Union Budget 2013-14 - Highlights & Analysis
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UNION BUDGET ICRA ONLINE LIMITED
Transcript of Union Budget 2013-14 - Highlights & Analysis
UNION BUDGET
ICRA ONLINE LIMITED
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ICRA Online Limited
The Union Budget 2013-14 offered a ray of hope on the backdrop of a slowing economy amid growing concerns
over fiscal slippages and a deteriorating Balance of Payments situation. Achieving over 8-9% growth remains a
tough challenge, but Finance Minister P. Chidambaram remained positive when he said: “We have done it
before. We can do it again. Whatever may be the final outcome, growth is below potential. But there is no
need for gloom.”
Though high fiscal deficit, slow growth and high inflation remain impediments to the domestic economy, but
the current account deficit was singled out to be the cause of more concerns. India will need $75 billion to
finance the current account deficit, which is only possible by attracting foreign direct investment, the Budget
document revealed. Projects will be cleared fast without worrying over audit remarks and doing business in
India will be seen as easy and mutually beneficial. Moreover, a revised fiscal deficit figure of 5.2% of Gross
Domestic Product (GDP) for the current year has been set, lower than the previous estimate of 5.3%. For the
next year, a lower deficit level at 4.8% of GDP has been projected.
To give the economy a much-needed fillip, the Union Budget earmarked Rs.5.55 lakh crore under planned
expenditure during 2013-14, nearly 30% more than the current fiscal. Infrastructure development was given due
importance and the coming year will start the process to invest $1 trillion in infrastructure during the 12th Plan
period.
There has been a significant rise in allocation towards rural job scheme, water and urban development, women
development, Scheduled Caste welfare, health etc. Outlays were also increased for human resource
development, food security, mid-day meal scheme and integrated child development as well.
There has been no change in the tax slabs for individual taxpayers, but those having a taxable income of more
than Rs. 1 crore per annum will have to pay an additional surcharge of 10%. It has also been proposed to
provide a tax credit of Rs. 2,000 to every person whose total income falls between Rs. 2 lakh and Rs. 5 lakh.
The scope of Rajiv Gandhi Equity Savings Scheme has been extended and announcements were made to
encourage domestic savings and higher degree of financial inclusion.
The Union Budget 2013-14 has sought to create the stimuli required to boost the economy. Whether the
objectives set forth in the Budget will be achieved or not will depend on the pace and degree of
implementation of these proposals.
Executive Summary
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Supporting Foreign Investors’ Interest
Foreign Institutional Investors (FIIs) will be allowed to participate in the exchange-traded currency
derivative segment to the extent of their Indian rupee exposure in the country.
FIIs can use investments in corporate and Government bonds as collateral to meet margin requirements.
Investor with less than 10% stake in a company will be regarded as FII, more than 10% stake as Foreign
Direct Investment (FDI).
The exchange regulator will simplify Know Your Customer (KYC) norms for foreign portfolio investors.
Modified General Anti-Avoidance Rules to come into effect from April 1, 2016.
Boost to Domestic Household Savings
The Rajiv Gandhi Equity Savings Scheme (RGESS) will be liberalised to enable the first-time equity
investors to invest in mutual funds and listed shares in three successive years.
Plans to issue inflation-indexed bonds with the objective to protect savings from inflation.
Insurance companies will be empowered to open branches in Tier-II cities and beyond without prior
approval from Insurance Regulatory Development Authority (IRDA).
All towns of India with a population of 10,000 or more will have an office of LIC and an office of at least
one public sector general insurance company.
Infrastructure
Some institutions were allowed to issue tax-free bonds in 2013-14, strictly based on need and capacity
to raise money in the market, up to a total sum of Rs. 50,000 crore.
A regulatory authority for the road sector will be formed.
Boosting Capital Expenditure
Proposal of capital allowance of 15% to companies on investments of more than Rs. 100 crore.
Technology Upgradation Fund Scheme (TUFS) for the textile sector to be continued in the 12th Plan.
Apparel parks to be set up within the Scheme for Integrated Textile Parks (SITP) to house apparel
manufacturing units.
Key Highlights
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Banking
Capital infusion of Rs. 14,000 crore in state-run banks in 2013-14.
Banks will be permitted to act as insurance brokers so that the entire network of bank branches can be
utilised to increase penetration.
Banking correspondents will be allowed to sell micro-insurance products.
India's first All Women's Bank will be set up that will lend mostly to women and women-run businesses.
PSU banks to have ATMs at all their branches by March 31, 2014.
Direct Tax
No revision in tax slabs but a tax credit of Rs. 2,000 for those who belong in the income bracket of Rs. 2
lakh to Rs. 5 lakh.
10% surcharge imposed on those whose taxable income is above Rs 1 crore.
First-time home buyers to get additional deduction of interest of Rs. 1 lakh for housing loans of Rs. 25
lakh or less taken in 2013-14.
Donations made to the National Children’s Fund will now be eligible for 100% deduction.
Contributions made to the Central Government Health Scheme are eligible for deduction under Section
80D, which is proposed to be extended to similar schemes of the Central Government and State
Governments.
Reduction in Securities Transaction Tax (STT), which will bring down the cost of transaction for the
mutual fund industry.
Commodity Transaction Tax (CTT) to be levied on non-agricultural commodities Futures contracts.
New Revenue Sources from Direct Taxes
Surcharge on domestic companies, whose taxable income exceeds Rs. 10 crore to go up from 5% to 10%.
1% Tax Deducted at Source (TDS) to be levied on transfer of immovable property transaction, whose
consideration exceeds Rs. 50 lakh. However, agricultural land will be exempted.
Mobiles phones enjoy a concessional excise duty of 1%, which will not change. For phones priced more
than Rs. 2000, duty raised to 6%.
