Union Budget Analysis 2015-16

1UNIONBUDGET

2015-16

Credit Analysis & Research Ltd.

Analysis of

1Airlines......................................................17

Airports.....................................................18

Auto Components ....................................19

Automobiles .............................................20

Banking and Financial Services ............21-22

Cement ................................................23-24

Coal...........................................................25

Construction ........................................26-27

Consumer Durables ..................................28

Education ..................................................29

Engineering and Capital Goods ...........30-31

Fertilizers .............................................32-33

FMCG ...................................................34-35

Gems and Jewellery..................................36

Hospitals and Healthcare .........................37

Hotels .......................................................38

IT and ITES ................................................39

Media and Entertainment ........................40

Mining and Minerals ................................41

Non-ferrous Metals .............................42-43

Oil and Gas ..........................................44-45

Paper ........................................................46

Pharmaceuticals .......................................47

Pipes .........................................................48

Ports .........................................................49

Power (incl renewables) ...........................50

Real Estate ................................................51

Roads and highways .................................52

Steel .....................................................53-54

Sugar .........................................................55

Telecom ....................................................56

Warehousing and Logistics .......................57

TABLE OF CONTENTSForeword ............................................................................................. 2

Macro Economic Backdrop ............................................................... 3-5

Union Budget 2015-16 ................................................................... 6-13

Railway Budget 2015-16 ............................................................... 14-16

Industry Allocation Sectors

Impact Symbols

Positive +Negative -Neutral =

2The Union Budget is a very important policy document which sets the tone for all other policies that are to be

implemented during the course of the year. It also in a way indicates the stance that may be taken by the RBI when

formulating the monetary policy and hence is quite all encompassing. Being the first policy that is announced before

the start of the Fiscal New Year, it really gives one time to assimilate the content and prepare for the year ahead.

The Budget has taken a pro-growth stance and it does appear that the government is keen to expedite the growth

process by directly contributing to investment. The creditable part of this exercise is that it has been accomplished

by being pragmatic with the level of fiscal deficit which will be at 3.9% for the year even though the glide path to 3%

is still on the agenda. The proposals do reinforce the commitment to making things happen which means that there

will be focus on easing the processes that are involved in doing business in the country.

The Budget has to also garner additional resources and in this context has decided on making changes in the indirect

tax rates so as to collect this additional revenue. There are sops given for direct taxes which will lead to a net

loss of revenue which is finally compensated by indirect tax collections. In particular, the proposal to lower the

corporate tax rate by 5% over the next four years which should be interpreted with caution as there is also a move

to rationalize the exemptions that are presently provided. Further, we are once again looking for disinvestment to

be an integral part of the fund raising effort and it remains to be seen whether it would materialize. If it does, we

can expect a boost to be given to the markets.

The analysis which has been done by our team looks at both the macro implications of the proposals as well as the

impact on various sectors. We do hope to hence provide a comprehensive view of the Budget which the reader

should find useful. This effort of CARE has been part of our tradition to provide this analysis as soon as possible after

the Budget is introduced and I would personally like to commend the team for doing an excellent job as always.

D.R. Dogra

MD & CEO

Foreword

3The Economic Survey for the year 2014-15

The Survey based on developments of FY15, indicate an improvement in the macroeconomic fundamentals which is reflected

both in temporal and cross-country comparison.

Macroeconomic Performance

As indicated above, the fundamentals have shown a significant improvement. The highlights are as follows;

Acceleration in growth

Growth in FY15 settled at 7.4% , mostly driven by the industry and services sector

Declining price levels

WPI has registered moderation at 3.4%, while CPI has moderated to 6.2% up to December 2014.

Structural shifts in inflation are due to lower oil prices, deceleration in agriculture prices & wages and improved household

inflation expectations

Stagnating trade outcome

The trading environment is becoming more challenging as the buoyancy of Indian exports has declined with respect to world growth, and as the negotiation of mega- regional trading arrangements threatens to exclude India

Improved Balance of Payments

Current account deficit (CAD) declined sharply from a record high of 4.7% of GDP in FY13 to 1.7% of GDP in FY14, which

increased marginally to 1.9% in H1 FY15

Foreign exchange reserves increase to $ 328.7 billion at end January 2015

Fiscal deficit is expected to be contained at 4.1% as mentioned in the budget estimates.

Macro-economic Indicators (%)

% FY12 FY13 FY14 FY15GDP growth n.a 5.1 6.9 7.4Inflation (WPI) 8.9 7.4 6.0 3.4*Inflation (CPI) 8.4 10.4 9.7 6.2*Savings rate 33.9 31.8 30.6 n.aInvestment rate 38.2 36.6 32.3 n.aCAD (% of GDP) 4.2 4.7 1.7 1.9^Forex Reserves ($ bn) 294.4 292 304.2 328.7#Export growth 21.8 -1.8 4.7 4.0*Import growth 32.3 0.3 -8.3 3.6*

Source: Economic Survey 2014-15, *up to Dec14, ^data for H1, #up to Jan15

Macro-Economic Backdrop

4Challenges and Proposed Strategy

Fiscal Framework Need to adhere to the medium term target of 3%

Provide for the required fiscal space to insure against future shocks

Move towards eliminating of revenue deficit and ensure borrowing used for only capital formation

Introduction of GST and expenditure control to help in meeting these targets

Expenditure needs to be shifted from consumption towards investments

Investment Challenge Stalled projects stand at 7% of GDP, mostly accounted for by the private sector, specially manufacturing and infrastructure

owing to changed market conditions and impeded regulatory clearances

Need for public sector investment to rise up capital formation and recreate an environment to crowd-in the private sector

Banking Challenge Banking balance sheet suffering from double financial repression

On the liabilities side, high inflation lowered real rates of return on deposits

On the asset side, SLR and priority sector lending (PSL) requirements depressed returns to bank assets.

The survey proposes the 4Ds of policy going forward- deregulate, differentiate, diversify and disinter

Putting Public Investment on Track the Rail Route to Higher Growth

Over the years the railways has been characterised by underinvestment resulting in lack of capacity addition and network

congestion, poor services and consequent financial weakness resulting in below potential contribution to economic growth

In the long run, efforts need to be taken to make railways commercially viable and railway reforms such as adoption of

commercial practices, tariff rationalization and technology overhaul need to be adopted

Skill India to Complement Make in India Make in India should be targeted at sectors that are capable of facilitating structural transformation in an emerging

economy, which includes characteristics such as;

Have high level of productivity

Show convergence to the technology frontier over time

Draw in resources from rest of the economy to spread the fruits of growth

Be aligned with the economys comparative advantage

Be tradable

Need to bolster the Make in India initiative by complementing it with the Skilling India initiative. This would enable a larger

section of the population to benefit from the structural transformation that such sectors will facilitate

A National Market for Agricultural Commodities

Markets in agricultural products are regulated under the APMC Act enacted by the State governments

APMCs levy multiple fees of substantial magnitude, that are non transparent and hence a source of political power

There is a need to introduce integrated single licensing system (based on the Karnataka model) which will remove the barriers that militate against the creation of choice for farmers and against the creation of marketing infrastructure by the

private sector

5 The 14th Finance Commission Unprecedented increase in tax devolution would confer more fiscal autonomy on the states, enhanced by the FFC induced

imperative of having to reduce the scale of other central transfers to the state

All states gain from the extra resources, although some variation between states would exist

Outlook for FY16

GDP growth likely to be in the range of 8.1% - 8.5%

o Growth to receive boost from the cumulative impact of reforms, lower oil prices, likely monetary policy easing facilitated

by lower inflation and forecast of normal monsoon

Inflation likely to remain in the range of 5% - 5.5%

CAD to be limited to 1% of GDP

6The first full year budget of the new government has attempted to carry forward the positive sentiments surrounding the

Indian economy by providing for a roadmap for the future. The broad measures/allocations announced, including the various

social and welfare allocations, will provide for benefits in the long term as opposed to any significant changes in the immediate

timeframe.

While recognising the various challenges faced, the budget has rightly focussed on 4 key areas agriculture, infrastructure,

manufacture and fiscal discipline, to realise it vision and trajectory for the countrys economy. The thrust laid on the

infrastructure sector, the measures announced to stimulate the Make in India programme and for the facilitation of Ease of

Doing Business sets the tone for the revival of the country.

Key Highlights

Housing for 2 crore houses in Urban areas and 4 crore houses in Rural areas

Basic facility of 24x7 power, clean drinking water, a toilet and road connectivity and providing medical services in each

village and city

Electrification of the remaining 20,000 villages including off-grid Solar Power- by 2020 and connecting un-connected

habitation (1,78,000)

Government to work towards creating a functional social security system for all Indians, specially the poor and the under-

privileged

Government committed to the on-going schemes for welfare of SCs, STs and Women

To make India, the manufacturing hub of the World through Skill India and the Make in India Programmes

Development of Eastern and North Eastern regions on par with the rest of the country

Fiscal deficit target of 3% to be achieved in 3 years rather than 2 years (3.9% in FY16, 3.5% in FY17 and 3% in FY18)

Disinvestment - of loss making units as well as some strategic disinvestment

Rationalization of subsidies to cut leakages. Direct Transfer of Benefits to be extended to 10.3 crore beneficiaries (from 1

crore)

Agriculture - (i) steps take to address agricultural production and soil & water, (ii) Allocation of Rs.5,300 crore to support

micro-irrigation, watershed development etc (iii) Rs. 8.5 lakh crore of target agricultural credit during FY16 (iv) Allocation

of Rs.25,000 crore in FY16 to the corpus of Rural Infrastructure Development Fund (RIDF) set up in NABARD, Rs.15,000 crore for Long Term Rural Credit Fund, Rs.45,000 crore for Short Term Co-operative Rural Credit Refinance Fund and Rs.

