Budget Expectations2013 14

Budget Preview: 2013-14
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Union Budget 2013-14 - Expectations

The budget for the financial year 2013-14 is round the corner and the market expectations are high from this budget as this will be the last budget by UPA before general elections and so market is expecting it to be populist in nature. The FM may also look towards the wishlist and hopes of many corporates which the demand and will contribute to the consumption led economy also. There are a total of 72 bills in the agenda during this budget session, which if passed can bring the optimism forward and rev up sentiments. Some of the important bills are: The Finance Bill Lokpal Bill National Food Security Bill The Whistle Blowers Protection Bill Insurance Laws (Amendment) Bill & PFRDA Bill Womens Reservation Bill Grievance Redressal Bill Real Estate Regulatory Bill Educational Tribunals Bill revolves around variety of duty cuts across sectors which are expected to heighten the investment as well as
Besides, there are some peripheral issues, which if addressed can ginger up corporate sentiments like the Securities Transaction Tax (STT), Minimum Alternate Tax (MAT), etc.
Wishlist for Union Budget 2013-14

No tax on dividends from overseas Over the last few years, corporate India has emerged as an active global player. Indian business houses have made investments and acquisitions, however, the returns from these investments, when brought to India, suffer tax unlike domestic dividends which are tax free in the hands of the recipients. In the last Budget, the rate of tax was reduced to 15%. Such dividends received out of tax paid profits overseas and subjected to withholding taxes in those jurisdictions, should not be subjected to further tax in India on remittance. Basic customs duties to continue at existing levels till GST is introduced Domestic Industry continues to suffer from cost disadvantages on account of higher local taxes such as VAT, octroi and entry tax as also due to higher cost of financing and inadequate infrastructure. Domestic industry deserves a minimal level of protection to compete with imported goods. Basic customs duties should continue at existing levels till such time a comprehensive Goods and Services Tax is introduced and the cost of financing and cost of infrastructure and transaction costs is reduced to competitive levels.
Immediate implementation of GST The recent move by the Finance Minister in reviving the move to introduce GST, sooner rather than later, is indeed welcome. We strongly supported the introduction of GST and believe that this will go a long way in streamlining the economy and provide impetus to the growth of our GDP. Also, it is important that the framework of GST should encompass the multiple taxes currently levied at the state and local levels and should subsume all of them. Provide clarity on newly implemented Service Tax A comprehensive service tax based on the concept of a negative list of services has been introduced with effect from July 1, 2012. It is an important step towards introduction of GST. However, it is noticed that while the levy is universal in its application (barring the negative list and exemptions); there are restrictions on the availment of Cenvat credit. All input side tax costs forming part of the price of the final output goods or services should be allowed as credit. Further, several doubts have been expressed about the scope of the new levy. Some of the issues requiring clarification have been listed in the memorandum. The Ministry of Finance should issue clarifications on these issues at the earliest to avoid litigation. Improving Dispute Resolution Processes
The key concerns of the taxpaying community are the prolonged litigation and the need to make on account payments in the interregnum. The Dispute Resolution Panel (DRP) and the Mutual Agreement Procedure (MAP) in the context of Direct Taxes have not proved effective mechanisms in this regard. Corporate India strongly recommends that a conciliation bench should be formed, and which can be approached by a tax payer to help settle tax disputes. This will ensure that where a tax payer has already got a favorable resolution of a dispute on a matter, the dispute is not continued in later years. Similarly, non-resident tax payers can focus on quantum of profits attributable to a Permanent Establishment or the adjustment on a Transfer Pricing issue. In respect of Indirect Taxes too, because of pressure of maximizing revenue, show-cause notices / demands are confirmed by the tax officers even when the matter may be legally untenable. The adjudication process take years to conclude and matters get finalized in higher courts. The lengthy litigation processes result into huge litigation cost for the taxpayers. Apart from suggesting timely adjudication of matters, Corporate India has requested that adjudication officers should be disengaged from the duties of revenue collection to minimize the revenue bias.
Reverse Recent Increases to Service Tax Rates
In light of concerns that the Indian economy is slowing, Industry urged the government to reverse recent increases to service tax rates, back to the 8% rate in place two years ago, from the current 12% rate. Furthermore, to encourage foreign direct investment in the nation's embattled aviation sector, the Industry asked the government to exempt the domestic repairs, maintenance and overhaul services sector from service tax.
Budget Preview: 2013-14 Real Estate Regulatory Bill
The Budget session of Parliament will have the much awaited discussion on the Real Estate Regulatory Bill. According to recent reports, the Bill aims to establish a regulatory authority for enforcing fair practices and accountability norms and fast track dispute resolution mechanism in real estate transactions. If the bill is framed right, this could change the face of real estate in India and bring in the much needed reforms in the industry. The Bill is a very good opportunity for the government to give some structure to the currently unorganised real estate sector. The government should take an unbiased approach towards this bill which would benefit the industry and its stakeholders customers, developers, bankers etc. The Governments proposed initiative to fast track approvals by putting up the status online will bring in the much-needed transparency and accountability to projects. The real estate sector is definitely a high growth area for the country. The focus should be on providing the right quality of living to everyone. At present builders are taking the initiative to provide quality and environment-friendly living spaces. This change has to come from within the industry rather than over-regulation. Incentivizing may be the best way to go forward. The Bill should help drive up consumer confidence.
Budget needs to focus on promoting infra investment
Industry has sought urgent steps in the forthcoming Budget to make the infrastructure sector viable and capable of attracting capital. Given that the 12th Plan envisages an investment of $970 billion in infrastructure, nearly half of which is to come from the private sector, urgent measures are required to make the sector viable and capable of attracting capital. Among the key measures suggested to provide a fillip to investment in the sector, Industry has asked for exempting infrastructure companies from the payment of Minimum Alternative Tax. Currently, infrastructure projects are entitled for a tax holiday under section 80IA for 10 consecutive years during the first 15/20 years of their operation. In order to reduce the construction and operation cost of projects, Industry is in favour of restoration of section 10(23G). By exempting the interest income of the financial institutions received from the Rupee term loan financed to the companies eligible for claiming deduction under section 80IA(4), this will greatly help in countering the high interest rate environment for the infra companies. Further, given the rapidly growing demand for housing from the low middle income population, it is critical to promote low cost housing. Currently, the government offers interest subvention of one per cent for low-cost housing loans up to ` 15 lakh, provided the housing cost does not exceed ` 25 lakh. Industry recommends that interest subvention scheme is extended to total housing cost of up to ` 35 lakh. This sector has one of the largest multiplier effects and so, an incentive for investments in low cost housing would create demand in over 200 industry sub-sectors. For restoring confidence in the power sector, Industry has urged the ministry to continue tax benefits for the sector under Section 80 IA sunset clause, which entitles a company for tax benefits only if it starts generating power by the end of the current financial year. In order to attract huge investment in power generation, Industry wants extension of the sunset clause under Section 80 IA till the end of the 12th Five-Year Plan period.
Sectoral Expectations
Automobiles
Change in Excise duty - No excise duty hikes for two wheelers / commercial vehicles / small cars. Additional diesel tax on passenger vehicles could be a big negative. Continuation/Increase of allocation to schemes for NREGS (National Rural Employment Generation Scheme) and infrastructure/road/housing development. to watch out - Ashok Leyland, Bajaj Auto, HeroMotoCorp, Maruti Suzuki India, and Tata Motors.
Companies
Capital Goods