The Budget proposed to levy a final withholding tax at the rate of 20% on profits distributed by unlisted
companies to shareholders through buyback of shares.
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Rate of tax on payments by way of royalty and fees for technical services to non-residents to go up from
10% to 25%. However, the applicable rate will be the rate of tax stipulated in the Double Taxation
Avoidance Agreement (DTAA).
Rate of tax on distributed income by IDF-Mutual Fund and interest by IDF-NBFC will be 5%.
Indirect Taxes
No change in the normal rate of excise duty of 12% and the normal rate of service tax of 12%.
Extension of the period of concession now available for specified parts of electric and hybrid vehicles up
to March 31, 2015.
Duty on exports of precious and semi-precious stones to come down to 2% from 10%.
There will be no Countervailing Duty (CVD) on imported ships and vessels.
The baggage rule, permitting eligible passengers to bring jewellery, was proposed to raise the duty-free
limit to Rs. 50,000 in case of a male passenger and Rs. 100,000 in case of a female passenger.
Two services were included in the negative list of Service Tax which are vocational courses offered by
institutes affiliated to the State Council of Vocational Training and testing activities in relation to
agriculture and agricultural products.
Proposal to move to revenue-sharing from profit-sharing policy in oil and gas sector.
To reduce the duty on specified machinery for manufacturing of leather and leather goods, including
footwear, from 7.5% to 5%.
To withdraw export duty on de-oiled rice bran oil cake.
To levy zero duty in case of cotton at fibre stage and duty of 12% in case of spun yarn.
New Revenue Sources from Indirect Taxes
Service tax to be levied on all air conditioned restaurants.
One time amnesty scheme for service tax defaulters under the name of ‘Voluntary Compliance
Encouragement Scheme.’
To levy 2% customs, CVD on coal imports.
Increase in import duty on high-end motor vehicles from 75% to 100%, motor cycles from 60% to 75% and
on yachts and similar vessels from 10% to 25%.
To equalise duties on steam and bituminous coal to 2% customs duty and 2% CVD.
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Customs duty on set-top boxes to go up to 10% from 5%.
Customs duty on raw silk to go up to 15% from 5%.
Specific excise duty on cigarettes to rise by about 18%.
Excise duty on Sports Utility Vehicles (SUVs) up from 27% to 30%.
Excise duty rate on marble up from Rs. 30 per square meter to Rs. 60 per square meter.
4% excise duty to be levied on silver manufactured from smelting zinc or lead to bring the rate at par
with the excise duty applicable to silver obtained from copper ores and concentrates.
Borrowings
Gross market borrowings for 2013-14 seen at Rs. 6.29 trillion.
Net market borrowings for 2013-14 seen at Rs. 4.84 trillion.
Short-term market borrowings for 2013-14 seen at Rs. 4.84 trillion.
To buy back Rs. 500 billion worth of bonds in 2013-14.
Fiscal Deficit
Fiscal deficit for the current year has been contained at 5.2% and the fiscal deficit for the year 2013 –
14 is estimated at 4.8%.
Spending
Total expenditure in 2013-14 seen at Rs. 16.65 trillion.
Plan expenditure seen at Rs. 5.55 trillion in 2013-14.
Non-plan expenditure estimated at about Rs. 11.1 trillion in 2013-14.
Revenue
Hopes of earning Rs. 133 billion through direct tax proposals in 2013-14.
Hopes of earning Rs. 47 billion through indirect tax proposals in 2013-14.
Target of earning Rs. 558.14 billion from stake sales in state-run firms in 2013-14.
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Planned Budgetary Allocation
Outlay of Rs. 10,000 crore for Food Security Bill.
Allocation of Rs. 2,03,672 crore to Defence in 2013-14.
Allocation of Rs. 801.94 billion to rural development in 2013-14.
Plan to allocate Rs. 270.49 billion for agriculture in 2013-14.
Two new major ports will be established in Sagar, West Bengal and in Andhra Pradesh to add 100 million
tonnes of capacity.
National Institute for Sports to train coaches to be set up at Patiala at a cost of Rs. 250 crore over a
period of three years.
Rs. 37,330 crore allocated for Ministry of Health & Family Welfare.
Rs. 65,867 crore allocated to Ministry of HRD in 2013-14.
Rs. 15,260 crore to be allocated to Ministry of Drinking Water and Sanitation.
Rs. 6,000 crore to be allocated to Rural Housing Fund in 2013-14.
Rs. 6,275 crore to the Ministry of Science & Technology; Rs. 5,615 crore to the Department of Space;
and Rs. 5,880 crore to the Department of Atomic Energy.
Rs. 532 crore allocation to make post offices part of core banking.
The Government will contribute Rs. 1,000 crore to Nirbhaya Fund (for safety and welfare of women and
girl children).
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Impact of Union Budget on Various Sectors
Industry Budget Announcement CompaniesImpacted* Comment
Agriculture 1. Allocated Rs. 27,049 crore to the Ministry of Agriculture, 22% higher than the RE of FY13.2. Out of the allocated funds, 12.6% to be used for agricultural research.3. Agri-credit target for FY14 raised to Rs. 7,00,000 crore.4. Interest subvention scheme for short-term crop loans continued and repayment on time will fetch credit at 4% p.a.5. Crop loans borrowed from private sector scheduled commercial banks included under the scheme.6. Allocated Rs. 9,954 crore to Rashtriya Krishi Vikas Yojana and Rs. 2,250 crore to National Food Security Mission.7. The Indian Institute of Agricultural Bio-technology to be set up in Ranchi.8. Allocation of Rs. 307 crore to National Livestock Mission (to be launched in 2013-14) for increasing the availability of feed and fodder.