15,000 crore for Short Term RRB Refinance Fund (iv) Government to work for the creation of a Unified National Agriculture

Market

Micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of Rs. 20,000 crores, and credit guarantee

corpus of Rs.3,000 crores to be created. Priority given to SC/ST enterprises. The bank will be responsible for refinancing all

Micro-finance Institutions which are in the business of lending to small entities

Comprehensive Bankruptcy Code of global standards to be brought in FY16 towards ease of doing business

NBFCs registered with RBI and having asset size of Rs.500 crore and above may be considered for notifications as Financial

Institution in terms of the SARFAESI Act, 2002

Infrastructure (i) Sharp increase in outlays of roads and railways, (ii) National Investment and Infrastructure Fund (NIIF),

to be established with an annual flow of Rs.20,000 crores, (iii) Tax free infrastructure bonds for the projects in the rail,

road and irrigation sectors, (iv) Ports in public sector to be encouraged to become companies under the Companies Act to

Union Budget 2015-16

7attract investment and leverage the huge land resources, (v) 5 new Ultra Mega Power Projects, each of 4000 MW, in the

Plug-and-Play mode, (vi) An expert committee to examine the possibility and prepare a draft legislation where the need

for multiple prior permission can be replaced by a pre-existing regulatory mechanism

Financial Markets (i) Public Debt Management Agency (PDMA) bringing both external and domestic borrowings together

to be set up, (ii) Forward Markets commission to be merged with SEBI, (iii) Section-6 of FEMA to be amended through

Finance Bill to provide control on capital Flows, (iv) Enabling legislation, amending the Government Securities Act and the

RBI Act included in the Finance Bill, 2015

Foreign Investment (i) Permit foreign investment in Alternate Investment Funds, (ii) Distinction between foreign portfolio

investments and foreign direct investments to be done away with

Make in India (i) Tax pass through to be allowed to both category I and category II alternative investment funds,

(ii) Revival of investment and promotion of domestic manufacturing, (iii) Rationalisation of capital gains regime for the

sponsors exiting at the time of listing of the units of REITs and InvITs, (iv) General Anti Avoidance Rule (GAAR) to be deferred

by two years, (v) Basic Custom duty on certain inputs, raw materials, inter mediates and components in 22 items, reduced to minimise the impact of duty inversion, (vi) All goods, except populated printed circuit boards for use in manufacture of ITA bound items, exempted from SAD (vii) Proposal to reduce corporate tax from 30% to 25% over the next four years

Ease of Doing Business (i) Simplification of tax procedures, (ii) Central excise/Service tax assesses to be allowed to use

digitally signed invoices and maintain record electronically, (iii) Penalty provision in indirect taxes are being rationalised to

encourage compliance and early dispute resolution, (iv) Wealth-tax replaced with additional surcharge of 2 per cent on

super rich with a taxable income of over Rs.1 crore annually, (v) Domestic transfer pricing threshold limit increased from

Rs.5 crore to Rs.20 crore, (vi) Time limit for taking CENVAT credit on inputs and input services increased from 6 months to 1 year, (vii) Service-tax plus education cesses increased from 12.36% to 14% to facilitate transition to GST

Black Money Bill for comprehensive new law to deal with black money parked abroad to be introduced in the current session and stringent measures announced to deal with black money, which includes 10 years rigorous imprisonment, penalty rate of 300% etc

Budget FinancialSummary of Accounts

Rs. Cr. FY11 FY12 FY13 FY14 (A) FY15 (RE) FY16 (BE)Revenue Receipts 788,471 751,437 879,232 1,189,763 1,126,294 1,141,575 Tax revenue(net to center) 569,869 629,765 741,877 977,258 908,463 919,842 Non tax revenue 218,602 121,672 137,354 212,505 217,831 221,733 Capital Receipts 408,857 568,918 531,140 605,129 554,864 635,902

Recovery of Loans 12,420 18,850 15,060 12,497 10,886 10,753 Disinvestment of Equity in PSE's 22,846 18,088 25,890 29,368 31,350 69,500 Internal Debt (Market Borrowings) 325,414 436,211 467,356 453,550 446,922 456,405

External Borrowings (Net) 23,556 12,448 7,201 7,292 9,705 11,173 Total Receipts 1,197,328 1,304,365 1,410,372 1,559,447 1,681,158 1,777,477 Revenue Expenditure 1,040,723 1,145,785 1,243,509 1,371,772 1,488,780 1,536,047 Interest Payments 234,022 273,150 313,170 374,254 411,354 456,145 Subsidies 173,420 217,941 257,079 254,632 266,692 243,811 Pensions 57,405 61,166 69,479 74,896 81,705 88,521 Capital Expenditure 156,605 158,580 166,858 187,675 192,378 241,430 Total Expenditure 1,197,328 1,304,365 1,410,367 1,559,447 1,681,158 1,777,477 Revenue Deficit 252,252 394,348 365,896 357,048 362,486 394,472

Fiscal Deficit 373,591 515,990 490,597 502,858 512,628 555,649

Primary Deficit 139,569 242,840 177,428 128,604 101,274 99,504

8Receipts

One of the challenges to the government finances emerges from the slowdown in the growth rate of the total receipts. Over

the last three years, the growth in total receipts of the Centre has moderated from 10.6% in FY14(A) to 7.8% in FY15(RE). The

same is expected to reduce further to 5.7% in FY16 (BE). There has also been a moderate shift in the composition of the overall

Receipts Budget over the last four years. While the share of revenue receipts rose from 58% in FY12 to 64% in FY15 (RE), that

of capital receipts has declined from 44% in FY12 to 35% in FY15 (RE).

In FY16(BE), there appears to be particular focus on disinvestments as a source of generating revenue as the Government is

budgeted to par take Rs. 28,500 Cr. of strategic disinvestment in addition to a target of Rs. 41,000 Cr. under disinvestment

receipts.

Gross Tax Revenue/ GDP

The ratio of Gross Tax Revenue to GDP has been stagnant at 10% over the last five years. This in turn points towards the

sluggishness in the economy and lack of growth in tax mobilisation. The growth in gross tax revenue has also been constant at

9.9% in FY15 compared to the growth levels in FY14.

Rs. Cr. FY12 FY13 FY14(A) FY15(RE) FY16(BE)

Gross Tax Revenue 889,176 1,036,234 1,138,734 1,251,391 1,449,491

Gross Domestic Product 8,832,012 9,988,540 11,345,056 12,653,762 14,108,945

Gross Tax Revenue (% of GDP) 10 10 10 10 10

Tax Proposals

The Tax Reforms in the FY16 Union Budget were developed on the five main pillars of effectively circumnavigating the black

money problem, creation of employment, minimum government and maximum governance, Swachh Bharat Abhiyan and

lastly providing benefits to the individual middle class tax payer.

o As regards the first pillar on black money, the Government is to introduce a bill in the Parliament which broadly aims at

discouraging the outflow of black money from the country and also curbing the same domestically through the Benami

Transaction Bill. This bill would enable confiscation of benami property along with some other measures which will serve

as deterrents to the holding of black money in the economy.

o There was a significant thrust on job creation which is imperative to support the Make in India campaign. The introduction

of Tax Pass Through in Alternative Investment Funds is likely to foster investments and give the Small and Medium Scaled

enterprises in particular a boost.

o In order to promote the Ease of Doing Business the motivation is towards simplifying the tax regime. As a step in this

direction, the government has abolished the Wealth Tax and instead introduced a surcharge of 2% for individuals with

income of over Rs. 1 Cr. This move is expected to add Rs. 9,000 Cr. to the governments tax revenues.

o The system is also preparing towards the Goods and Services Tax (GST) which will be applicable from FY17 onwards. In order to bring about a smooth transition, there is proposed to be an increase in the present rate of service tax plus

education cesses from 12.3% to a consolidated rate of 14%.

o Under the pillar of the Swachh Bharat Abhiyan, the proposition is to create an enabling provision to levy a Swachh

Bharat Cess at a rate of 2% or less on all or certain services. Also, the ongoing concessions on customs and duty for the

manufacturing parts of electrical vehicles are extended for another year.

o The fifth pillar focuses on the benefits extended to the middle class tax payers that includes deductions in respect of

insurance premium, additional deductions for very senior citizens & differently abled individuals, increase in limit on

deduction towards contribution to pension funds to name a few

9o Basic rate of Corporate Tax is to be lowered from 30% to 25% in a phased manner over 4 years. In order to limit the loss of

revenue on this front, the exemptions are to be rationalized and reduced.

o The government also announced certain exemptions to Service Tax, particularly for those contributing towards the Swachh

Bharat Abhiyan viz electrical vehicles. Likewise, senior citizens are also to be exempt from service tax under the Varishta

BimaYojana.

