Union Budget 2013-14 - Highlights and Analysis

7/28/2019 Union Budget 2013-14 - Highlights and Analysis

1/28

UNION BUDGET

ICRA ONLINE LIMITED


2/28Page | 1ICRA Online Limited

The Union Budget 2013-14 offered a ray of hope on the backdrop of a slowing economy amid growing concern

over fiscal slippages and a deteriorating Balance of Payments situation. Achieving over 8-9% growth remains

tough challenge, but Finance Minister P. Chidambaram remained positive when he said: We have done

before. We can do it again. Whatever may be the final outcome, growth is below potential. But there is n

need for gloom.

Though high fiscal deficit, slow growth and high inflation remain impediments to the domestic economy, bu

the current account deficit was singled out to be the cause of more concerns. India will need $75 billion t

finance the current account deficit, which is only possible by attracting foreign direct investment, the Budge

document revealed. Projects will be cleared fast without worrying over audit remarks and doing business

India will be seen as easy and mutually beneficial. Moreover, a revised fiscal deficit figure of 5.2% of Gro

Domestic Product (GDP) for the current year has been set, lower than the previous estimate of 5.3%. For th

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 planne

expenditure during 2013-14, nearly 30% more than the current fiscal. Infrastructure development was given du

importance and the coming year will start the process to invest $1 trillion in infrastructure during the 12th Pla

period.

There has been a significant rise in allocation towards rural job scheme, water and urban development, wome

development, Scheduled Caste welfare, health etc. Outlays were also increased for human resourc

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 mo

than Rs. 1 crore per annum will have to pay an additional surcharge of 10%. It has also been proposed

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 tencourage 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 th

objectives set forth in the Budget will be achieved or not will depend on the pace and degree

implementation of these proposals.

Executive Summary



Supporting Foreign Investors Interest

Foreign Institutional Investors (FIIs) will be allowed to participate in the exchange-traded currenc

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 Foreig

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 equit

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 pri

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 lea

one public sector general insurance company.

Infrastructure

Some institutions were allowed to issue tax-free bonds in 2013-14, strictly based on need and capaci

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 appar

manufacturing units.

Key Highlights



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 b

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.

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.

lakh or less taken in 2013-14.

Donations made to the National Childrens Fund will now be eligible for 100% deduction.

Contributions made to the Central Government Health Scheme are eligible for deduction under Sectio

80D, which is proposed to be extended to similar schemes of the Central Government and Sta

Governments.

Reduction in Securities Transaction Tax (STT), which will bring down the cost of transaction for th

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, whoconsideration 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 mo

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 unliste

companies to shareholders through buyback of shares.



Rate of tax on payments by way of royalty and fees for technical services to non-residents to go up fro10% to 25%. However, the applicable rate will be the rate of tax stipulated in the Double Taxatio

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 u

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-fr

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

institutes affiliated to the State Council of Vocational Training and testing activities in relation

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, includinfootwear, 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 CompliancEncouragement 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% an

on yachts and similar vessels from 10% to 25%.

To equalise duties on steam and bituminous coal to 2% customs duty and 2% CVD.



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 p

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 201

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.



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 millio

tonnes of capacity.

National Institute for Sports to train coaches to be set up at Patiala at a cost of Rs. 250 crore over

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 Spac

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 agirl children).



Impact of Union Budget on Various Sectors

Industry Budget AnnouncementCompaniesImpacted*

Comment

Agriculture 1. Allocated Rs. 27,049 crore to the Ministry ofAgriculture, 22% higher than the RE of FY13.2. Out of the allocated funds, 12.6% to be used foragricultural research.3. Agri-credit target for FY14 raised to Rs. 7,00,000crore.4. Interest subvention scheme for short-term crop loanscontinued and repayment on time will fetch credit at 4%p.a.5. Crop loans borrowed from private sector scheduledcommercial banks included under the scheme.6. Allocated Rs. 9,954 crore to Rashtriya Krishi VikasYojana and Rs. 2,250 crore to National Food Security

Mission.7. The Indian Institute of Agricultural Bio-technology tobe set up in Ranchi.8. Allocation of Rs. 307 crore to National LivestockMission (to be launched in 2013-14) for increasing theavailability of feed and fodder.