1. Rallis India Ltd.2. United Phosphorus
Positive
Auto 1. Excise duty on non-taxi SUVs increased from 27% to 30%.2. Duty raised on imported luxury goods such as high end motor vehicles, motor cycles, yachts and similar vessels.3. Allocated Rs. 14,873 crore for JNNURM, out of which a significant portion to be used to support purchase of up to 10,000 buses.4. Extension of the period of concession now available for specified parts of electric and hybrid vehicles up to March 31, 2015.
1. Ashok Leyland2. Mahindra & Mahindra3. Tata Motors4. Maruti Suzuki5. Eicher Motors
Neutral
Banking 1. Compliance of public sector banks with Basel-III regulations to be ensured. An amount of Rs.12,517 crore to be provided before the end of March 2013 to capitalise 13 PSU banks. An additional amount of Rs. 14,000 crore for capital infusion to be done in FY14.2. All branches of PSU banks to have ATMs by March 31, 2014.3. Proposal to set up India’s first Women’s PSU Bank. Provision of Rs. 1,000 crore as initial capital.4. Banks permitted to act as insurance brokers.5. Banks allowed to sell micro-insurance products.
1. HDFC Bank2. State Bank of India3. Punjab National Bank4. Bank of Baroda5. HDFC Limited6. LIC Housing Finance
Positive
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Industry Budget Announcement Companies
Impacted* Comment
Education 1. Allocation of Rs. 65,867 crore to the Ministry of Human Resource Development, which is an increase of 17% over the RE of the previous year.2. Allocation of Rs. 27,258 crore for Sarva Shiksha Abhiyan (SSA).3. Increase of 25.6% over RE of the current year for investments in Rashtriya Madhyamik Shiksha Abhiyan (RMSA).4. Allocation of Rs. 1,650 crore for six AIIMS-like institutions.5. Outlay of Rs. 4,727 crore for medical education, training and research.6. A grant of Rs. 100 crore each to 4 institutions of excellence.7. Inclusion of vocational courses offered by institutes affiliated to the State Council of Vocational Training and testing activities in relation to agricultural produce in the negative list of Service Tax.
1. EveronnEducation2. Career Point3. Aptech4. Educomp5. MT Educare
Positive
FMCG 1. Specific excise duty on cigarettes increased by about 18%. Similar increase on cigars, cheroots and cigarillos.
1. ITC2. Godfrey Phillips3. VST Industries
Negative
Healthcare & Hospitals 1. Allocation of Rs. 37,330 crore to the Ministry of Health and Family Welfare, showing an increase of 24.3% over RE.2. Allocated Rs. 4,727 crore for medical education, training and research.3. Allocated Rs. 1,069 crore to the Department of Ayurveda, Yoga & Naturopathy, Unani, Siddha and Homoeopathy (AYUSH).4. Contributions made to the Central Government Health Scheme eligible for deduction under Section 80D of the Income-tax Act.5. MRP-based assessment in respect of branded medicaments of Ayurveda, Unani, Siddha, Homeopathy and bio-chemic systems of medicine to reduce valuation disputes.
1. Apollo Hospitals2. Fortis Healthcare
Neutral
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Industry Budget Announcement CompaniesImpacted* Comment
Hospitality Sector 1. Proposals to levy Service Tax on all air conditioned restaurant.
1. Speciality Restaurants 2. Jubilant FoodWorks
Negative
Infrastructure 1. Investment outlay of Rs. 55,00,000 crore in infrastructure projected for the 12th Plan. Private sector to share 47% of the investment.2. Allocation of Rs. 50,000 crore to infrastructure tax-free bonds in 2013-14.3. Infrastructure Debt Funds (IDF) will be encouraged to provide long-term low-cost debt for infrastructure projects. 4. Credit enhancement to infrastructure companies by India Infrastructure Finance Corporation Ltd (IIFCL), in partnership with the Asian Development Bank.5. Corpus of Rural Infrastructure Development Fund (RIDF) raised to Rs. 20,000 crore in 2013-2014.6. Allocated Rs. 5,000 crore to NABARD to finance construction of warehouses, godowns, silos and cold storage units.7. A regulatory authority for road sector to be formed.8. Road projects of 3000 km to be awarded in the first six months of FY14.9. Two new major ports to be set up in Sagar, West Bengal and in Andhra Pradesh.10. The rate of tax on interest paid to non-resident investors in rupee denominated long term infrastructure bonds reduced to 5%from 20%.
1. Reliance Infrastructure2. Jaiprakash Associates3. Ultratech Cement4. Larsen and Toubro5. IRB Infrastructure Developers6. IL&FS
Positive
IT 1. An ambitious IT- driven project to modernise the postal network at a cost of Rs. 4,909 crore.2. Proposal to increase the rate of tax on payments by way of royalty and fees for technical services to non-residents from 10 percent to 25 percent will result in higher withholding tax payments by Indian IT companies.
1. WIPRO2. Infosys3. TCS
Neutral
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Industry Budget Announcement CompaniesImpacted* Comment
Media & Entertainment 1. Private FM radio services to be extended to 294 more cities. About 839 new FM radio channels will be auctioned in 2013-14.2. Exemption of Service Tax on copyright on cinematography limited to films exhibited in cinema halls.
1. Saregama2. Reliance MediaWorks
Positive
Petrochemicals/ Oil & Gas 1. Oil & Gas exploration policy to be reviewed to move from profit sharing to revenue sharing contracts.2. Natural gas pricing policy to be reviewed.3. Shale gas projects to be encouraged.4. Stalled NELP blocks to be cleared.5. The 5-MMTPA LNG terminal in Dabhol, Maharashtra will be fully operational in 2013-14.