Major Non-Tax Revenue

Overall, the non-tax revenues are projected to slow down considerably in FY16 (BE) at a growth rate of 1.8% from the 9.5%

growth recorded in FY15(RE). There is a moderation expected across all the major heads of non-tax revenue barring Dividends

and Profits. While there was a slowdown in Dividends and Profits in FY15 (RE) to Rs. 88,781 due to a lower contribution by

PSUs, the same is expected to reverse on the back of strong dividends from RBI in FY16(BE) to Rs. 100,651 Cr.

Rs. Cr. FY11 FY12 FY13 FY14(A) FY15(RE) FY16(BE)

Interest Receipts 19,734 20,252 20,761 21,868 22,166 23,599

Dividends and Profits 47,992 50,608 53,761 90,435 88,781 100,651

Dividends from PSEs and other Investments 24,060 28,490 13,354 25,921 28,423 36,174

Dividends/Surplus from RBI, Nationalized Banks and financial Institutions

23,932 22,118 40,406 64,513 60,358 64,477

Spectrum Sale

The Government in FY12 and FY13 could not meet the target to be earned through Spectrum sale. The actual figures stood

markedly lower than the budgeted estimates. However, from FY14 onwards, the actual amount has tended to more or less

meet the budgeted figure. While in FY14, the Centre earned the budgeted Rs. 40,847 Cr. through the spectrum sale, it missed

the target at Rs. 43,162 Cr. as per the revised estimates for FY15.

The Government has projected a total of Rs.42,866 Cr. to be garnered through the Spectrum sale in FY16

Rs. Cr. Budgeted Actual / Revised

FY12 29,648 17,401

FY13 58,217 18,902

FY14 40,847 40,847

FY15 45,471 43,162

FY16 42,866 -

Disinvestment

There is a major disinvestment drive in the piping in the upcoming fiscal as the Government has targeted a total of Rs 69,500 Cr.

of which Rs. 28,500 is to be collected through strategic disinvestments. However, in the past years it is seen that the Centre has been unable to meet the budgeted disinvestment target. In FY15, the revised figures indicate that total disinvestments stood

49% lower than what was projected at the start of the year. The case was similar in FY14 as well with the actual figure being Rs.

29,367 Cr. as opposed to the budgeted amount of Rs. 55,814 Cr.

Hence, it remains to be seen if the optimistic target is realized in FY16.

10

Rs. Cr. FY13 FY14 FY15 FY16

BE A BE A BE RE BE

Total Disinvestment 30,000 25,890 55,814 29,367 63,425 31,350 69,500

Disinvestment Receipts 30,000 25,890 40,000 16,027 43,425 26,353 41,000

Disinvestment of Government stake in non-government Companies

- - 14,000 3,000 15,000 - -

Strategic Disinvestment - - - - - - 28,500

Others - - 1,814 1,814 5,000 5,000

Gross Borrowing Programme

The Gross Borrowing Programme for FY16 is virtually unchanged from that in FY15 as the Government projects to borrow Rs. 6 lkh Cr. with Rs. 1.43 lkh Cr being repayments thereby taking the net borrowing programme to Rs. 4.56 lkh cr.

Hence, liquidity in the system is expected to remain smooth without any untoward pressure in the upcoming fiscal year, much

like in FY15.

Rs. Cr. FY12 FY13 FY14 (A) FY15 (RE) FY16(BE)

Gross Borrowing Programme 509,796 558,000 564,147 592,000 600,000

Repayments 73,585 90,644 110,597 145,078 143,595

Internal Debt Market borrowing (NET) 436,211 467,356 468,668 453,205 456,405

Expenditure

Total Budget expenditure is projected to increase by 5.8% in FY16 compared to that in FY15 (RE). Total plan expenditure

allocation has declined by 0.6% for FY16 (BE) over FY15 (RE), with non-plan expenditure showing an increase of 8.2%. In terms

of percentage share in total expenditure, non-plan expenditure has been estimated to increase to 74% in FY16 (BE) from 72%

in FY15 (RE). Consequently the share of plan expenditure is estimated to decline to 26% in FY16 (BE) from 28% in FY15 (RE).

Revenue expenditure accounts for most of the total expenditure, with an average share of 87.8% since FY13; while capital

expenditure accounts for around 12%. The revenue expenditure increased by 10.3% on FY14 but witnessed a decline in growth

rate to 8.5% in FY15 and is expected to increase by only 3.2% in FY16 (BE). Capital expenditure on the other hand, increased by

12.5% and 2.5% in FY14 and FY15 respectively; however, in FY16 the capital expenditure is expected to increase significantly by

25.5%, reflecting the governments focus on asset creation

Rs. Cr. FY12 FY13 FY14 (A) FY15 (RE) FY16 (BE)

Non plan Expenditure 891,990 996,747 1,106,120 1,213,224 1,312,200

Interest payments 273,150 313,170 374,254 411,354 456,145

Subsidies 217,941 257,079 254,632 266,692 243,811

Pensions 611,660 69,479 74,896 81,705 88,521

Plan Expenditure 412,375 413,625 453,327 467,934 465,277

Revenue 333,736 329,208 352,732 366,883 330,020

Capital 78,639 84,417 100,595 101,051 135,257

Total Expenditure 1,304,365 1,410,372 1,559,447 1681,158 1,777,477

Revenue 1,145785 1,243,514 1,371,772 1,488,780 1,536,047

Capital 158,580 166,858 187,675 192,378 241,430

The Government has taken various initiatives on the expenditure front, which have been mentioned below;

11

Agriculture Initiatives

Allocation of Rs 5,300 crore to support micro-irrigation, watershed development and the Pradhan Mantri Krishi Sinchai

Yojana

Rs 25,000 crore has been allocated towards Rural Infrastructure Development Fund (RIDF) set up in NABARD, Rs 15,000 crore for Long Term Rural Credit Fund; Rs 45,000 crore for Short Term Cooperative Rural Credit Refinance Fund; and

Rs15,000 crore for Short Term RRB Refinance Fund.

Rs 8.5 lakh crore of agriculture credit to be be disbursed by Banks

Infrastructure Spending

Increased outlays on both the roads and the gross budgetary support to the railways, by Rs 14,031 crore, and Rs10,050 crore respectively.

Investment in infrastructure to increase by Rs 70,000 crore in FY16, over FY15 from the Centres Funds and resources of CPSEs

Establish a National Investment and Infrastructure Fund (NIIF), to ensure an annual flow of Rs 20,000 crore to it.

The Government also proposes to set up 5 new Ultra Mega Power Projects, each of 4000 MWs in the plug-and-play mode. All clearances and linkages will be in place before the project is awarded by a transparent auction system

Interest Payments


Interest Payments 273,150 313,170 374,254 411,354 456,145

Effective Interest Rate (%) 6.5 6.5 7.0 6.9 6.9

Interest payments account for around 23% of the total expenditure

Interest payments increased by 19.5% to Rs 374,254 crore in FY14. The increase however moderated to 9.9% in FY15 (RE).

In FY16 (BE) the interest payments are expected to increase by 10.9% to Rs 456,145 crore

The Effective interest rate defined as outstanding liabilities to interest payments appears to remain constant in FY16 at

6.9%

Subsidies


Subsidies 217,941 257,079 254,632 266,692 243,811

Major Subsidies 211,319 247,493 244,717 253,913 227,388

Food Subsidy 72,822 85,000 92,000 122,676 124,419

Fertilizer Subsidy 70,013 65,613 67,339 70,967 72,969

Petroleum Subsidy 68,484 96,880 85,378 60,270 30,000

Interest Subsidies 5,049 7,270 8,137 11,147 14,903

Other Subsidies 1,573 2,316 1,778 1,632 1,520

Subsidy bill for FY15 RE stood at 2.1% of GDP and is expected to decline to 1.7% of GDP in FY16(BE)

The major contributors to this reduced levels in subsidies has been the decline in petroleum subsidy by 50.2%. Fertilizer

subsidy and food subsidy are expected to increase marginally by 2.8% and 1.4% respectively

12

Defence Expenditure


Defence Expenditure 170,913 181,776 203,499 222,370 246,727

Defence Expenditure accounts for around 13% of the expenditure since FY12

Defence Expenditure increased by 9.3% in FY15 (RE) to Rs 222,370 crore and is expected to increase by 11.0% to Rs

246,727 crore in FY16 (BE)

With respect to defence services, the country has been dependent majorly on imports. The Government has already permitted FDI in defence to encourage manufacturing of defence equipments. The government thus plans to pursue Make

in India policy to achieve greater self-sufficiency in the area of defence equipment, including aircraft

Social Programmes


MGNREGA 29,213 30,274 32,993 32,992 34,699

NREGA in the past has not been too successful in producing meaningful public assets. The government aims at redesigning the programme by providing employment for more productive, asset creation which has linkages to agriculture& allied

activities. The allocation towards this programme has been increased to Rs 34,699 crore. The government aims at improving

the quality and effectiveness of activities under MGNREGA

Other social programmes include, soon to be launched Pradhan Mantri Suraksha BimaYojna which will cover accidental death risk of Rs 2 lakh for a premium of just Rs 12 per year

Pradhan Mantri Jeevan Jyoti BimaYojana which covers both natural and accidental death risk of Rs 2 lakhs. The premium

will be Rs 330 per year, or less than one rupee per day, for the age group 18-50.