1. Rallis IndiaLtd.2. UnitedPhosphorus

Positive

Auto 1. Excise duty on non-taxi SUVs increased from 27% to30%.2. Duty raised on imported luxury goods such as high endmotor 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 ofup to 10,000 buses.4. Extension of the period of concession now availablefor specified parts of electric and hybrid vehicles up toMarch 31, 2015.

1. Ashok Leyland2. Mahindra &Mahindra3. Tata Motors4. Maruti Suzuki

5. Eicher Motors

Neutral

Banking 1. Compliance of public sector banks with Basel-IIIregulations to be ensured. An amount of Rs.12,517 croreto be provided before the end of March 2013 tocapitalise 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 Indias first Womens 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 ofIndia3. PunjabNational Bank4. Bank ofBaroda

5. HDFC Limited6. LIC HousingFinance

Positive



Industry Budget Announcement

CompaniesImpacted*

Comment

Education 1. Allocation of Rs. 65,867 crore to the Ministry ofHuman Resource Development, which is an increaseof 17% over the RE of the previous year.2. Allocation of Rs. 27,258 crore for Sarva ShikshaAbhiyan (SSA).3. Increase of 25.6% over RE of the current year forinvestments in Rashtriya Madhyamik ShikshaAbhiyan (RMSA).4. Allocation of Rs. 1,650 crore for six AIIMS-likeinstitutions.5. Outlay of Rs. 4,727 crore for medical education,training and research.6. A grant of Rs. 100 crore each to 4 institutions ofexcellence.7. Inclusion of vocational courses offered byinstitutes affiliated to the State Council ofVocational Training and testing activities in relationto agricultural produce in the negative list ofService Tax.

1. EveronnEducation2. Career Point3. Aptech4. Educomp5. MT Educare

Positive

FMCG 1. Specific excise duty on cigarettes increased byabout 18%. Similar increase on cigars, cheroots andcigarillos.

1. ITC2. GodfreyPhillips3. VST Industries

Negative

Healthcare & Hospitals 1. Allocation of Rs. 37,330 crore to the Ministry ofHealth and Family Welfare, showing an increase of24.3% over RE.

2. Allocated Rs. 4,727 crore for medical education,training and research.3. Allocated Rs. 1,069 crore to the Department ofAyurveda, Yoga & Naturopathy, Unani, Siddha andHomoeopathy (AYUSH).4. Contributions made to the Central GovernmentHealth Scheme eligible for deduction under Section80D of the Income-tax Act.5. MRP-based assessment in respect of brandedmedicaments of Ayurveda, Unani, Siddha,Homeopathy and bio-chemic systems of medicine toreduce valuation disputes.

1. ApolloHospitals2. Fortis

Healthcare

Neutral




CompaniesImpacted*

Comment

Hospitality Sector 1. Proposals to levy Service Tax on all air conditionedrestaurant.

1. SpecialityRestaurants2. Jubilant

FoodWorks

Negative

Infrastructure 1. Investment outlay of Rs. 55,00,000 crore ininfrastructure projected for the 12th Plan. Private sectorto 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 toprovide long-term low-cost debt for infrastructureprojects.

4. Credit enhancement to infrastructure companies byIndia Infrastructure Finance Corporation Ltd (IIFCL), inpartnership 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 financeconstruction of warehouses, godowns, silos and coldstorage units.7. A regulatory authority for road sector to be formed.8. Road projects of 3000 km to be awarded in the firstsix months of FY14.9. Two new major ports to be set up in Sagar, WestBengal and in Andhra Pradesh.

10. The rate of tax on interest paid to non-residentinvestors in rupee denominated long term infrastructurebonds reduced to 5%from 20%.

1. RelianceInfrastructure2. JaiprakashAssociates3. UltratechCement4. Larsen andToubro

5. IRBInfrastructureDevelopers6. IL&FS

Positive

IT 1. An ambitious IT- driven project to modernise thepostal network at a cost of Rs. 4,909 crore.2. Proposal to increase the rate of tax on payments byway of royalty and fees for technical services to non-residents from 10 percent to 25 percent will result inhigher withholding tax payments by Indian IT companies.

1. WIPRO2. Infosys3. TCS

Neutral




CompaniesImpacted*

Comment

Media & Entertainment 1. Private FM radio services to be extended to294 more cities. About 839 new FM radiochannels will be auctioned in 2013-14.

