Union Budget 2008-09 - Ventura Budget Special

8/14/2019 Union Budget 2008-09 - Ventura Budget Special

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UNIONBUDGET2008-

09


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Overview

The budget, coming on the backdrop of global slowdown and uncertain international

stock markets, has tried to be both prudent and progressive. The farm loan waiver,increasing in IT limit, cut in excise duty all point to an effort that is aimed in ensuringthat the growth engine does not slow down. At the least case, Indian economy isexpected to grow at 8.7% as per estimates.

The growth story that got started in 2003-04 is very much in place and was largelydriven by the domestic consumption. India is one of the few countries that isdomestic led economy save and except may be Software. This budget has given thefinancial stimulus by cutting duties, increasing IT limit thereby not only getting goodsto be cheaper but leaving more money in the hands on the consumer and both

these acts would push consumption.

Contd.


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Report Card GDP at factor cost at constant 1999-2000 prices to grow at 8.7% in 2007-08, a

deceleration from the high growth of 9.4% & 9.6% in the previous two years

Per Capita income & consumption at constant 1999-2000 prices up 7.2% &5.3% at Rs 29,786 & Rs 17,145 respectively

GDS as a proportion of GDP expected to improve to 35.8% in 2007-08 as

compared to an average of 31.4% in 10

th

five year plan

The gross tax to GDP budgeted at 11.8% in 2007-08 as compared to 11.4% in2006-07

Inflation projected to decline from 5.6% in 2006-07 to 4.1% in 2007-08

RBIs policy initiatives have reduced credit growth sharply to 21.5% in Jan08 ascompared to 30.8% in Jan07

Revenue deficit for 2007-08 to be at 1.4% (budgeted at 1.5%) and the fiscal

deficit at 3.1% (budgeted at 3.3%)


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Key Highlights Increased government spending proposed in health, education & infrastructure

Complete waiver of all overdue loans as on on 31st Dec07 for marginal & smallfarmers while rebate of 25% under one time settlement scheme for other farmers

General CENVAT rate on all goods reduced from 16% to 14%

No changes in peak rate of customs duty

Income tax threshold raised to Rs 1,50,000

Short term capital gains to increase from 10% to 15%


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Sector SummarySector Budget Impact Key Highlights

Automobiles PositiveReduction in excise duty on two, three wheelers & smallcars

Pharmaceuticals Positive Additional Govt. focus & reduction in excise duty

Banking / Financial ServicesNot Rated /

NegativeAgricultural loan waiver & increase in STCG tax

IT / Training Neutral Increased Allocation of funds by govt.

Infrastructure Positive Increased fund Allocation to Bharat Nirman, NHDP & AIBP

Power Positive Increase outlay for T&D sector & Urge for 5 more UMPPs

Hotels Positive Five year Tax holiday for specified Hotels

Cement Neutral Rationalization of Excise duty structure

Metals & Mining Neutral Reduction in customs duty on scrap

Refineries / Petrochemicals Positive / NegativeCustoms duty on naphtha imposed at 5% & specific dutiesproposed on unbranded diesel & petrol

FMCG Positive Increased consumer spending to generate volumes


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Automobiles Positive

Item Budget Measures Budget Impact Companies Impacted

Excise Duty on smallcars

Reduction from 16% to12%

PositivePositive for Tata Motors,Bajaj Auto & Maruti Udyog

Excise Duty on busesReduction from 16% to12%

PositivePositive for Tata Motors &Ashok Leyland

Excise Duty on threewheelers

Reduction from 16% to12%

PositivePositive for Bajaj Auto &M&M

Back to Sector Summary


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Pharmaceuticals Positive


Government FocusIncreased Allocation of15% to Rs 16,534 crore

Positive All Pharma companies

Excise Duty on all

Pharma products

Reduced from 16% to 8% Positive All Pharma companies

Outsourced R&D Weighted deduction Positive All Pharma companies

HIV / AIDSNational Aids ControlProgramme to provide Rs993 crore

Positive Ranbaxy & PanaceaBiotech

Polio EradicationAllocation of Rs 1,042crore

Positive Cipla & Panacea Biotech



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Banking / Financial Services Not Rated / Negative

Item Budget Measures Budget ImpactCompaniesImpacted

Agricultural LoansFull Waiver to small &marginal farmers while 25%rebate to other farmers

Not Clear Further Clarityawaited

All PSU Banks

STT Rationalization

To be treated as deductibleexpenditure against businessincome instead of setting offagainst the tax liability

Negative for brokers -Additional tax burden

Few arbitrage businessmodel brokers

Short Term CapitalGain Tax

Increase of tax from 10% to15%

Volumes to get impactednegatively

All broking companies



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IT / Training Neutral

Item Budget Measures Budget ImpactCompaniesImpacted

Education services Increased Allocation of 20% Positive

Navneet Publications,NIIT, EducompSolutions, EverronSystems & Aptech

Smart CardsLaunch of smart cards forPublic Distribution System

PositiveTCS & HCLInfosystems

Excise Duty onpackaged software

Increase from 8% to 12%Applicable only to domesticsales, hence negligibleimpact

I-Flex, 3i Infotech &Subex Azure



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Infrastructure Positive


Bharat NirmanIncreased allocation of 16%by Rs 31,280 crore

Positive All Infrastructure players

Accelerated IrrigationBenefit Programme(AIBP)

Increased outlay to Rs20,000 crore

Positive

IVRCL, HCC, Gammon,

KSB Pumps & pipe makingcompanies like Jindal Saw,Welspun Gujarat etc

Irrigation & Water

Resources FinanceCorporation (IWRFC)

Funding of major &medium irrigation projects Positive Same as above

National HighwayDevelopmentProgramme (NHDP)