An integrated education and livelihood scheme called NaiManzil to enable Minority Youth who do not have a formal

school-leaving certificate to obtain one and find better employment.

Further, to show-case civilization and culture of the Parsis, the Government will support an exhibition, The Everlasting

Flame. The allocation for the Ministry of Minority Affairs is estimated at Rs 3,738 crore

All India Institutes of Medical Sciences to be set up in J&K, Punjab, Tamil Nadu, Himachal Pradesh and Assam.

IIT to be set up in Karnataka and also Indian School of Mines, Dhanbad to be upgraded to a full-fledged IIT

Setting up of a Post Graduate Institute of Horticulture Research and Education in Amritsar.

IIMs will be setup in J&K and Andhra Pradesh

Three new National Institutes of Pharmaceutical Education and Research in Maharashtra, Rajasthan, and Chattisgarh and

an Institutes of Science and Education Research in Nagaland and Odisha

In terms of expenditure, there has been a clear focus on creating capital assets. While the budget has made allocations towards

social/ welfare programmes, the capital expenditure has been budgeted to grow by 25.5%, a sharp increase from the 2.5%

growth of the previous year. The Revenue expenditure on the other hand is budgeted to grow 3.2% (8.5% last year).

The various outlays announced for the agriculture sector would aid in boosting production and also develop logistical support

required by the sector. The government has emphasized the need to accelerate infrastructure development, with a need to

revive public investment. The increased outlays towards roads and railways would encourage the transportation and overall

logistics segment in India. Also, establishment of the National Investment and Infrastructure Fund and proposal for tax free

bonds would provide for the necessary fillip to financing of these projects

13

DebtRs. Cr. FY12 FY13 FY14 (A) FY15 (RE) FY16 (BE)

Public Debt 3,400,710 3,941,855 4,425,348 4,970,186 5,530,676

Internal Debt 3,230,622 3,764,566 4,240,767 4,775,900 5,298,217

External Debt 170,088 177,289 184,581 194,286 205,460

Other Liabilities 1,116,542 1,128,747 1,244,833 1,308,668 1,391,315

Total Debt 4,517,252 5,070,601 5,670,181 6,278,854 6,894,991

Debt/ GDP (%) 45.7 45.9 46.0 46.8 46.1

Public debt for FY16 is estimated to increase by 11.3% to Rs.5, 530,676 crore lower than 12.3% growth in FY15 (RE). Of the

total public debt, the internal debt accounts for more than 95% at Rs.5,298,217 crore. The share of external debt has been

moderating gradually from 5% in FY12 to 3.9% in FY15 (RE). In FY16, the outstanding external debt stock is estimated to grow

by 5.8% to Rs.205,460 crore. The other liabilities are estimated to increase by 6.3% to Rs.1,391,315 crore in FY16(BE). The debt

to GDP ratio has been increasing gradually over the past few years. However, the same is targeted at a lower rate of 46.1% in

FY16 (RE) with an expectation of improving Gross domestic product.

Bond Markets Overall the budget can be taken as being positive for the domestic corporate bond markets. The various measures announced

can be viewed as encouraging steps taken towards the strengthening and development of this segment of the countrys financial sector. The tax free bonds for the rail, road and irrigation sectors aimed at providing for alternate sources of funding

for infrastructure would not only bring more papers into the bond markets it would also prompt private players to seek funding from the bond markets. The governments move towards liberalizing capital raising would further aid liquidity and participation

in the segment.

The creation of Public Debt Management Agency (PDMA) bringing both external and domestic borrowings together and the

proposal of putting equity at par with debt would further help the markets grow. The impact/effectiveness of these measures

would however need to be studied as and when they are implemented.

14

The Railway Budget for FY16 outlines a vision of a new dimension which will transform the Indian railway system over a period of 5 years with emphasis on creation of robust railway infrastructure and improved customer services. The proposals lay emphasis

on safety, decongestion & capacity augmentation, electrification, modernization, technology up gradation and significantly

improving operating ratios.

The Railway Minister has laid down in its agenda a set of four goals which include- 1) improving customer service, 2) safety, 3) expansion of rail capacity and 4) making Indian Rail financially self-sustainable.

To achieve the same it proposes five key drivers with focus on eleven thrust areas. The five drivers include adopting a medium-

term perspective, building partnerships, leveraging additional resources, revamping management practices, systems, and

process and retooling of human resources and setting standards for government and transparency.

Highlights:

No hike in passenger fares

The freight structure for the base class-100 has been proposed to be increased by 10%. The rates will be effective from 1st

April 2015

Plan Outlay Proposed at Rs.1, 00,011 crore, increased by 52%. The sources include- Budgetary resources Rs.40,000 crore,

Railway Share of diesel cess- Rs.1,645 crore, Market Borrowings- Rs.17,655 crore, Internal Source- Rs.17,793, PPP mode- Rs.5,781 crore and from various institutions- Rs.17,136.

Allocation for passenger amenities up by 67%

Proposed to increase track length by 20% from 1,14,000 km to 1,38,000 km:

Grow annual freight carrying capacity from 1 billion to 1.5 billion tonnes.

Hot buttons, coin vending machines for railway tickets within 5 minutes, e-catering to select meals from an array of choices

200 more stations to come under Adarsh Station scheme; Wi-Fi to be provided at B category stations

24X7 helplines for attending passenger problems and security related complaints

For the safety of women passengers surveillance cameras in suburban coaches

The speed of nine railway corridors will be increased to 160 and 200 kmph

77 new projects covering 9,400 km of doubling/tripling/quadrupling works proposed

A new department for keeping stations and trains clean under Swachh Rail Swachh Bharat Abhiyan to be set up

Commissioning 800 km of gauge conversion targeted in current fiscal.

Railway Budget 2015-16

15

Financial Performance


Freight Earnings 69,548 85,263 93,906 106,927 121,423

Passenger Earnings 28,246 31,323 36,532 43,003 50,175

Other Coaching 2,717 3,054 3679 4028 4,612

Sundry Earnings 3,643 4,261 5,721 5,241 7,318

Suspense (43) (168) (279) 50 50

Gross Traffic Receipts 104,111 123,733 139,559 159,249 183,578

% growth 10.1 18.8 12.8 14.1 15.3

Miscellaneous Receipts 2,135 2,448 3,656 4,202 4,979

Total Receipts 106,256 126,200 143,227 163,465 188,572

Ordinary Working Expenses 74,537 84,012 97,571 108,970 119,410

Pension outgo 17,610 20,710 24,850 29,225 34,900

Appropriation to DRF 6,520 6,850 7,900 7,775 7,900

Total working expenses 98,667 111,572 130,321 145,970 162,210

Other Expenses 822 1,019 1,144 1,028 1270.25

Total Expenditure 99,489 112,591 131,465 146,998 163,480

Dividend payable to General Revenues 5,630 5,323 8,009 9,174 10,811

Surplus balance 1,137 8,286 3,754 7,294 14,281

Operating Ratio % 95.0 90.2 93.6 91.8 88.5

Gross traffic receipts- The Rail Minister has targeted 15.3% growth in the gross traffic receipts to achieve Rs 1,83,578

crore for FY16 which would be mostly driven by strong 16.6% growth in passenger fare earnings to Rs 50,175 crore. Given

that there has been no change in fare rates, it may be expected that the number of passenger kms would increase during the year. The freight earnings are also targeted to improve 13.56% to Rs 1,21,423 crore in FY16 which would be due to a

combination of higher freight rates for selected goods as well as increase in overall volumes.

Expenses- Ordinary working expenses are to increase at a lower rate of 9.2% relative to gross receipts which has helped to

increase the net surplus. Lower crude oil prices have led to moderation in fuel costs for the Railways, and the assumption

is that this trend will persist in FY16 too. The Budget has proposed working expenses of Rs 1,62,210 crore, while the appropriation to the Pension Fund of Railway Employees and Depreciation Reserve Fund stand at Rs 34,900 crore and Rs

7,900 crore for FY16. After dividend payable at Rs 10,811 crore for FY16, the surplus is expected to be at Rs 14,281 crore

up from Rs 7,294 crore for FY15.

Operating ratio during the FY16 is expected to improve considerably and come down to 88.5% compared with 91.8% in

FY15. If this target is achieved, it would be the lowest ratio in the last 9 years.

Implications on economy and Industry

Efficiency: The measures to improve the operational efficiency to achieve the target of 88.5% operating ratio of the rail

system will leave a larger surplus amount with railways which can be used for expansion purposes.

Capital formation: The share of railway investment (as per the capital outlay of Rs.65,796 crore) in Gross fixed capital

formation (GCFC) was 1.8% in FY15. Under ceteris paribus conditions, the growth rate of GFCF could increase by 0.1%-0.2%

(7.4% to 7.5%) in FY16 based on the increase of 52% in capex envisaged in FY16. The share of railways in GFCF will increase

under these ceteris paribus conditions from 1.8% to 2.5-2.6%.

Industrial growth: The expansion by way of additional lines in the railway system will have an indirect and positive impact

on growth across various sectors such as cement, steel, Electrical equipment, Railway wagons, cables, etc. This in turn shall

positively contribute to the economic growth of the country.

16

Services sector: The use of technology by providing easy access to customers through mobile phones and other e-platforms

will provide a boost to the telecommunication and IT industries. Also provision of food and other passenger amenities is

likely to boost the overall service industry in particular the tourism industry.

