ID card (not smart card) initiated by the UPA GovernmUnder this, a unique ID number will be allotted to each citizen of India that will idehim/her, as against a dozen of I- Cards issued by different authorities.

UIDAI (UID Authority of India) was established in February 2009. Nandan Nilenkwho now holds a cabinet rank, was appointed the first Chairman of the agency. It is ging up to roll out the first batch of numbers by August 2010 and the second batch by ruary 2011. In the next five years, the pro-gram is expected to cover 600 million people.

Pranab Mukherjee allocated Rs. 1900 crore inBudget 2010, to give a boost to the project.

Last fiscal, only about Rs. 120 crore of budg-etary support was provided. Such a signifi-cant hike shows the seriousness of the Gov-ernment for its flagship project.

The ID will not only help the governmenttrack down individuals as is highlighted bythe media, but will also make life far easierfor citizens as they will not have to submit so many documents each time they waavail a new serviceprivate or government. This ID can be verified and authenticin an online, cost-effective manner. It will also be robust enough to eliminate dupland fake IDs. It is an equivalent to the Social Security Number (SSN) in the US. If rightly, it will allow Governments subsidies to be channelized to the right recipi

Currently, each department/agency of the government has its own system of identition such as PAN Card, Ration Card, and Electoral Photo ID Card etc. With UID,will be eliminated.

But there are two issues worthy of thought. First, these cards will be carrying so mucones personal data (they say even your family genealogy can be traced) that any mi

of any kind can be detrimental. Second, these cards can be used properly only with

use of extensive technology. Does India have latest technology for the implementatio

the same? Well, only time will tell!

1 2 3 4 5 6 7 8 9 10 11 12


11/12


12/12

MARKET WATCH

Markets become edge of the seat excitement whenever the Budget is around the corner. These are opportunities where, if able to correctly predict the upcoming Budget policies (even to a small extent), he stands a good chance to make some hanreturns. Although this is not an easy task, but if one follows the market mood and the macro economic factors, it would hard either.

For the week before the Budget:

There was hardly any movement in the Sensex in the first four sessions, before the Budget session, as the index oscillate

very narrow range between 16,200 and 16,300 and Nifty between 4,850 and 4,900.The Railway Budget, announced on Fe24, failed to take the market either ways. This was followed by Economic Survey on Thursday and expiry of February dercontracts.Low expectations of market participants from the Finance Minster this year helped ward a steep decline in stock with the volumes being very low in the cash segment implying that many on the street were perched on the fence. Derivativumes, however, spiked higher especially towards the latter half of the week.FIIs were buying enthusiastically in the first three sessions of the week but they turned cautious towards the weekend. Doinstitutional investors, who were net buyers in most sessions in 2010 turned sellers last week. India VIX closed at its highesthis year at 31.9 implying that traders too expect volatility to spike next week.Global Cues

Despite the Federal Reserve's sudden hike in discount rate by 25 basis points, US equities rallied from lower levels on Frend the week on a high. The Dow has closed in the positive on all the four sessions of last week to end 303 points higheindex has also powered past the short-term resistances at 10,200 to end the week at key short-term trend deciding level of 1

European and Latin American markets too had a strong week and benchmarks in these countries closed 4 to 6 per cent highe

For the Budget and Post - Budget sessions:

Mr. Pranab, in a very subtle way, pleased market participants by giving them what they wanted the most a clear plan toback to fiscal prudence. Friday's surge led the index to the intra-week peak of 16,669 but it could not sustain there for loended the week below 16,500. FIIs were net buyers on Friday though they have net sold almost Rs 2,000 crores so far this Volumes remained buoyant throughout the week and spiked sharply higher in the budget session. Expiry of the February cohas resulted in the open interest coming down to a more sedate Rs 88,000 crores.

The medium term trend is down in all the global indices since the mid-January peak. Interestingly, all global equity markmoving in tandem and the fate of Indian equities are strongly interwoven with that of the other markets. But since the Budget has not been able to alter the medium term trend, it will be back to watch Greece, US, China, et al to decipher whe

are headed.However, the short-term trend in the SENSEX and NIFTY is up. The following chart will vouch safe that:

Global Cues

Globally equities had a tough weak as worse than expectedeconomic readings from the US and resurfacing of theGreece sovereign debt issue dragged stock prices lower.European and Latin American indices end the week 1 to 3per cent lower. Asian benchmarks were relatively strongerand many of them such as KLSE Composite, Nikkei, Philip-pines Composite, Shanghai Composite and so on ended the

week marginally in the green.

Thats all from our side. Hope you found this

Special Budget Issue useful and informative!

EDITORIAL TEAMNIKHIL SARAWGI, SONABH BUBNA & VIVEK KR. BHUKANIA

PUBLISHED BYKHYATI PARIKH

1 2 3 4 5 6 7 8 9 10 11 12

The IBS TIMES-Budget Special Issue

Documents

Transcript of The IBS TIMES-Budget Special Issue