1. ONGC2. Bharat Petroleum3. Indian Oil Corporation4. Hindustan Petroleum5. RIL6. Oil India
Positive
Power 1. Allocated Rs. 226 crore to construct a transmission system from Srinagar to Leh.2. To devise a PPP policy framework with Coal India Ltd. as one of the partners to increase coal production and reduce dependence on imported coal.3. Customs duty of 2% imposed on steam coal and reduced from 5% to 2% on Bituminous coal. 4. CVD on Steam coal increased to 2% from 1% and on Bituminous coal reduced to 2% from 6%.
1. Suzlon Energy2. Adani Power
Positive
Real Estate 1. Additional deduction of interest of up to Rs.1,00,000 on loan taken for first home from a bank or housing finance corporation up to Rs. 25,00,000 during the period April 1, 2013 - March 31, 2014.2. Excise duty on marble increased from Rs.30 per square meter to Rs. 60 per square meter.3. Abatement rates on homes and flats with a carpet area of 2,000 sq.ft. or more or of a value of Rs. 1 crore or more, reduced from 75% to 70%.4. Allocation of Rs. 6,000 crore to the Rural Housing Fund in FY14.
1. DLF2. Unitech
Neutral
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Industry Budget Announcement CompaniesImpacted* Comment
Textile 1. Technology Upgradation Fund Scheme (TUFS) for the textile sector to continue in the 12th Plan with an investment target of Rs. 151,000 crore.2. Allocation of Rs. 50 crore to the Ministry of Textile to incentivise setting up Apparel Parks within the Scheme for Integrated Textile Parks (SITP) to house apparel manufacturing units.3. Integrated Processing Development Scheme to be implemented in the 12th Plan to address the environmental concerns of the textile industry 4. Approved working capital and term loans at a concessional interest of 6% to handloom sector. 5. Scheme of Fund for Regeneration of Traditional Industries (SFURTI) to be extended to 800 clusters during the 12th Plan.6. Readymade garment industry provided relief. In case of cotton, zero excise duty at fiber stage also. In case of spun yarn, duty of 12% at the fiber stage.7. Handmade carpets and textile floor coverings of coir and jute totally exempted from excise duty.
1. Raymond Ltd.2. S. Kumars3. Century Textiles4. Alok Industries5. Bombay Dyeing 6. Arvind Limited
Positive
Source: ICRA Online Research; * The list of companies is indicative and not exhaustive
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Equity Market
The Union Budget has always been one of the most important events for the equity markets and it was no
exception this year either. The market participants were clearly divided into two groups, one which hoped for
populist measures while the other expected otherwise, keeping the economic reality in mind. The market was
anticipating a clear roadmap towards fiscal consolidation and how investment cycle would improve in the
coming financial year along with measures to control subsidy. Though the Budget managed to strike a fine
balance between populism and austerity and kept the fiscal deficit target at 4.8% of GDP, but markets plunged
following the Budget presentation as expectations of most of the market participants were not met.
The benchmark indices, Sensex and Nifty, shed over 1.5% at the end of the session. On BSE, 1,962 shares fell
while 866 rose. A total of 103 shares remained unchanged. The top five Sensex gainers were TCS, Bharti Airtel,
Tata Motors, Sun Pharma and Bajaj Auto, while SBI, Tata Steel, ICICI Bank, Maruti and L&T were major
laggards. Barring Consumer Durables, IT and TECk, all other BSE sectoral indices closed in red. Among them,
Power index (4.29%) dropped the most, followed by Banking (3.59%) and Capital Goods (3.39%).
The positives which the markets can take from the Union Budget 2013-14 are:
Simplification of procedures and uniform registration and other norms for entry of foreign portfolio
investors.
Clear distinction between Foreign Institutional Investors (FII) and Foreign Direct Investments (FDI).
Adoption of a risk-based approach to Know Your Customer (KYC) norms to make it easier for foreign
investors such as central banks, sovereign wealth funds, university funds, pension funds etc. to invest in
India.
Reduction in Securities Transaction Tax (STT) on equity Futures.
Broadening the scope of Rajiv Gandhi Equity Savings Scheme (RGESS).
Impact of Union Budget on Various Asset Classes
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The reasons for concerns are:
Increase in tax surcharge for corporates and dividend distribution tax.
Lack of clarity on Direct Tax Code (DTC) and Goods and Services Tax (GST).
No major incentive to channelise household savings.
No major announcement to curb gold imports.
The short-term impact of Budget announcements looks negative on the equity markets. However, if fiscal
deficit can be checked, the Reserve Bank of India (RBI) may cut rates going forward, which will support the
equity markets in the medium to long run.
Debt Market
In this year’s Budget, some proposals were made to boost the bond markets by allowing pension and insurance
firms to trade directly in the debt segment of stock exchanges. Moreover, the Budget also proposed investment
of pension and provident fund corpus into debt mutual funds, which will widen the bond market base.
The debt market witnessed some pressure after the borrowing target for the next fiscal was set at Rs. 6.29 lakh
crore, much above market expectations.
Higher than expected gross market borrowings are likely to put supply pressure on bond markets as the
Government would issue more papers. The G-Sec yields hardened and the 10-year benchmark bond closed at
7.87%. Based on these gross borrowing estimates, the first half of 2013-14 could see borrowings of around Rs. 4
lakh crore as it is likely to be front loaded this year as well.
In the last Union Budget, some cap on subsidy was suggested while providing a road map towards fiscal
consolidation. The Government announced to restrict the expenditure on central subsidies to less than 2% of
Gross Domestic Product (GDP) in 2012-13. It was also proposed to lower the subsidy burden down to 1.75% of
GDP over the next three years. However, the total subsidy for 2012-13 remained at 2.6% of GDP, while for the
next financial year, the subsidy burden has been pegged lower but is not expected to fall below 2.0% of GDP.
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The positive factors which the market can take from this Budget are:
Dedicated debt segment on the exchange and permitting insurance companies, provident funds and
pension funds to trade directly, which will help develop the debt market.