2. Exemption of Service Tax on copyright oncinematography limited to films exhibited incinema halls.

1. Saregama2. RelianceMediaWorks

Positive

Petrochemicals/ Oil & Gas 1. Oil & Gas exploration policy to be reviewed tomove from profit sharing to revenue sharingcontracts.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. BharatPetroleum3. Indian OilCorporation4. HindustanPetroleum5. RIL6. Oil India

Positive

Power 1. Allocated Rs. 226 crore to construct atransmission system from Srinagar to Leh.2. To devise a PPP policy framework with CoalIndia Ltd. as one of the partners to increase coalproduction and reduce dependence on importedcoal.3. Customs duty of 2% imposed on steam coal andreduced 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 toRs.1,00,000 on loan taken for first home from abank or housing finance corporation up to Rs.25,00,000 during the period April 1, 2013 - March31, 2014.2. Excise duty on marble increased from Rs.30per square meter to Rs. 60 per square meter.3. Abatement rates on homes and flats with acarpet area of 2,000 sq.ft. or more or of a valueof Rs. 1 crore or more, reduced from 75% to 70%.4. Allocation of Rs. 6,000 crore to the RuralHousing Fund in FY14.

1. DLF2. Unitech

Neutral




CompaniesImpacted*

Comment

Textile 1. Technology Upgradation Fund Scheme (TUFS) for thetextile sector to continue in the 12th Plan with aninvestment target of Rs. 151,000 crore.

2. Allocation of Rs. 50 crore to the Ministry of Textile toincentivise setting up Apparel Parks within the Schemefor Integrated Textile Parks (SITP) to house apparelmanufacturing units.3. Integrated Processing Development Scheme to beimplemented in the 12th Plan to address theenvironmental concerns of the textile industry4. Approved working capital and term loans at aconcessional interest of 6% to handloom sector.5. Scheme of Fund for Regeneration of TraditionalIndustries (SFURTI) to be extended to 800 clusters duringthe 12th Plan.6. Readymade garment industry provided relief. In case

of cotton, zero excise duty at fiber stage also. In case ofspun yarn, duty of 12% at the fiber stage.7. Handmade carpets and textile floor coverings of coirand jute totally exempted from excise duty.

1. Raymond Ltd.2. S. Kumars3. Century

Textiles4. Alok Industries5. BombayDyeing6. Arvind Limited

Positive

Source: ICRA Online Research; * The list of companies is indicative and not exhaustive



Equity Market

The Union Budget has always been one of the most important events for the equity markets and it was n

exception this year either. The market participants were clearly divided into two groups, one which hoped fo

populist measures while the other expected otherwise, keeping the economic reality in mind. The market wa

anticipating a clear roadmap towards fiscal consolidation and how investment cycle would improve in th

coming financial year along with measures to control subsidy. Though the Budget managed to strike a fin

balance between populism and austerity and kept the fiscal deficit target at 4.8% of GDP, but markets plunge

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 fe

while 866 rose. A total of 103 shares remained unchanged. The top five Sensex gainers were TCS, Bharti Airte

Tata Motors, Sun Pharma and Bajaj Auto, while SBI, Tata Steel, ICICI Bank, Maruti and L&T were majo

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 portfoliinvestors.

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 foreig

investors such as central banks, sovereign wealth funds, university funds, pension funds etc. to invest i

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



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 fisc

deficit can be checked, the Reserve Bank of India (RBI) may cut rates going forward, which will support th

equity markets in the medium to long run.

Debt Market

In this years Budget, some proposals were made to boost the bond markets by allowing pension and insuranc

firms to trade directly in the debt segment of stock exchanges. Moreover, the Budget also proposed investmen

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 lak

crore, much above market expectations.

Higher than expected gross market borrowings are likely to put supply pressure on bond markets as th

Government would issue more papers. The G-Sec yields hardened and the 10-year benchmark bond closed a7.87%. Based on these gross borrowing estimates, the first half of 2013-14 could see borrowings of around Rs.

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 fisca

consolidation. The Government announced to restrict the expenditure on central subsidies to less than 2% o

Gross Domestic Product (GDP) in 2012-13. It was also proposed to lower the subsidy burden down to 1.75% o

GDP over the next three years. However, the total subsidy for 2012-13 remained at 2.6% of GDP, while for th

next financial year, the subsidy burden has been pegged lower but is not expected to fall below 2.0% of GDP.