Inflation: The upward revision in freight rates across various commodities is likely to have inflationary impact of about 0.4-

0.5% in WPI inflation (assuming all other factors remain unchanged) when both the direct and indirect impact is taken into

account.

Corporate debt market: The partial funding of railways by of market borrowings of Rs.17,655 crore compared with Rs

12,046 cr in FY15, which would lead to a an increase in activity in the corporate bond market.

17

Industry Snapshot:

As per DGCA, in November 2014, Indigo had 33.5% market share in the domestic market (in terms of passengers carried) followed by Jet Airways which commanded 21.6% market share, while Air Indias and Spice Jets market share stood at

18.4% and 18.2%, respectively.

Domestic capacity is expected to expand by around 8-10%, somewhat higher than the projected growth in traffic. Most of this is expected to be driven by start-up airlines such as AirAsia India and Tata-SIA.

Proposal and Impact

Budget proposals Impact on the Industry

Key schemes announced1) Visas on arrival to be increased from 43 to 150

countries in stages.Expected to lead to increased passenger flow into the country.

Impact on Companies

Company Impact Comments

Jet Airways + Expected to lead to increased passenger flow in the country.

Spice Jet +

Airlines

18

Industry Snapshot:

As per the Twelfth Five-Year Plan (2012-2017), the total investment expected in the Airport sector is Rs.87,714 crore, which is expected to augment airport infrastructure across the country.

The passenger traffic saw an unprecedented growth during Eleventh Five-Year Plan, it grew from 43 million in FY03 to 159 million in FY13, registering a CAGR of around 14%. The cargo traffic grew from 1 million tonnes in FY07 to 2.2 million tonnes

in FY13, registering a CAGR of around 8%. The total passenger traffic in the country grew by around 11% during FY15 (April-

October) on Y-o-Y basis, while cargo traffic expanded by around 12% during the same time.

Proposal and Impact


Key schemes announced1) Visas on arrival to be increased from 43 to 150

countries in stages.

Tourist arrival is expected to improve thus leading to non-aeronautical revenue of airports.

Impact on Companies


GMR Infrastructure Ltd + On account of increase in Visa on arrival to 150 countries, non-aeronautical revenue of these airports is expected to have positive impact.GVK Power & Infrastructure

Ltd +

Airports

19

Auto Components Industry Snapshot:

Growing income levels during the last one decade translated into strong automobile sales which in turn resulted in high demand for the OEM segment. However, the last couple of years were challenging for the OEM segment due to strained demand for new vehicles from the domestic as well as exports market.

The replacement segment was however marginally impacted by the economic slowdown given the huge existing vehicle population. Moreover, the relatively faster increase in the density of roads has led to greater passenger & cargo movement

by roads vis--vis rail which too has added to replacement demand. Nonetheless, the industry witnessed difficult period

since FY12 as the OEM segment derives majority demand (approximately 80%) for the Auto Component Industry.

Duty Structure

Customs Duty (%) Before After Impact Excise Duty (%) Before After Impact

Engine & engine parts, except the below-mentioned

7.5 7.5 = Engine & engine parts 12 12 =

Silencer, exhaust pipes & radiators

10 10 = Drive transmission, steering, suspension & braking parts

12 12 =

Drive transmission, steering, suspension & braking parts, except the below-mentioned

10 10 = Spark plug, distributors, ignition coils & starter motors

12 12 =

Couplings & seals 7.5 7.5 =Spark plug, distributors, ignition coils & starter motors

7.5 7.5 =

Proposal and Impact


Key schemes announced1) Excise duty has been revised to 12.5 % from 12%2) Excise duty on ambulance chassis has been reduced

to 12.5% from 24%

Education Cess and Secondary & Higher Education Cess on all excisable goods has been fully exempted, which translated into excise rate of 12.36% during the previous year. Consequently, revised rate of 12.5% will have nominal impact on the industry.This would have a positive impact on profitability of chassis manufacturers

Impact on Companies

Company Impact CommentsBharat Forge Ltd. =

Since there were no major announcements pertaining to the industry, the budget would have a marginal impact on component suppliers

Bosch Ltd. =Exide Industries Ltd. =Motherson Sumi Ltd =Sona Koyo Steering Systems Ltd. =WABCO India Ltd. =

20

AutomobilesIndustry Snapshot:

Indian automobile sector witnessed one of the most turbulent phases since FY12. During the period PV and CV witnessed significant decline in demand. Moreover, TW industry demand also moderated during the mentioned period, with

voluminous motorcycles segment getting worst affected. Automobile demand has been constrained on account of higher

ownership cost of vehicles on account of high fuel and financing costs coupled with lower propensity to spend owing

to lower job prospects, low growth in income levels and high inflation level. Although automotive demand witnessed a

marginal uptick during FY15 on account of lower base effect and pent-up demand, complete recovery of the sector is vastly

aligned to economic turnaround.

Duty Structure


Passenger Cars Small Cars* 12 12.5 =Old 105 105 = Mid-size Cars@ 24 24 =New 100 100 = Large Cars# 27 27 =Two Wheelers SUV 30 30 =Old 105 105 = Buses 12 12.5 =New 60 (75^) 60 (75^) = Trucks 12 12.5 =Commercial Vehicles Two Wheeler 12 12.5 =Old 10 40 - Three Wheeler 12 12.5 =New 10 40 - Hybrid Vehicles 5 5 =

Note:*Indicates cars which have engine capacity less than 1,500cc in case of diesel and 1,200cc in case of petrol and length less than 4 meters. @ Indicates cars which have engine capacity less than 1,500cc in case of diesel and 1,200cc in case of petrol and length more than 4 meters. #indicates cars having engine capacity more than 1,500cc in case of diesel cars and 1,200cc in case of petrol and length exceeding 4 meters. Definition of SUV as per central excise department is a vehicle with engine capacity greater than 1,500cc, length exceeding 4000mm and ground clearance 170 mm and above^ 75% Custom duty is applicable for two-wheeler having engine capacity greater than 800cc

Proposal and Impact


Key schemes announced

1) Excise duty has been revised to 12.5 % from 12%

2) Hike in agriculture credit from Rs.800,000 crore to Rs.850,000 crore

Education Cess and Secondary & Higher Education Cess on all

excisable goods has been fully exempted, which translated into excise rate of 12.36% during previous year. Consequently, revised

rate of 12.5% will have nominal impact on the industry.

This would lead to improved rural liquidity, thereby push demand for

Tractors and TWs.

Impact on Companies

Company Impact CommentsMaruti Suzuki Ltd =

Since no excise duty reduction was announced like previous year, the budget would

have marginal impact on OEMsAshok Leyland Ltd =Hero Motocorp Ltd =Bajaj Auto Ltd. =

21

Banking & Financial ServicesIndustry Snapshot:

Banks During FY14, the banking sector was severely impacted due to slow credit demand, pressure on asset quality on the back

of subdued macroeconomic backdrop and elevated level of interest rates in view of inflationary pressure resulting in Mark

to Market (MTM) loss on the investments for the bank. During FY15, interest rates started softening with reduction in

inflation and comfortable liquidity in the system. With the recent rate cut by RBI, is expected to further ease the systemic

liquidity and enable banks to fund the expected credit growth in view of recovery of sectors post the reforms undertaken

by the government. Asset quality pressure continued on banks during FY15 with overall Gross NPA ratio rising to 4.2% as on

September 30, 2014 from 3.3% as on March 31, 2013. Though the banks currently remained capitalized, going forward, the

banks especially public sector banks would be required to raise additional equity in order to meet the more stringent Basel

III norms and also maintain a cushion over the regulatory minimum.

Non Banking Finance Companies (NBFCs) NBFCs also saw moderation in rate of asset growth, rising delinquencies resulting in higher provisioning thereby impacting

profitability. However, comfortable capitalisation levels and conservative liquidity management, continues to provide

comfort to the credit profile of NBFCs inspite the impact on profitability. The revised regulatory framework released in

November, 2014 by the RBI focuses on strengthening the structural profile of the NBFC sector.

Proposal and Impact



NBFCs registered with RBI and having asset size of more than

Rs.500 crore will get access to the SARFAESI Act, 2002 in line with banks and HFCs

This will allow NBFCs to improve their recovery from Non Performing Assets (NPA) and provide them a level playing field with banks.

Recapitalization of Banks Allocation of Rs.7,940 crore (P.Y.:

Rs.6,990 crore) for recapitalization of Public Sector Banks

Banks would be required to raise additional capital apart from

the budgetary allocation to fund growth and comply with

stringent Basel III norms.An autonomous Bank Board Bureau to be set up to improve the governance of public sector bank which will also help them in devising capital raising strategies an interim step

towards establishing a holding and investment Company for Banks

The proposed Bureau would play a vital role in laying a roadmap for PSBs in terms of capitalisation, holding structure

consolidation and governance.

Foreign investments in Alternate Investment Funds (AIF) and tax pass through to be allowed to both category I and

category II alternative investment funds to tax investors in

funds instead of the funds.

This will help AIF in fund raising. Which in turn will increase investment in sectors like SMEs, infrastructure as well as fund start-ups.

Housing for all - 2 crore houses in Urban areas and 4 crore houses in Rural areas

Governments commitment for providing housing to public is a positive for the housing finance companies as well as banks

as this will boost the demand for housing loan.Postal department with a network of 154,000 point in villages to be converted into payment banks

The proposed Postal Payments Bank would help in achieving financial inclusion.