Tax-free infrastructure bonds for regular income.
Inflation Indexed Bonds (IIBs).
Pension and provident funds have been allowed to invest in Exchange Traded Funds and debt mutual
funds.
The reason for concerns is:
Higher borrowing program.
The bond yields, which moved up after the Budget announcements, are likely to ease once the initial reaction
gets over. Moreover, the decade-low GDP data may prompt the central bank to cut interest rates in the next
monetary policy review. This is likely to push up bond prices higher. The liquidity may remain tight and market
would expect more Open Market Operations (OMOs) by the central bank to support bond yields. The first half of
the next fiscal would be front loaded like last year and it is the second half which may give a boost to the GDP,
mainly due to election spending.
Mutual Funds
The Rs. 8.26-trillion mutual fund industry of the country got a boost in the Union Budget 2013-14 when the
Finance Minister proposed a cut in Securities Transaction Tax (STT), which will bring down the cost of
transaction. Mutual Fund distributors were asked to become stock exchange members. This move is likely to
help distributors increase their confidence level.
The scope of Rajiv Gandhi Equity Savings Scheme (RGESS), introduced in the last year’s Budget, has been
expanded, in line with market expectations. The Finance Minister raised the income limit for investors, keen to
invest in RGESS, from Rs. 10 lakh to Rs. 12 lakh. He also allowed first time investors to invest in mutual funds
and listed shares in three successive years instead of only one.
In the Budget, Pension Funds and Provident Funds were also allowed to invest in Exchange Traded Funds (ETFs)
and debt mutual funds and Asset-Backed Securities (ABS).
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Commodities Market
Various announcements made in the Union Budget 2013-14 and their impacts on various commodities have been
listed below:
Non-Agri Commodities
Commodities Transaction Tax
To bring commodities markets at par with equity markets, where trading attracts Securities Transaction Tax
(STT), the Union Budget 2013-14 has proposed to impose a similar tax, known as Commodities Transaction Tax
(CTT), on Futures contracts of non-agricultural commodities like gold, silver etc. Following the announcement,
Multi Commodity Exchange (MCX) would be impacted the most as the turnover from non-agri commodities
constitutes the major share in the total turnover of MCX.
Bullion:
Despite stating that gold continues to be one of the biggest contributors in the Current Account Deficit
(CAD), import duty on gold was not increased. However, in January, a 2% hike in gold import duty was
announced. The duty was increased from 4% to 6%, resulting in lower gold demand, prolonged selling by
stockists and fall in prices. A further duty hike could have led to rise in import through illegal channels.
In addition to it, duty-free limit of gold import has also been raised. These measures were taken
positively by the market participants and the gold was seen trading at Rs. 29,615 per 10 gram, up
0.10%, compared to the previous day.
Increase in excise duty of 4% on silver manufactured from smelting zinc or lead, resulted in a fall of
0.45% in the spot rate of silver.
To encourage exports, duty on pre-forms of precious and semi-precious stones has been reduced
significantly from 10% to 2%. The move may increase inflow of foreign currencies in India.
Non-Metal:
Markets may take new revenue sharing policy for shale gas and clearance of exploration in New
Exploration Licensing Policy (NELP) blocks in a positive manner.
Increase in duty on imported motor vehicles, motor cycles, yachts and similar vehicles may hit oil
demand, which in turn may impact prices.
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In an attempt to boost the infrastructure sector in the country, the Union Budget 2013-14 has projected
an investment of Rs. 55 lakh crore in infrastructure. This may lead to increase in consumption of
construction materials like cement, steel, iron ore etc. and may push up prices of these items as well.
Agri-Commodities:
As the agri-commodities were exempted from the ambit of Commodity Transaction Tax (CTT), investors
seeking to invest in commodity markets might move their money from non-agri commodities to agri-
commodities, which will boost the segment.
Allocation to the Ministry of Agriculture has been raised by 22% over the Revised Estimate (RE) to the
tune of Rs. 27,049 crore in the current year.
To boost the readymade garment industry, ‘zero excise duty route’ has been restored for cotton at
fibre stage and 12% duty in case of spun yarn at the fibre stage. Spot prices of cotton witnessed a
positive movement of 1.31%.
To promote micro nutrients like bajra, maize and wheat, a new scheme was introduced. A sum of Rs.
200 crore has been proposed to be provided to start the pilots for these crops.
Source: MCX; Spot rates as on Feb 28, 2013 at 6:00 P.M.
Currency Market
The Indian rupee weakened sharply after the Government’s spending target was increased in the Union Budget
2013-14. In the Budget, a higher net borrowing target of Rs. 17,000 crore was proposed, which was more than
market expectations.
Though the fiscal deficit target was set at 4.8% of Gross Domestic Product (GDP), investors were disappointed
because of higher spending plan. They were also disappointed as investors’ expectations regarding reduction of
debt withholding tax on corporate and Government bonds were not met. The Government sought to impose
extra taxes on the rich and large companies to fund growth plans.
The rupee started higher at 53.64 a dollar against previous day’s close of 53.86 at the Interbank Foreign
Exchange (Forex) market. It moved in a wide range of 53.60-54.49 before settling at 54.36, a fall of 50 paise, or
0.93%. Globally, strengthening of the dollar against a basket of major currencies also put pressure on the
rupee.
In the currency Futures market, the most-traded near-month dollar/rupee contracts on the National Stock
Exchange, the MCX-SX and the United Stock Exchange closed at around 54.70 with a total traded volume of
$9.45 billion.
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In the Union Budget 2013-14, the main focus was on clarity in tax laws, a stable tax regime, a non-adversarial
tax administration, a fair mechanism for dispute resolution, and an independent judiciary.