Substantial increase in Defense budget allocation. Fund allocation for various programs including APDRP (Accelerated Power Development and Reforms Programme ) and RGGVY (Rajiv Gandhi Grameen Vidyutikaran Yojana ) expected to continue. to watch out - BEL, BEML, BHEL, and Power Grid.
Companies
Cement

Thrust on higher infrastructure spending Tax incentive on housing sector should continue. to watch out - ACC, Ambuja Cement, Grasim, India Cement, and Ultratech.
Companies
Hotels

Infrastructure status to Hotel Industry This is old demand from the hotel industry. Such a grant will lead hotels to re -invest their profits in the hospitality sector, channelize huge investment in the tourism sector and help bridge the shortfall of hotel rooms. Companies to watch out - Indian Hotels, Kamath Hotels, and Taj GVK.
FMCG
Increase in excise duty would be negative for FMCG players as it would negatively affect demand. However, FMCG players are expected to pass on the increase in excise duty. Companies to watch out ITC, GCPL, Dabur, and HUL
Budget Preview: 2013-14 Infrastructure and Real Estate
The real estate sector has been asking for tax breaks under Section 80 -IA of the Income Tax Act to be extended to the housing sector. Section 80-IA was introduced to promote private participation in the infrastructure sector. Under this rule, infrastructure companies are entitled to a 100 per cent tax holiday for 10 years. Realty companies argue that the shortfall in the number of housing units can be bridged by group housing projects. These will include amenities such as roads, schools, hospitals and retail outlets, leading to infrastructure development. Hence, they argue, infrastructure status should be given to developers building townships or large-scale affordable housing. Building affordable housing for economically weaker sections has largely been the responsibility of the government. In recent years, some realty companies have tried to develop such housing but most pulled out due to the low margins, which are well below those in the upper-mid and luxury segments. There are expectations that tax concessions could bring these developers back into affordable housing. With infrastructure status, developers can also get access to funds from India Infrastructure Finance Company Ltd, which gives loans at lower interest rates than commercial banks. Companies to watch out L&T, HCC, NCC, Sadbhav Engg., JP associates
IT