Establishment of National Investment and Infrastructure

Fund (NIIF) with an annual flow of Rs.20,000 crore

This fund will help in resource raising for entities like IRFC

and NHB and in turn boost housing finance and financing for

railway projects.

22

Impact on Companies


Large NBFCs (asset size > Rs.500 crore) +

Access to SARFAESI Act, 2002 will allow NBFCs to improve their recovery from Non Performing Assets (NPA) and provide them a level playing field with banks.

Public Sector Banks + The proposed Bank Board Bureau would play a vital role in laying a roadmap for PSBs in terms of capitalisation, holding structure consolidation and governance.Private Sector Banks =

23

CementIndustry Snapshot:

The Indian cement industry witnessed a dismal demand growth in the past few years. The slowdown in the real estate sector, delay in execution of various infrastructure & industrial projects and the overall economic slowdown adversely affected the

offtake of cement. In FY2014, the consumption of cement showed a tepid growth of 3.5% on a YoY basis. However, in the

first eight months of FY15, cement production has registered a growth of 8.5% on a YoY basis.

Going ahead, increasing focus by the newly-elected Government on strengthening infrastructure, promotion of low-cost affordable housing, lowering trend of interest rates and expected revival in the overall economic growth will provide respite

to the cement demand. Moreover, fall in diesel prices and international coal prices will provide some respite to the cement

industry on the cost front.

Duty Structure


CementOPC/PPC/PSC@- Basic- CVD- Special CVD

Nil124

Nil124

=

Cement*OPCPPCPSC

12 12.5 -

Clinker- Basic- CVD- Special CVD

1012 4

10124

=Clinker

12 12.5 -

*An abatement of 30% on MRP and duty on adveloram basis plus specific duty of Rs.120 per tonne, @OPC- Ordinary Portland cement, PPC- Portland pozzalana cement and PSC- Portland slag cement.

Proposal and Impact


Key schemes announced Increase in outlays on both the roads and the gross

budgetary support to the railways, by Rs.14,031 crore and Rs.10,050 crore, respectively.

Investment in infrastructure to increase by Rs.70,000 crore in the year 2015-16, over the year 2014-15 from the centres funds and resources of CPSEs.

Establishing of a National Investment and Infrastructure Fund (NIIF) with a capital of Rs.20,000 crore.

Vision Team India which includes a roof for each family in India, plans to build 6 crore houses across India by 2022.

Announced measures in infrastructure and housing segments are likely to boost the cement demand. The long-term demand growth of cement is expected remain intact.

The effective rate of Clean Energy Cess, levied on coal, lignite and peat, is being increased from Rs.100 per tonne to Rs.200 per tonne.

Increase in freight rates by railway freight rate on cement increased by 2.7%, freight rate on coal increased by 6.3% and freight rate on slag increased by 2.7%.

Neutral to negative, as the cement companies are expected to pass on some of the increase in cost of production to the end-users.

24

Impact on Companies


UltraTech Cement Ltd. + Various measures announced in infrastructure and housing segments will have a positive impact on the demand which will be beneficial for the companies.

Moreover, cement companies are expected to pass on some of the increase in cost of production to the end-users.

ACC Ltd. +Ambuja Cements Ltd. +The India Cements Ltd. +

25

CoalIndustry Snapshot:

Indian coal Industrys domestic production/off-take was at 567/582 MT in FY2014 (period from April 1, 2013 to March 31, 2014). Against this, the demand for coal stood at 722 MT in FY14 resulting in deficit of 19.3% which was met through

imports. During April-November 2014, coal production grew by 9.4% YoY to 369 MT. However, coal imports continue to grow

by 20% to 160 MT during the same period.

After deallocation of 214 blocks out of 218 coal blocks, the GoI is in process of reallocating the coal blocks to the eligible end-users. The majority of the blocks shall be allocated on a competitive bidding basis to the power sector, which is a regulated

sector. Furthermore, non-power sectors such as steel, sponge iron and cement players have also evinced interest and are bidding for these coal blocks. Thus, CARE believes that the imports are expected to come down in the medium term after

auction of these blocks.

Duty Structure

Customs Duty (%) Before After Impact

Non-Coking Coal 2.5% 2.5% = Met coke 2.5% 5.0% =Clean Energy Cess Rs.100/tonne Rs.200/tonne =

Proposal and Impact


Key schemes announced1) Clean Energy Cess is increased from Rs.100 to

Rs.200/tonne of coal to finance clean environment initiatives.

The increase in clean energy cess of Rs.100/tonne of coal is likely to garner Rs.55-60 billion yearly for the exchequer. The impact on the coal Industry remains neutral as cess increase is fully pass-through to end-consumers.

Impact on Companies


Coal India Limited = Since energy cess is pass-through, the company would not be impacted.

26

ConstructionIndustry Snapshot:

Construction is integral to support Indias growing need for infrastructure and industrial development. In the last 10 years, construction as a percentage of gross domestic product (GDP) has been in the range of 7.4%-8.1%. The industry witnessed

a slowdown in the last couple of years, mainly on account of slowdown in the economy, delay in project awarding and execution due to environmental clearance hurdles, aggressive bidding by players, land acquisition issues and political

instability in some states.

As on March 31, 2014, the multiple of order backlog to the net sales of the major construction companies stood at around 2.9 times.

Duty Structure

Excise Duty (%) Before After Impact

Cement Retail* 12% 12.5% -Steel 12% 12.5% -

*An abatement of 30% on MRP and duty on ad valorem basis plus specific duty of Rs.120 per tonne.

Proposal and Impact


1. Investment in infrastructure has been increased by Rs.70,000 crore for 2015-16.

2. The allocation in the roads sector has been increased by Rs.14,031 crore and that in railways by Rs.10,050 crore.

3. Allocation of Rs.5,300 crore towards micro-irrigation, watershed development and the Pradhan Mantri Krishi Sinchai Yojana.

4. Corpus of Rs.25,000 crore allocated towards Rural Infrastructure Development Fund (RIDF) set up in NABARD.

5. 5 new Ultra Mega Power Projects, each of 4,000 MW, in the Plug-and-Play mode to be set up. All clearances and linkages will be in place before the project is awarded by a transparent auction system. This involves investment of about Rs.100,000 crore.

6. The government plans to build two crore houses in urban India and 4 crore houses in rural India to ensure house for all by 2022.

7. Tax free infrastructure bonds to be launched for the projects in the rail, road and irrigation sectors.

8. National Investment and Infrastructure Fund (NIIF), to be established with an annual flow of Rs.20,000 crore to it from the government. This trust is to raise debt and in turn, invest as equity in infra finance companies like IRFC (Indian Railway Finance Corp. Ltd) and the NHB (National Housing Board).

9. The additional duty of Customs / Excise of Rs.4 per litre, levied on Petrol and High Speed Diesel Oil to be converted towards Road Cess to finance the investment in roads and other infrastructure. An additional sum of Rs.40,000 crore will be made available through this measure.

1. The continued focus of the government on infrastructure development through increased allocation towards roads, railways irrigation, power, etc, would be beneficial for the construction industry. Also, focus of the government on building houses for all will augur well for the industry.

2. Easy accessibility to funds for various infrastructure projects through issue of tax free bonds, additional funding through road cess fund and NIIF and will prove beneficial for construction industry.

27

10. Public Private Partnership (PPP) mode of infrastructure development to be revisited and revitalised.

11. An expert committee to be formed to examine the possibility and prepare draft legislation where the need for multiple prior permissions can be replaced by a pre-existing regulatory mechanism. E-biz portal has been introduced, which integrates 14 regulatory permissions at one source.

3. The initiatives of the government towards encouraging private participation through improving PPP model and fast track the various regulatory approvals by setting up a single window portal will be positive for the industry.

Impact on Companies


Hindustan Construction Company Limited +

Increased allocation towards various infrastructure projects is

expected to result in increased order inflow to the construction

companies.

NCC Limited +Gammon India Ltd + IVRCL +Sadbhav Engineering Ltd +Simplex Infrastructures Ltd +Patel Engineering Ltd +

28

Consumer DurablesIndustry Snapshot:

Consumer durables industry is highly correlated to economic scenario as the industry demand is largely dependent upon disposable income. Urban market account for about 65% of the revenue for the consumer durable industry in India. The

rising demand from rural and semi-urban markets is likely to drive the consumer durables industry. The key growth drivers are rising income levels, easy availability of consumer credit, various policy support from the government like relaxation

in customs duties and excise duty, awareness of brands and products, change in lifestyle, new model launches with

technological improvements and ease of shopping through various online formats.

Duty Structure


Organic LED (OLED) TV panels 10 0 +Components used (magnetron) for the manufacture of microwave oven 5 0 +

Proposal and Impact


Key schemes announced1) Reduction in custom duty on Organic LED (OLED) TV

panels. 2) Reduction in customs duty on magnetron used for

manufacture of microwave.

The said measures likely to have marginally positive impact on demand of OLED TV and microwave ovens.