With a view to reflect the best global practices in India’s tax system, it was proposed to set up a Tax
Administration Reform Commission to review the application of tax policies and tax laws and submit periodic
reports that can be implemented to strengthen the capacity of the tax system.
As per the Budget, proposals on direct taxes are estimated to yield Rs. 13,300 crore and Rs.4,700 crore on
indirect taxes.
Direct Tax
In the face of a slowing economy, there was little room to offer tax sops. While no changes were made on the
personal tax slabs, tax payers belonging in the bracket of Rs. 2 lakh to Rs. 5 lakh got some relief as they would
get a tax credit of Rs. 2,000. However, a surcharge of 10% has been imposed on those having taxable income of
more than Rs. 1 crore a year.
The Union Budget 2013-14 also sought to increase home ownership by assuring a first-time home buyer of
additional deduction of interest of Rs 1 lakh for housing loans of Rs 25 lakh or less in 2013-14. If the limit is not
exhausted, the balance may be claimed in A/Y 2015-16. This deduction will be over and above the deduction of
Rs.1,50,000 allowed for self-occupied properties under Section 24 of the Income-tax Act.
Key Highlights
Increase of surcharge from 5% to 10% on domestic companies, whose taxable income exceeds Rs. 10
crore per year. In case of foreign companies, the same went up from 2% to 5%. Additional surcharges
will be in force for only FY13-14.
In all other cases like Dividend Distribution Tax or tax on distributed income, the rate of surcharge has
been augmented by 5% (i.e. from 5% to 10%) for FY13-14.
Provision of investment allowance @ 15% to a manufacturing company that invests more than Rs. 100
crore in plant and machinery between April 1, 2013 and March 31, 2015.
Continuity of concessional tax rate of 15% on dividend received by an Indian company from its foreign
subsidiary for one more year.
Tax Implications
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ICRA Online Limited
Indirect Tax
Goods and Service Tax
In the Union Budget 2013-14, an important step has been taken towards implementation of Goods and Services
Tax (GST). The Budget allocated a sum of Rs. 9,000 crore towards the first installment of the balance of
Central Sales Tax (CST). Moreover, the work on draft GST Constitutional Amendment Bill and GST law are
expected to be taken forward.
Service Tax
The rate of Service Tax has been kept unchanged at 12% in the current Budget. The scope of negative list under
Service Tax has been extended in this Budget to include vocational courses offered by institutes affiliated to
the State Council of Vocational Training and testing activities in relation to agriculture and agricultural
products. In order to encourage defaulters to file return and pay tax dues, the Budget proposed to introduce a
one-time scheme called ‘Voluntary Compliance Encouragement Scheme’, which will waive interest, penalty and
other consequences.
Excise and Customs
The Union Budget 2013-14 preferred to keep the rate of Excise Duty unchanged at 12%. In Customs, the
Baggage Rule has been proposed to be revised, keeping in mind the rise in gold prices. Accordingly, the duty-
free limit has been increased to Rs. 50,000 in case of a male passenger and Rs. 1,00,000 in case of a female
passenger, subject to usual conditions.
Other Key Highlights:
Excise Duty on mobile phones, priced at more than Rs.2000, to be raised to 6%.
Excise Duty on Sport Utility Vehicle (SUVs) up from 27% to 30%. However, the increase will not apply to
SUVs registered as taxis.
Levy of 4% excise duty on silver manufactured from smelting zinc or lead, to bring the rate at par with
the excise duty applicable to silver obtained from copper ores and concentrates.
For homes and flats, with a carpet area of 2,000 square feet or more or of a value of Rs.1 crore or more,
which are high-end constructions, where the component of services is greater, rate of abatement
reduced from 75% to 70%.
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ICRA Online Limited
MRP-based assessment in respect of branded medicaments of Ayurveda, Unani, Siddha, Homeopathy and
bio-chemic systems of medicine to reduce valuation disputes.
Total exemption of handmade carpets and textile floor coverings of coir or jute from excise duty.
Exemption of ships and vessels from excise duty. Consequently, there will be no Countervailing Duty on
imported ships and vessels.
Increase in specific excise duty on cigarettes by about 18%. Similar increases were proposed on cigars,
cheroots and cigarillos.
In line with the Railway Budget and the Economic Survey, the Union Budget tried to maintain a balancing act
between managing expenditure and supporting growth. The economic environment of the country is not
conducive at the moment with GDP growth hitting almost a decade-low of 4.5% amid high current account and
fiscal deficits. The rising fuel subsidy bill further adds to the concerns. The Union Budget announced a lower
fiscal deficit target for 2013-14, measures to minimize Current Account Deficit (CAD) and lower inflation,
without putting any extra burden on common people.
The proposals put forth in the Union Budget to boost the economy will get a fillip if the central bank
reciprocates by easing interest rates, which will support a whole lot of sectors.