The positive factors which the market can take from this Budget are:Dedicated debt segment on the exchange and permitting insurance companies, provident funds an

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 mutua

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 reactio

gets over. Moreover, the decade-low GDP data may prompt the central bank to cut interest rates in the nex

monetary policy review. This is likely to push up bond prices higher. The liquidity may remain tight and marke

would expect more Open Market Operations (OMOs) by the central bank to support bond yields. The first half o

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 th

Finance Minister proposed a cut in Securities Transaction Tax (STT), which will bring down the cost o

transaction. Mutual Fund distributors were asked to become stock exchange members. This move is likely t

help distributors increase their confidence level.

The scope of Rajiv Gandhi Equity Savings Scheme (RGESS), introduced in the last years Budget, has bee

expanded, in line with market expectations. The Finance Minister raised the income limit for investors, keen t

invest in RGESS, from Rs. 10 lakh to Rs. 12 lakh. He also allowed first time investors to invest in mutual fund

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).



Commodities Market

Various announcements made in the Union Budget 2013-14 and their impacts on various commodities have bee

listed below:

Non-Agri Commodities

Commodities Transaction Tax

To bring commodities markets at par with equity markets, where trading attracts Securities Transaction T

(STT), the Union Budget 2013-14 has proposed to impose a similar tax, known as Commodities Transaction Ta

(CTT), on Futures contracts of non-agricultural commodities like gold, silver etc. Following the announcemen

Multi Commodity Exchange (MCX) would be impacted the most as the turnover from non-agri commoditi

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 Defic

(CAD), import duty on gold was not increased. However, in January, a 2% hike in gold import duty w

announced. The duty was increased from 4% to 6%, resulting in lower gold demand, prolonged selling

stockists and fall in prices. A further duty hike could have led to rise in import through illegal channe

In addition to it, duty-free limit of gold import has also been raised. These measures were take

positively by the market participants and the gold was seen trading at Rs. 29,615 per 10 gram, u

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

0.45% in the spot rate of silver.

To encourage exports, duty on pre-forms of precious and semi-precious stones has been reduc

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 Ne

Exploration Licensing Policy (NELP) blocks in a positive manner.

Increase in duty on imported motor vehicles, motor cycles, yachts and similar vehicles may hit o

demand, which in turn may impact prices.



In an attempt to boost the infrastructure sector in the country, the Union Budget 2013-14 has projectean investment of Rs. 55 lakh crore in infrastructure. This may lead to increase in consumption

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), investo

seeking to invest in commodity markets might move their money from non-agri commodities to ag

commodities, which will boost the segment.

Allocation to the Ministry of Agriculture has been raised by 22% over the Revised Estimate (RE) to th

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

fibre stage and 12% duty in case of spun yarn at the fibre stage. Spot prices of cotton witnessed

positive movement of 1.31%.

To promote micro nutrients like bajra, maize and wheat, a new scheme was introduced. A sum of R

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 Governments spending target was increased in the Union Budg

2013-14. In the Budget, a higher net borrowing target of Rs. 17,000 crore was proposed, which was more th

market expectations.

Though the fiscal deficit target was set at 4.8% of Gross Domestic Product (GDP), investors were disappointe

because of higher spending plan. They were also disappointed as investors expectations regarding reduction

debt withholding tax on corporate and Government bonds were not met. The Government sought to impo

extra taxes on the rich and large companies to fund growth plans.

The rupee started higher at 53.64 a dollar against previous days close of 53.86 at the Interbank Forei

Exchange (Forex) market. It moved in a wide range of 53.60-54.49 before settling at 54.36, a fall of 50 paise, o

0.93%. Globally, strengthening of the dollar against a basket of major currencies also put pressure on t

rupee.

In the currency Futures market, the most-traded near-month dollar/rupee contracts on the National Sto

Exchange, the MCX-SX and the United Stock Exchange closed at around 54.70 with a total traded volume

$9.45 billion.



In the Union Budget 2013-14, the main focus was on clarity in tax laws, a stable tax regime, a non-adversaria

tax administration, a fair mechanism for dispute resolution, and an independent judiciary.

With a view to reflect the best global practices in Indias tax system, it was proposed to set up a Ta

Administration Reform Commission to review the application of tax policies and tax laws and submit period

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 o

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 th

personal tax slabs, tax payers belonging in the bracket of Rs. 2 lakh to Rs. 5 lakh got some relief as they wou

get a tax credit of Rs. 2,000. However, a surcharge of 10% has been imposed on those having taxable income o

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 o

additional deduction of interest of Rs 1 lakh for housing loans of Rs 25 lakh or less in 2013-14. If the limit is no

exhausted, the balance may be claimed in A/Y 2015-16. This deduction will be over and above the deduction o

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. 1

crore per year. In case of foreign companies, the same went up from 2% to 5%. Additional surcharge

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 habeen 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. 10

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 foreig

subsidiary for one more year.