Increased Allocation to Rs12,966 crore

PositiveSimplex Infra, GayatriProjects, HCC amongothers



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Power Positive


Custom Duty onProject Imports

Reduction from 10% to 5% PositivePositive for L&T & ReliancePower; Negative for BHEL

UMPP Urge to open bidding forfive more UMPPs

Positive Power generationcompanies in focus

National Fund for T&D Increased Outlay PositivePower T&D companies infocus

APDRP ProjectAdditional Provisional of Rs800 crore

PositivePower ancillary equipmentcompanies in focus



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Hotels Positive


Two, three & four starhotels established at22 World Heritage

Sites

Five Year tax holiday Positive All Hotel Companies



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Cement Neutral


Excise DutyRs 400/- per tonne or 14%Ad valorem

Mildly negative for companiesselling cement below Rs 190/-per bag

Madras Cement, ShreeCement Gujarat SiddheeCement

Bharat NirmanIncreased allocation of 16%

by Rs 31,280 crore

Increase in domestic demand All Cement companies



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Metals & Mining Neutral


Export Duty onChrome Ore

Increase from Rs 2,000/tonto Rs 3,000 / ton

Increase in production offerro alloys & consequentlystainless steel

Nava Bharat Ferro Alloys,Ferro Alloys Corp, JindalStainless & Tata Steel

Customs Duty on Steelmelting scrap

Reduction from 5% to NILReduction in cost ofproduction for stainless steelcompanies Positive

Jindal Stainless, Tata Steel& JSPL

Customs Duty onAluminium scrap

Reduction from 5% to NILMarginally negative foraluminium companies

Nalco, Hindalco & SterliteIndustries



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FMCG Positive


Excise Duty on tea &coffee mixes

Reduced to NIL Positive All tea & coffee companies

Tea & Coffee Fund for

re-plantation Allocation of Rs 40 crore Positive

All tea & coffee growing

companies

Crop InsuranceScheme

To be introduced next yearfor Tea, rubber, pepper,cardamom etc

PositiveTea companies, BombayBurmah & HarrisonsMalayalam

Direct Tax structureThreshold limit of Rs150,000

Positive Increase inconsumer spending

HUL, Dabur, GodrejConsumer, etc



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Miscellaneous

Item / Sector Budget Measures Budget ImpactSectors & Companies

Impacted

Wireless Data CardsReduction in excise duty from 16%to NIL

Positive Tata Tele, RCom & Bharti

TextilesHigher TUF Outlay & schemes for

Integrated textile parks

Positive All textile companies

PaperExcise Duty reduction from 12% to8%

NeutralAll paper manufacturingcompanies

Defence Increase in fund allocation by 10% PositiveBEL, BEML, M&M & AstraMicro

Water PurificationDevices

Excise Duty reduction from 16% to8%

PositiveIon Exchange, HUL &Forbes & Co.

Refrigeration

equipment

Exemption of excise duty PositiveHitachi Home, Voltas &

Blue Star


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Policies - Capital Markets Short Term Capital Gain Tax increased from 10% to 15% - Negative

DDT Rationalization: Parent company to set off dividend received from itssubsidiary company against dividend distributed by the parent company Positive for holding companies

STT Rationalization: To be treated as deductible expenditure against businessincome instead of setting off against the tax liability - Negative on account ofadditional tax burden

Introduction of Commodity Transaction Tax - Negative

PAN to be made mandatory for all transactions in financial market subject tothreshold exemption market

Initiated steps for setting up of Currency & Futures exchange - Positive forFinancial Technologies


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Policies Direct Tax Threshold limit of exemption from personal income tax increased

Male Assesses Rs 150,000

Female Assesses Rs 180,000 Senior Citizens Rs 225,000

Additional deduction of Rs 15,000 under Section 80D for making medicalinsurance premium for his / her parents

No change in the corporate income tax rates

No change in the rate of surcharge

Banking Cash Transaction Tax to be withdrawn w.e.f. April 01, 2008


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Policies Indirect Tax General CENVAT rate on all goods reduced from 16% to 14%

No changes in peak rate of customs duty

Central Sales Tax to be reduced from 3% to 2% from April 01, 2008

Roadmap for Goods & Service Tax (GST) being prepared to be ready forintroduction by April 01, 2010


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Policies Service Tax Threshold limit of exemption increased from Rs 8 lakhs p.a. to Rs 10 lakhs p.a.

about 65,000 small service providers to go out of the tax net

Four additional services to be brought under the Service Tax net:

Asset Management Service (AMS) provided under ULIP to bring it on par withAMS provided under Mutual Fund

Services provided by stock / commodity exchanges and clearing houses

Right to use goods, in cases where VAT is not payable

Customized software to bring it on par with packaged software & other ITservices


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Conclusion

Increased consumption & ample liquidity may fuel growth but the flip side of all this is

that it can fuel inflation hence we do not expect any interest rate cut in the near future.Prudent and progressive in all aspects, the budget has tried to cater to all sections andthe benefits of this budget will percolate over a period of time as policies take time toget enunciated as tangible results. The negative impact of increase in Short TermCapital Gains Tax will impact trading volumes in the short run but will get evened out

over a period of time as markets moves from momentum / speculation to morefundamental and value investing. That journey has clearly started..


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Disclaimer

Ventura Securities Limited.Corporate Office: C-112/116, Bldg No. 1, Kailash Industrial Complex, Park Site,

Vikhroli (W), Mumbai 400079

This report is neither an offer nor a solicitation to purchase or sell securities. Theinformation and views expressed herein are believed to be reliable, but noresponsibility (or liability) is accepted for errors of fact or opinion. Writers and

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Union Budget 2008-09 - Ventura Budget Special

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