To Sum Up
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ICRA Online Limited
Annexure 1: Tax Slabs:
Annexure 2: Financial Highlights:
Budget at a glance(In crore of Rupees)
FY13 RE FY14 BE Change %
Receipts:
Corporation Tax 358874 419520 16.9
Taxes on Income 206095 247639 20.2
Wealth Tax 866 950 9.7
Customs 164853 187308 13.6
Union Excise Duties 171996 197554 14.9
Service Tax 132697 180141 35.8
Taxes on Union territories 2656 2758 3.8
Gross Tax Revenues 1038037 1235870 19.1
Less: Allocation to States & NCCD 295922 351792 18.9
Net Tax receipts 742115 884078 19.1
Non tax revenue receipts 129713 172252 32.8
Non tax capital receipts 558998 608967 8.9
Total Receipts 1430826 1665297 16.4
Non planned Expenditure 1001638 1109975 10.8
Planned Expenditure 429187 555322 29.4
Total Expenditure 1430825 1665297 16.4
Fiscal Deficit 520925 542499 4.1
Fiscal deficit % of GDP (5.2) (4.8) -7.7
Source: Budget Documents
Annexures
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ICRA Online Limited
Annexure 3: Central Plan Outlay Y-o-Y:
Change in Central Plan Outlay(In crore of Rupees)
FY13 RE FY14 BE % Change
Department of Atomic Energy 8920 13879 55.59
Ministry of Home Affairs 6828 10500 53.78
Ministry of Communications and Information Technology 11248 16783 49.21
Department of Telecommunications 8286 12240 47.72
Ministry of Rural Development 55000 80194 45.81
Department of Rural Development 52000 74429 43.13
Department of Health and Family Welfare 22000 29165 32.57
Ministry of Health and Family Welfare 24894 32745 31.54
Ministry of Road Transport and Highways 28933 37500 29.61
Ministry of Agriculture 13787 17095 23.99
Ministry of Coal 9519 11754 23.48
Department of Agriculture and Cooperation 9467 11655 23.11
Ministry of Railways 51163 62261 21.69
Ministry of Steel 16387 19731 20.41
Department of Higher Education 13494 16210 20.13
Note: Layout for top 15 ministries or Department above Rs. 10000(as per FY14BE) crore has only been considered Source: Budget Documents
Annexure 4: Borrowing Composition:
Borrowing Composition
FY13 RE FY14 BE Y-o-Y % Growth
Market Loans 467384 484000 3.56
Short term borrowings 45746 19844 -56.62
External Assistance (Net) 2214 10560 376.96
Securities issued against Small Savings 8626 5798 -32.78
State Provident Fund (Net) 10000 10000 --
Other Receipts (Net) -7895 12297 NA
Total 526075 542499 3.12
Source: Budget Documents
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ICRA Online Limited
Annexure 5: Where will Rupee come from and where will it go?
Where will rupee go to? (FY14BE)
Annexure 6: Tax & Expenditure as a % of GDP
12.00%
13.00%
14.00%
15.00%
16.00%
17.00%
5.00%
7.00%
9.00%
11.00%
13.00%
15.00%
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 (RE)
2013-14 (BE)
Gross Tax Receipts as a % of GDP Expenditure as a % of GDP
Tax R
eci
ep
ts a
s a %
of G
DP
Exp
endit
ure
Re
ciepts
as
a %
of G
DP
Tax & Expenditure as a % of GDP
Source: Budget Documents
Annexure 7: Savings & Capital Formulation as %
of GDP
36.80%
32.00%
33.70%
34.00%
30.80%
38.10%
34.30%
36.50%36.80%
35.00%
30.00%
32.00%
34.00%
36.00%
38.00%
40.00%
2007-08 2008-09 2009-10 2010-11 2011-2012
Savings Rate as a % of GDP Capital Formulation rate as % of GDP
Savings & Capital Formulation as a % of GDP
inperc
enta
ge (%
)
Source: Economic Survey of India, 2012-2013
Annexure 8: HSBC Manufacturing PMI & IIP
Growth Y-o-Y
50
51
52
53
54
55
56
57
58
-4
-2
0
2
4
6
8
10
Jan
-12
Fe
b-1
2
Mar-
12
Ap
r-12
May-
12
Jun
-12
Jul-
12
Au
g-1
2
Sep
-12
Oct
-12
No
v-12
De
c-12
Jan
-13
HSBC PMI Manufacturing IIP (%YoY)
in p
erc
enta
ge
(%)
Source: HSBC PMI website, MOSPI
HSB
C M
an
ufa
cturin
gPM
I
Annexure 9: WPI & CPI Inflation
7.00%
8.00%
9.00%
10.00%
11.00%
Jan
-12
Feb
-12
Mar
-12
Ap
r-1
2
May
-12
Jun
-12
Jul-
12
Au
g-1
2
Sep
-12
Oct
-12
No
v-1
2
De
c-1
2WPI & CPI Inflation (in %)
WPI CPI
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ICRA Online Limited
Annexure 10: Export, Import & Trade Deficit
-30000
-20000
-10000
0
10000
20000
30000
40000
50000
Ap
r-12
May-
12
Jun
-12
Jul-
12
Au
g-1
2
Sep
-12
Oct
-12
No
v-12
De
c-12
Jan
-13
Export Import Trade Deficit
in $
millio
n
Export, Import & Trade Deficit
Source: Reuters
Annexure 11: Gold & Oil Imports (INR Crore)
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
Oct
-10
Dec-
10
Feb-1
1
Apr-
11
Jun-1
1
Aug-1
1
Oct
-11
Dec-
11
Feb-1
2
Apr-
12
Jun-1
2
Aug-1
2
Oct
-12
Oil Import Gold Import
Gold & Oil Import (INR Crore)
Source: Reuters
Annexure 12: Subsidy as % of Non Planned
Expenditure
24.43%
19.59%
25.72%