Impact on Companies


Bajaj Electricals Ltd = The Proposed reduction in custom duty for components used in the manufacturing of microwave oven would reduce the input cost which may be passed on the consumers.Mirc Electronics Ltd =

29

EducationIndustry Snapshot:

Education sector in India is a mix of government-operated & privately operated educational institutions and allied education products & services providers. The sector is highly influenced by the various government schemes and policies launched

primarily to improve the quality of education and the planned expenditure by the government through several schemes

including the Sarva Shiksha Abhiyan (SSA) and Rashtriya Madhymik Shiksha Abhiyan (RMSA) to improve the quality of

education and eventually the literacy level in the country.

Governments focus on education has continued in the Union Budget 2015-16 with a budget outlay of Rs.68,968 crore with allocation towards different schemes. An amount of Rs.22,000 crore (Rs.28,635 crore in the budget 2014-15) has been

allocated towards SSA and Rs.3,565 crore (PY: Rs.4,966 crore) for RMSA.

Duty Structure - Not Applicable

Proposal and Impact


Key schemes announced To upgrade over 80,000 secondary schools and add

or upgrade 75,000 junior/middle schools to senior secondary level so as to ensure there is a senior secondary school within 5 km reach

This continued focus on school education with an objective of increasing gross enrollment ratio is expected to result in increase in enrollment in the higher education segment. Given their significant presence in higher education, private sector educational institutions are likely to benefit

To set up a fully IT-based Student Financial Aid Authority to administer and monitor Scholarship as well as Educational Loan Schemes, through the Pradhan Mantri Vidya Lakshmi Karyakram.

Creation of dedicated institution/authority to provide easy access to funds to help the deserving students would improve demand in higher education institutions

A separate Skill Development and Entrepreneurship Ministry which would be launching National Skills Mission

Focus on skill development as a priority to empower and skill the youth would result in increased opportunities for private players offering skill development courses.

To set up All India Institutes of Medical Sciences(AIIMS) in 5 states, IIT in one state and to upgrade Indian School of Mines, Dhanbad into a full-fledged IIT.

Focus on higher education

Impact on Companies


Aptech + The government has reemphasized its focus on school education to add and upgrade infrastructure in all segments from secondary to senior secondary level. This is expected to result in higher inflow of orders to the

private sector players especially for companies engaged in information

and communication technology segment of education.

NIIT +Tree House +

30

Engineering & Capital GoodsIndustry Snapshot:

The main demand drivers for engineering and capital goods include infrastructure spending by large government and private players. Over the past few years, a large number of players had curtailed their capex owing to the general slowdown in economy, overcapacity, strong rise in imports (~40% of capital goods in India are imported), high interest rates, delays in

statutory approvals and general execution challenges.

However, during the current financial year, the capex announcements have increased on revival in growth prospects and on expectation of positive government policies. Translation of these developments into new orders and subsequently into

better performance for the sector would, however, take some time, as would tying up funds for these projects. CARE expects

the capex cycle to show improvement in the medium-term, with growing business confidence, decline in stalled projects

and support from government policies.

Duty Structure


Construction equipment 7.5% 7.5% = Construction equipment 10% 10% =Textile machinery 7.5% 7.5% = Textile machinery 10% 10% =Stamping and lamination 5% 5% = Stamping and lamination 12% 12% =Copper winding wire 7.5% 7.5% = Copper winding wire 12% 12% =

Proposal and Impact



1) Capex of public sector units of Rs.3.17 lakh crore in FY162) 5 Ultra Mega Power Projects, each with a capacity of 4,000 Mega

Watt (MW) to be awarded post all clearances

3) Tax free infrastructure bonds for projects in rails, road and irrigation

4) Allocation of Rs.0.25 lakh crore for rural infrastructure and creation of 6 crore rural and urban housing units by 2020

5) Revitalisation of public-private-partnership (PPP) model of infrastructure alongwith an increase in the public investment and higher risk assumption by the sovereign.

6) Conversion of excise duty of Rs.4 per litre on petrol and diesel, into road cess, resulting in mobilisation of Rs.0.40 lakh crore.

7) Thrust on renewable energy with an increase in renewable energy capacity target to 1.75 lakh MW by 2022 and electrification of 0.20 lakh villages including off-grid solar power generation by 2020.

8) Increase in defence expenditure from Rs.2.22 lakh crore for FY15 to Rs.2.27 crore in FY16.

9) Creation of National Investment and Infrastructure Fund with an annual contribution of Rs.0.20 lakh crore, which would be used to raise further funds from the market and invest as equity in entities such as Indian Railway Finance Company and National Housing Board.

This is higher by around Rs.0.80 lakh crore compared with FY15 Revised Estimates and is likely to provide impetus to the sluggish investment cycle.In the medium-term this will result in increased demand for power equipment.

This could help mobilise much needed long-term funds for the sector which could help catalyse the growth in the sector.This will result in increased demand for construction equipment.

This could provide boost to the PPP model, which has seen low interest from the private sector over the past few years.The additional investible amount allocated directly to road and other infrastructure projects could translate into more projects being awarded on EPC basis, rather than on the PPP basis. In line with the governments vision to provide power to all by 2019, the thrust on increased generation and better connectivity could help manufacturers of power equipment.

This will result in increased demand of capital goods.This fund could be used to fund some key infrastructure and housing projects.

31

Impact on Companies

Company Impact CommentsABB India Ltd. = StableAction Construction

Equipment Ltd. +Investment in road infrastructure could see improved demand for construction

equipment.

Alstom India Ltd. = StableBharat Heavy Electricals Ltd. + Given its large capacity in the power equipment this could see new order flows.C.R.I. Pumps Pvt. Ltd. = StableEimco Elecon (India) Ltd. = StableElecon Engineering Company Ltd. = Stable

Engineers India Ltd. + Increase in PSU capex could translate into higher demand for the companys services.Kalpataru Power Transmission Ltd. = StableKEC International Ltd. = StableLarsen & Toubro Ltd. = Focus on capacity building and infrastructure could see higher order flow Shanti Gears Ltd. = StableSiemens Ltd. = StableSterlite Technologies Ltd. + Thrust on establishment of optical fibre cable network and rural electrification could see higher demand for cables.Texmaco Rail & Engineering Ltd. +

Growth in annual freight carrying capacity could translate into increased order flow for rolling stock.

Thermax Ltd. = StableTRF Ltd. = StableVoltamp Transformers Ltd. + Focus on rural electrification and improvement in power quality could see higher demand for distribution transformers.

32

FertilizersIndustry Snapshot:

Domestic fertilizer sales volume reduced by 4% y-o-y in FY14 to 51 million metric tonnes (MMT) driven by reduction in demand of P&K fertilizers by 10% y-o-y, while the urea consumption remained stable at 30 MMT. However, in FY15, the sales

volume for P&K fertilizer is likely to increase by 15% - 20% due to substantial reduction in channel inventory carried forward

from FY14 and increase in imports, while the urea consumption is expected to remain unchanged. The fertilizer subsidy

budget of Rs.72,900 crore for FY15 would continue to fall short against the total outlay.

The key challenges faced by fertilizer industry are skewed usage of nitrogen nutrient (urea), high cost of regasified liquefied natural gas (RLNG) and inadequate subsidy budget leading to delays in subsidy payments.

Duty Structure


Urea 5% 5% = Urea 12.36% 12.50% =DAP 5% 5% = DAP 12.36% 12.50% =MOP 5% 5% = MOP 12.36% 12.50% =Ammonia 5% 5% = Ammonia 12.36% 12.50% =Phosphoric Acid 5% 5% = Phosphoric Acid 12.36% 12.50% =Sulphur 5% 5% = Sulphur 12.36% 12.50% =Sulphuric acid 7.5% 5% = Sulphuric acid 12.36% 12.50% =Rock Phosphate 2.5% 2.5% = Rock Phosphate 12.36% 12.50% =

Proposal and Impact



1) Overall fertilizer subsidy budget remains stable at Rs.72,968 crore; Within overall budget, subsidy for domestically produced urea increased by Rs.2,200 crore and for decontrolled fertilizers reduced by the same amount

2) Support to soil health card scheme and agriculture ministrys organic farming scheme Pradhanmantri Krishi Vikas Yojana

3) Improved access to irrigation through Pradhanmantri Gram Sinchai Yojana and Pradhanmantri Krishi Sinchai Yojana with an outlay of Rs.5,300 crore

4) Enhanced credit to the farm sector through agriculture credit outlay of Rs.8.5 lakh crore

Fertilizer subsidy budget over the past few years have fallen short of the actual requirements. This is expected to continue in FY16 also.The benefit of increased subsidy allocation for urea manufacturers is expected to offset the increase in rail freight by 10% as urea price is not expected to change

Move towards improving the soil fertility and productivity and balance usage of nutrients would lead farmers to use more of P&K fertilizers suiting the soil need rather than opting for low-cost urea.

The move is expected to reduce dependence on monsoon and would entail stable demand for fertilizers

Fertilizer demand would to get a fillip on account of easier credit availability and may also influence farmers to use complex fertilizers.