Exemption of MAT on units operating under SEZ ( Special Economic Zone) e-Governance initiatives Education allocation Companies to watch out TCS, HCL Tech, Educomp, NIIT Ltd, Everonn
Logistics

Railways - to encourage private sector players to procure more wagons Increased allocation of funds for building roads, ports and other utilities Companies to watch out GDL, Concor
Power
Continue tax benefits for the sector under Section 80-IA sunset clause, which entitles a company for tax benefits only if it starts generating power by the end of the current financial year. In order to attract huge investment in power generation, industry wants extension of the sunset clause under Section 80 IA till the end of the 12th Five-Year Plan period. Companies to watch out - Tata Power, NTPC, and JSW Energy
Pharmaceuticals

Healthcare sector should be granted infrastructure status. Increase in allocation on Healthcare infrastructure and National Rural Health Mission. Lifesaving drugs should be fully exempted from the custom duty. Companies to watch out - Cipla, Dr. Reddy's Laboratories, Lupin, Torrent Pharma
Banking and Financial Services

Increase in limit of refinancing from IIFCL for infrastructure sector projects Allocation of equity capital for infusion in PSU banks Increase in tax exemptions on individual housing loans Companies to watch out PFC, REC, IDFC, SBI and other PSU banks
Commodity & Currency Market

The GDP for the current financial year is unlikely to cross the 5.9-6% mark - the predicted 8% in GDP growth is highly unrealistic. Hence the forthcoming budget may come up with some immediate and effective announcements to remedy the situation. In recent quarters, the Government and the RBI have been unable to curb the inflation to a more comfortable level of around 5 -6%. Considering that the upcoming budget is expected to be a populist one, given the Union election ahead in 2014, addressing the compromised GDP and skyrocketing inflation must be given highest priority. The government should look at outcome-based spending and not just outlays. The government should not interfere with the price discovery process of any commodity and create price caps that impede supply, create shortages and price rises. The top priority for the government should be to keep a check on fiscal deficit. The government should also work at providing better environment for businesses that create more jobs.
Expectations for Precious Metals Industry

Recently, the government hiked import duty on gold to six per cent from four per cent to curb demand and check high current account deficit. In view of that, Gems and jewellery industry has demanded reduction in gold import duty and imposition of simplified tax regime to boost gold and diamond trade in the forthcoming budget. To offset losses caused by fluctuations in the rupee, the GJEPC (gems and jewelry export promotion council) wants the RBI to set up a special fund worth USD 3 -5 billion to refinance borrowings of exporters. This will bring exporters to currency market for hedging. Govt. may provide tax incentive on gold linked financial instruments. RBI panel has favored gold-backed investments and may promote more products on gold which may attract investors. The government is looking for avenues to curb import of physical gold. The Reserve Bank of India's (RBI) working group has recommended setting up of Bullion Corporation and introduction of gold -backed financial instruments. Corporation may function as a Backstop Facility providing liquidity for lending against gold or as a refinancing agency. In addition to functioning as a Backstop facility, it can also undertake retail transactions in gold through pooling of gold. Besides, the Corporation can be the nodal agency for deciding all policies related to gold and innovation of gold -backed products. In the ultimate analysis, demand for gold is a function of economic growth, import duty, exchange rate, inflation, interest rates, alternative financial instruments, easy availability of credit and the current account transactions. Any strategy to reduce the demand for gold will have to consider the trends in each one of these parameters to evolve an appropriate gold policy. The crux of the problem is the absence of financial instruments that provide flexible liquidity options, while providing real rate of return to investors. There should be innovative products in the market to provide hedge against inflation to the investors.
Expectations for Metals Industry

A bill to develop the commodities futures market could be passed in the forthcoming Budget session of Parliament, Food and Consumer Affairs Minister KV Thomas said. This bill is crucial for the commodity market as exchanges will be able to offer more products like options etc. to hedgers and other participants. Also FMC will have more powers after this bill is passed. Market will be able to attract more number of participants and availability of more avenues will drive volumes. Govt. may avoid Commodity Transaction Tax (CTT) for now as this may divert hedgers and speculators to rampant dabba trading. The CTT of 0.017 per cent on commodity derivatives was levied in the 2008-09 Budget, but was not operationalised and was kept in abeyance. Infrastructure spending is likely to be increased in this Budget which will underpin demand for metals in the country. Affordable housing may receive Infrastructure status in this budget. This will attract more builders in this field to avail tax holiday and may generate more demand of metals. Govt. may protect domestic aluminium industry. Increase in basic customs duty on aluminium products which is currently 5% will help domestic players from competition from international market.
Expectations for Currency Market