Tax Implications



Indirect TaxGoods and Service Tax

In the Union Budget 2013-14, an important step has been taken towards implementation of Goods and ServiceTax (GST). The Budget allocated a sum of Rs. 9,000 crore towards the first installment of the balance

Central Sales Tax (CST). Moreover, the work on draft GST Constitutional Amendment Bill and GST law a

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 und

Service Tax has been extended in this Budget to include vocational courses offered by institutes affiliated

the State Council of Vocational Training and testing activities in relation to agriculture and agriculturproducts. In order to encourage defaulters to file return and pay tax dues, the Budget proposed to introduce

one-time scheme called Voluntary Compliance Encouragement Scheme, which will waive interest, penalty an

other consequences.

Excise and Customs

The Union Budget 2013-14 preferred to keep the rate of Excise Duty unchanged at 12%. In Customs, th

Baggage Rule has been proposed to be revised, keeping in mind the rise in gold prices. Accordingly, the dut

free limit has been increased to Rs. 50,000 in case of a male passenger and Rs. 1,00,000 in case of a fema

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

SUVs registered as taxis.

Levy of 4% excise duty on silver manufactured from smelting zinc or lead, to bring the rate at par witthe 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 mor

which are high-end constructions, where the component of services is greater, rate of abateme

reduced from 75% to 70%.



MRP-based assessment in respect of branded medicaments of Ayurveda, Unani, Siddha, Homeopathy an

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 o

imported ships and vessels.

Increase in specific excise duty on cigarettes by about 18%. Similar increases were proposed on cigar

cheroots and cigarillos.

In line with the Railway Budget and the Economic Survey, the Union Budget tried to maintain a balancing a

between managing expenditure and supporting growth. The economic environment of the country is n

conducive at the moment with GDP growth hitting almost a decade-low of 4.5% amid high current account a

fiscal deficits. The rising fuel subsidy bill further adds to the concerns. The Union Budget announced a low

fiscal deficit target for 2013-14, measures to minimize Current Account Deficit (CAD) and lower inflatio

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 ban

reciprocates by easing interest rates, which will support a whole lot of sectors.

To Sum Up


21/28

Page | 20ICRA 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 20.2Wealth 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 32.8Non 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

Annexures


22/28


Annexure 3: Central Plan Outlay Y-o-Y:

Change in Central Plan Outlay(In crore of Rupees)

FY13 RE FY14 BE % Chang

Department of Atomic Energy 8920 13879 55.59Ministry 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 23.99Ministry 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 consideredSource: 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 -32.78State Provident Fund (Net) 10000 10000 --

Other Receipts (Net) -7895 12297 NA

Total 526075 542499 3.12

Source: Budget Documents


23/28


Annexure 5: Where will Rupee come from and where will it go?

Where will rupee goto? (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

TaxRecieptsasa%ofGDP

Ex

penditure

Recieptsasa%ofGDP

Tax & Expenditure as a % of GDP


Annexure 7: Savings & Capital Formulation as

of GDP

36.80%

32.00%

33.70%

34.00%

30

38.10%

34.30%

36.50%36.80%

3

30.00%

32.00%

34.00%

36.00%

38.00%

40.00%

2007-08 2008-09 2009-10 2010-11 2011-20

Savings Rate as a % o f GDP Cap ita l Fo rmulation rate as % o f GDP

Savings & Capital Formulation as a % of GDP

inpercentage

(%)

Source: Economic Survey of Indi a, 2012-2013

Annexure 8: HSBC Manufacturing PMI & IIP

Growth Y-o-Y

50

51

52

53

54

5556

57

58

-4

-2

0

2

4

6

8

10

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

HSBC PMI Manufacturing IIP (%YoY)

inpercentage(%

)

Source: HSBC PMI website, MOSPI

HSBCManufacturingPMI

Annexure 9: WPI & CPI Inflation

7.00%

8.00%

9.00%

10.00%

11.00%

Jan-1

2

Feb-1

2

Mar-12

Apr-1

2

May-1

2

Jun-1

2

Jul-12

Aug-1

2

Sep-1

2

Oct-12

Nov-1

2

WPI & CPI Inflation (in %)

WPI CPI


24/28


Annexure 10: Export, Import & Trade Deficit

-30000

-20000

-10000

0

10000

20000

30000

40000

50000

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Export Import Trade Deficit

in$million

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-11

Apr-11

Jun-11

Aug-11

Oct-11

Dec-11

Feb-12

Apr-12

Jun-12

Aug-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


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.