20.82%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
FY12 FY13 BE FY13 RE FY14 BE
Subsidy as % of Non Planned Expenditure
Subsidy as % of Non Planned Expenditure
Source: Budget Documents
Annexure 13: GDP at factor cost
8.5
7.68.2
9.2
8.0
6.76.0
5.3 5.5 5.3
4.5
0
2
4
6
8
10Ju
n-1
0
Sep-1
0
Dec-
10
Mar-
11
Jun-1
1
Sep-1
1
Dec-
11
Mar-
12
Jun-1
2
Sep-1
2
Dec-
12
GD
P in
%
GDP at Factor Cost
GDP at Factor Cost(%)Source: MOSPI
Annexure 14: % Contribution of Components in
GDP Growth
17.31%10.70%
16.75%18.85% 18.86% 18.46%
63.84%70.44%
64.79%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
Q3FY12 Q2FY13 Q3FY13
Agriculture, Forestry and Fishing Industry Services
% Contribution of Components in GDP Growth
Source: MOSPI
Annexure 15: Fiscal Deficit as % of GDP
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 RE
2.5
66.5
4.8
5.75.2
Fiscal Deficit as % of GDP
Fiscal Deficit as % of GDP
Source: Economic Survey of India, 2012-2013
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ICRA Online Limited
Annexure 16: Current Account Balance as % of
GDP
-1.3
-2.3
-2.8 -2.8
-4.2-4.6-5.00
-4.00
-3.00
-2.00
-1.00
0.002007-08 2008-09 2009-10 2010-11 2011-12 2012-13 RE
Current account Balance as % of GDP
Current account Balance as % of GDP
in P
erc
en
tage
Source: Economic Survey of India, 2012-2013
Annexure 17: India VIX vs. CNX NIFTY Movement
10
15
20
25
30
4,700
5,200
5,700
6,200
Feb-1
2
Mar-
12
Apr-
12
May-1
2
Jun-1
2
Jul-
12
Aug-1
2
Sep-1
2
Oct-
12
Nov-1
2
Dec-1
2
Jan-1
3
Feb-1
3
CN
X N
IFT
Y
India VIX vs. CNX NIFTY Movement
India VIX CNX Nifty
Ind
ia V
IX
Source: NSE
Annexure 18: G-Sec Vol vs 10-year Benchmark
Yields
7.75
7.95
8.15
8.35
8.55
8.75
5,000
19,000
33,000
47,000
61,000
75,000
Feb-1
2
Mar-
12
Apr-
12
May-
12
Jun-1
2
Jul-
12
Aug-1
2
Sep-1
2
Oct
-12
Nov-
12
Dec-
12
Jan-1
3
Feb-1
3
G-S
ec V
olu
me
G-Sec Vol vs. 10Yr Benchmark Gilt
G-sec Vol 10 Yrs Gs
10
Yr B
en
ch
mark
Gilt
Source: CCIL
Annexure 19: INR Vs USD
48
52
56
60
Feb
-12
Mar-
12
Ap
r-12
May-1
2
Jun-1
2
Jul-12
Aug
-12
Sep
-12
Oct-
12
No
v-1
2
Dec-1
2
Jan-1
3
Feb
-13
INR Vs. USD
INR
vs.
USD
INR vs. USD Movement
Source: Reuters
Annexure 20: MF & FII Net flows into Equity and Debt Segment (INR Crore)
MF FII
Date EQUITY DEBT EQUITY DEBT
Apr-12 -539.0 37128.9 -1109.1 -3787.5
May-12 -397.8 23559.2 -347.1 3569.1
Jun-12 295.5 78465.3 -501.3 1681.8
Jul-12 -1988.0 2984.7 10272.7 3391.7
Aug-12 -1631.0 28862.8 10803.9 265.2
Sep-12 -3198.7 50110.0 19261.5 622.5
Oct-12 -2519.8 16997.9 11364.2 7851.7
Nov-12 -2397.2 42867.9 9577.2 292.1
Dec-12 -2698.9 43625.0 25087.8 1704.4
Jan-13 -5212.4 40651.5 22059.2 2947.1
Feb-13 -1588.9 38786.9 23513.6 1582.8 Source: AMFI
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ICRA Online Limited
Annexure 21: Impact of Budget Speech on Market
5,650
5,700
5,750
5,800
5,850
9:3
0
10:0
0
10:3
0
11:0
0
11:3
0
12:0
0
12:3
0
13:0
0
13:3
0
14:0
0
14:3
0
15:0
0
15:3
0
Nifty
CN
X N
ifty
3
4
5
6
7
8
9
Impact on Budget Announcement on Nifty Movements
1
2
Sl No Time Event
1 11.00 AM Finance Minister begins budget speech
2 11.46 AM Extra investment allowance of 15% for corporates investing over Rs. 100 crore in plant and machinery.
3 12.00 PM Entry norms for FIIs to be eased further.
4 12.11 PM Additional tax deduction of Rs. 1 lakh for first time buyers of houses valued up to Rs. 25 lakh
5 12.16 PM Fiscal deficit for FY13 at 5.2% and FY14 fiscal deficit seen at 4.8%.
6 12.21 PM Super Rich Tax – Surcharge of 10 percent on those with a taxable income of over Rs. 1 crore
7 12.30 PM TDS of 1% on sale of immovable property valued over Rs. 50 lakh.
8 12.43 PM Government to borrow Rs. 6.3 lakh crore from the market.
9 3.30 PM Highest ever turnover of Rs 4.39 lakh crore, 18861.54, down 290 pts
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ICRA Online Limited
Annexure 22: Movement of Major asset classes due to Union Budget
Currency (USD/INR) 10-Year G-Sec Yield Sensex Gold (Rs/10 gms)
Year Date A B C A B C A B C A B C
FY2008-09 28-Feb-08 -0.30 0.23 0.35 0.60 -0.70 -0.61 0.11 -0.01 -1.38 2.11 0.03 1.27
FY2009-10 06-Jul-09 -0.13 1.42 -0.27 -1.73 2.50 2.40 1.74 -5.83 0.90 -0.08 0.44 0.44
FY2010-11 26-Feb-10 0.17 -0.68 -0.16 -0.11 0.38 1.21 -0.01 1.08 2.09 0.03 1.79 0.20
FY2011-12 28-Feb-11 -0.33 -0.13 -0.71 0.02 -0.49 0.11 0.39 0.69 3.50 0.52 -0.16 -0.26
FY2012-13 16-Mar-12 0.94 -0.40 0.10 0.75 0.41 0.14 -1.36 -1.19 -1.10 0.18 1.08 0.00
Note: A= Previous trading day to Budget B= Budget Day C= Following trading day to Budget Source: Reuters, BSE
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