33

Impact on Companies


Indian Farmers Fertilizer Cooperative Ltd = The stable allocation to fertilizer subsidy budget would continue to result in mismatch between subsidy requirement and allocation

The move towards reducing the skewed usage of nitrogen nutrient (urea) and soil productivity would lead to increase in agriculture

yield and also to increase in demand of non-urea (P&K) fertilizers

The easier farm credit would also influence farmers for balance use

of fertilizers

Rashtriya Chemicals & Fertilizers Ltd =Chambal Fertilizers & Chemicals Ltd =Gujarat Narmada Valley Fertilizers &

Chemicals Ltd. =

Gujarat State Fertilizers & Chemicals Ltd = Improved access to irrigation would lead to reduced dependence on monsoon and stabilize demand of fertilizers

34

FMCGIndustry Snapshot:

The size of the Indian FMCG industry was estimated to be at around $37 billion in 2013. Most of the FMCG companies in the past two years witnessed a subdued volume growth on account of elevated inflation and subdued economic growth.

However, the long-term prospects for the industry remains healthy on the back of favourable demographic profile, expected

growth from rural demand with rising penetration in these areas and improvement in GDP growth rate.

Duty Structure


Fatty acids/crude palm stearin and specified industrial grade crude oil used for manufacturing of soaps

0 0 = Mineral water and aerated waters containing added sugar

12 18 -

Crude glycerine for manufacturing of soaps

0 0 = Non-filter cigarettes(not exceeding 65mm)

990(Rs./1000

sticks)

1280(Rs./1000

sticks)

-

Non-filter cigarettes(exceeding 65mm but not exceeding 70mm)

1995(Rs./1000

sticks)

2335(Rs./1000

sticks)

-

Filter cigarettes(not

exceeding 65mm)990(Rs./1000

sticks)

1280(Rs./1000sticks

-

Filter cigarettes

(exceeding 65mm but not 70mm)

1490(Rs./1000

sticks)

1740(Rs./1000

sticks)

-

Filter cigarettes

(exceeding 70mm but not 75mm)

1995(Rs./1000

sticks)

2335(Rs./1000

sticks)

-

Other cigarettes 2875(Rs./1000

sticks)

3375(Rs./1000

sticks)

-

Excise duty on cut tobacco

Rs.60 per kg

Rs.70 per kg

-

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Proposal and Impact


Key schemes announced1) Increase in excise duty on cigarettes, tobacco2) Increase in excise duty on mineral water and

aerated water containing added sugar

The hike in excise duty if passed on the end-consumers could marginally impact demand for cigarettes and other tobacco products.The increase in excise would lead to marginal decline in demand for these products.

Impact on Companies


ITC Ltd, Godfrey Philips India Ltd, VST Industries Ltd -

Hike in excise duty would have a negative impact on the revenues due to

decline in volume growth for these products as well as negatively impact

margins as the hike may not be fully passed on to the end-users instantly.

36

Gems & JewelleryIndustry Snapshot:

India overtook China to become the largest consumer of gold in the world during CY14 on the back of good festival and wedding related demand in Q4CY14. A predominant portion of gold jewellery manufactured in India was meant for domestic

consumption. However, cut and polished diamonds (CPD) and diamond jewellery segment is largely export-oriented and

has been a major contributor to the countrys Foreign Exchange Earnings (FEEs).The Government of India (GoI), has always incentivized the industry in the past, with measures such as interest rebates, extension of credit periods (for pre-shipment

and post-shipment credit) and export duty benefits so as to make it competitive. During CY14, the total export of gems and

jewellery (G&J) industry was USD 35.1 billion (USD 35 billion during CY13).

Indian consumer demand for gold remained largely undeterred by government measures and regulations such as imposition of 80:20 rule of linking import of gold to exports (wherein nominated banks and agencies had to set aside 20% of the total

imported quantity for exports) and gradual increase in import (custom) duty on gold to 10% in order to reduce current

account deficit (CAD) and curb inflation. The demand for gold jewellery in India increased by 8% to 662.10 tonnes during

CY14, while investment demand reduced by 50% to 180.60 tonnes; lowest in the last five years. However, during Q3FY15,

the government removed the 80:20 rule thereby liberalising gold imports which resulted in improved supply of gold in India

and consequent reduction in local price premium on gold.

Duty Structure


Semi-processed, half cut or broken diamonds 2.50 2.50 =Cut and polished diamonds and coloured gemstones 2.50 2.50 =Gold and Silver 10 10 =Gold and Silver Jewellery 15 15 =

Proposal and Impact



1) Introduce gold monetization scheme

2) Develop Indian-made gold coins (which will carry the Ashok Chakra on its face)

It can help recycle local gold reserves and thereby improve domestic

supply of gold for the G&J industry.

Impact on Companies


Asian Star Company Limited =The Union Budget 2015-16 will have a neutral impact on the G&J industry as duty structure in the industry remains unchanged.

Hari Krishna Exports Private Limited =P.C.Jewellers Limited =Khazana Jewellery Private Limited =

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Hospitals & HealthcareIndustry Snapshot:

The Indian healthcare industry is estimated to cross Rs.5,000 bn by FY17 (refers to the period April 01 to March 31). The Hospital and Health services segment is its largest component, comprising 70% of the industry and is expected to continue

to dominate the industry. With 69.5% of total expenditure on health being funded through private means in CY11 (Source:

WHO), it is likely to remain the single-biggest determinant of healthcare spending in the near-future.

Duty Structure


Healthcare equipment 7.5 7.5 = Healthcare Equipment 12.36 12.5 =

Proposal and Impact



1) All India Institutes of Medical Sciences in Bihar, J&K, Punjab, Tamil Nadu, Himachal Pradesh and Assam

2) Increase in health insurance premium to Rs.25,000 (senior citizens: Rs.30,000)

This should help augment medical facilities in these underserved states.It is expected to bring expensive medical treatments under enhanced policy amount.

Impact on Companies


Apollo Hospital Enterprise Ltd + Schemes announced to have a positive impact on the demand.

Fortis Healthcare Ltd +

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HotelsIndustry Snapshot:

On account of huge additions of inventory coinciding the overall sluggishness in the economy in the recent past, the ARR and OR for hotels remained under pressure during FY11-13 period. However, during FY14, the occupancy rates showed some improvement, which rose to about 58.9% from 57.8% in FY13. The average room rates, however, continued to remain

under pressure owing to the fact that majority of the new supply being of a lower positioning coupled with average rate

pressures being faced by older hotels. Also, the companies focused more on improving occupancy rather than improving ARR in FY14.

Duty Structure


Hotels NA NA NAHotels- Room service- Foods and Beverages

7.424.94

7.424.94

=

Proposal and Impact



1. Tourist Visa on Arrival (TVoA) to be extended to 150 countries from existing 43 countries.

2. Proposal for development of the following heritage sites; Elephanta Caves; old churches in Goa; Varanasi temple town; Hampi in Karnataka, etc

Extension of TVoA to give boost to Foreign Tourist Arrivals (FTAs), which in turn is expected to spur the Occupancy Rates (OR) for the hoteliers. Development of heritage sites also to spur tourist arrivals in the long run.

Impact on Companies


The Indian Hotels Co. Ltd +Extension of TVoA to have a positive impact on OR of hoteliersEIH Ltd. +

Hotel Leela Ventures. Ltd +

39

IT & ITeSIndustry Snapshot:

The Indian IT-BPM industry in aggregate is estimated at USD 146 billion in FY15, export segment of which is expected to reach USD 98.5 billion, according to NASSCOM. IT Services exports is expected to grow at a moderate pace of 12-14% in

FY2016. This would be against 13-15% growth estimated for FY15 by NASSCOM. The lower growth estimation is attributable

to mixed set of economic data from the western markets which account for about 80% of income of Indian IT exporters and

currency headwinds. While U.S. economy has recorded notable recovery, economic fluctuation in Europe has been a cause

of concern. Meanwhile, rupee which had marginally depreciated against US dollar in the last one year, had appreciated sharply against Euro (17%) and British Pound (7.5%) which could stress the profitability of contracts from these regions.

Duty Structure

Customs Duty (%) # Before After Impact Excise Duty (%) Before After Impact

Parts, Components & accessories used in tablet computer manufacturing

- - = Tablet computer 12.4 12.5 =Components 12.4 Nil +

# the above carry a Countervailing Duty (CVD) of 10% which is being exempted now.

Proposal and Impact


Rs.1,000 crore for promotion of start-ups and entrepreneurs in the technology sector.

Exemption of basic customs and CVD and excise duty on parts, components and accessories for use in the manufacture of tablet computers.

No specific announcement for the IT services sector but for government setting aside Rs.1,000 crore for promotion of start-ups in the sector. This is expected to create opportunities and benefit technology start-ups.

For domestic component manufacturers, the decision to exempt CVD and excise duty is a positive development. Presently, an inverted duty structure prevails with effective tax rate on finished product less than tax on imported components. However, the proposal for exemption of CVD and excise is likely to boost domestic production and reduce the dependence on imports.

Impact on Companies


TCS =

No specific announcement for the IT services sector.Infosys =Wipro =Mphasis =

40

Media and Entertainment Industry Snapshot:

The Indian media and entertainment industry estimated to be at Rs.918 bn witnessed an overall growth of 11.8% in CY2013 (period from January to December 2013). Of the total market size, the share of television and print media remained the

highest at 45.1% and 27.3% respectively during CY2013. Other segments such as animation & visual effects (VFX), gaming and

digital advertising, though still at nascent stage of growth, continue to grow at healthy rates. Given the impetus introduced

by digitization, continued growth of regional media, strength in the film sector and fast-increasing

Union Budget Analysis 2015-16

Documents

Transcript of Union Budget Analysis 2015-16