0

2

4

6

8

10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

D e c 1 2

GDP

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 ofComponents 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 2012-13RE

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


25/28


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

inP

ercentage

Source:Economic Survey of India, 2012-2013

Annexure 17: India VIX vs. CNX NIFTY Movem

1

1

2

2

3

4,700

5,200

5,700

6,200

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

CNXN

IFTY

India VIX vs. CNX NIFTY Movement

India VIX CNX NiftySource: 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-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

G-SecVolume

G-Sec Vol vs. 10Yr Benchmark Gilt

G-sec Vol 10 Yrs Gs

10YrBenchmark

Gilt

Source: CCIL

Annexure 19: INR Vs USD

48

52

56

60

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

INR Vs. USD

INRvs.U

SD

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 10803.9 265.2Sep-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 1582.8Source: AMFI


26/28


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

1 5 3

0

Nifty

CNXNifty

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 AMExtra investment allowance of 15% for corporates investing over Rs. 100 crore inplant 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 PMSuper Rich Tax Surcharge of 10 percent on those with a taxable income of overRs. 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


27/28


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.

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.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.

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

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.

Note: A= Previous trading day to BudgetB= Budget DayC= Following trading day to BudgetSource: Reuters, BSE


28/28

Regd. Office:FMC Fortuna,A-10&11, 3rdFloor, 234/3A,AJC BoseRoad, Kolkata- 700020Tel +91-33-22876617/8839/22800008,Fax+91-33-22870728

CorporateOffice:107, 1stFloor, RahejaArcade,PlotNo.61, Sector-XI, CBDBelapur,Navi Mumbai- 400614Tel +91-22-6781 6100, Fax +91-22-27563057

KolkataOffice:2nd, 5th and6th Floor, ConvergenceContactCentre, PlotD2/2, BlockEP &GP, Sector-V, SaltLakeCity, Kolkata- 700091Tel +91-33-40170100, Fax +91-33-40170101

ICRA ONLINE LIMITEDEnterprise, TeamSpirit, Innovation...

Mail us at:

For MFI Division: [email protected]

For KPO Division: [email protected]

US Representative Office:

Visit us at:

Pune

Tel +91-20-2552 0194-96

Fax +91-20-2553 9231

Ahmedabad

Tel +91-79-2658 5049/2008/5494

Fax +91-79-2658 4924

Chennai

Tel +91-44-2434 0043/9659/8080,2433 0724/3293-4

Fax +91-44-2434 3663

Hyderabad

Tel +91-40-2373 5061/5152/7251

Fax +91-40-2373 5152

Enquiries may also be directed to the following ICRA Offices:

Vayudhoot Chambers,

2ndFloor,Trinity Circle

15-16, MG Road

Bangalore - 560 001

Tel +91-80-2559 7401/4049/2532 7803

Fax +91-80-2559 4065

Electric Mansion, 3rdFloor

Appasaheb Marathe Marg

Prabhadevi, Mumbai - 400 025

Tel.: +91-22 24331046/53/62/74/86/87,

2436 2044

Fax +91-22-2433 1390

1105, Kailash Building

11thFloor,

26, Kasturba Gandhi Marg

NewDelhi - 110 001

Tel +91-11-23357940-50

Fax +91-11-23357014

Building No.8,TowerA, ll Floor

DLF Cyber City, Phase ll

Gurgaon-122 002

Tel +91-124-454 5300/454 5800

Fax +91-124-454 5350/454 5850

Mumbai Bangalore ihleDweNnoagruG

ICRA Sapphire, Inc.

101 Merritt Blvd, Suite 107

Trumbull, CT 06611, USA

Phone: 001 203 375 8668; Fax: 001 203 375 1965

Email: [email protected] / Phone:001 848 482 6440

Email: [email protected] / Phone: 001 203 556 5461

Union Budget 2013-14 - Highlights and Analysis

Documents

Transcript of Union Budget 2013-14 - Highlights and Analysis