The government should find ways to increase more retail participation in the Forex market. Currently we have options on USDINR only and it would be a great step if options are also allowed in other currency pairs which will allow traders to hedge their positions with options. The government should also look into providing trading in other currency pairs like Australian dollar. In order to avert the rating downgrade by major credit rating agencies government may take some strict steps in this budget to avoid the soaring fiscal and current account deficit, which is likely to stem the falling Indian rupee. These steps include imposing the government duty on gold and crude oil to curb the soaring import bill of India. Government is likely to announce measures to narrow the trade deficit by increasing the exports. The finance minister must give sops for exports, which will slash the trade deficit. Also, Finance Minister could take measures to increase domestic savings. Indian FM could, however, go in for a tax on the very rich. In short, a large part of the improvement will have to come from non-tax receipts, such as divestments. Trend of more domestic savings has to be encouraged, by giving more incentives to people to save in financial instruments. Government also could lay out the timeline for the implementation of the goods and services tax. In order to ensure robust capital inflows, he could announce measures that would help the capital markets, which would support his divestment agenda and allow foreign institutional investors funds to flow into debt markets, lowering interest rates. Also, steps can be announced to get domestic investors back into the markets. Government can aim for further reforms, such as the pension and insurance bills, freeing up foreign direct investment further, and making the tax code more investment friendly. The reforms momentum needs to be carried forward in the budget. Ultimately, credible supply-side structural reforms, not all of which can be addressed by the budget, are needed to restore confidence in the economy.
Agricultural Sector
The growth for Agricultural and allied activities for the Year 2012 -13 is expected lower at 1.80 % vs 3.60 % in 2011-12 as per CSOs latest Advanced Estimates. Again, with the Inflation rate remaining a huge concern at double-digit for most part of this Financial Year, it has become imperative for the Govt to focus on both short term and long term measures to tackle the rising demand and stagnant production in the Agricultural sector. We propose the following expectations for the Agri sector: More investments in storage of goods: Reports of wastage in commodities like Wheat have regularly been there. This could be avoided by more investments in the Warehouse sector. Incentives should be given to the private sector for their participation in Procurement, Storage and Distribution activities. Higher the number of participants, lesser would be the problems associated with these activities. Broader participation of the Private sector is necessary in this regard. Incentives like Tax holidays, concessional loans , infrastructural facilities etc need to be given to the private sector so that they are able to actively participate in these activities Proper distribution channel: Despite higher production of Foodgrains, there have been reports of Foodgrains rotting in the open due to lack of storage facilities and inadequate infrastructure and channels to take the stocks out and distribute them. There should be easing of bottlenecks in Govt policy and infrastructure so that the goods could be distributed to the necessary places with minimum time lag
More subsidy on loans to farmers: There should be focus on increased financing through proper Govt agencies at lower costs for increased sowing of crops for the farmers
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Petrol/Diesel prices: There has been a significant rise in Petrol/Diesel prices that had created an upward thrust on the price of goods. The Govt should ensure reduction in freight charges and increasing subsidies for transportation of goods to keep prices under check Facilitation of Institutional Credit for Agri inputs: for the farm sector to raise agri productivity. Availability of Fertilizers, seeds and other inputs needed by farmers should be ensured at low rates. There should be scope for promoting greater investment in agri infrastructure and increased expenditure on irrigation. Raising the subsidy on Fertilizers for small farmers could enable them to raise productivity of the crops which have been stagnant over the last few years for most crops. Increased spending on upgrading Weather Forecasting system: Crops have been subjected to adverse weather conditions. Crop Insurance schemes should be made adequately available to farmers to prevent them from incurring losses. Apart from that, focus should also be there on the Weather Monitoring system. Upgradation of weather prediction channels could ensure better predictability of the Monsoon and other factors which could enable farmer to take informed decisions Mandi Taxes: This should be reviewed as higher taxes can raise prices SSI: More benefits and concessions to the Small scale Food Industries which are actively involved in import/export business so that they can compete in the Indian and the International markets
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Tariff structure: for imports and exports should be kept in a manner so that it is beneficial for the consumers and also safeguard the interests of the farmers. Encourage private participation in the Agri sector: for adoption of new Technologies by providing Tax incentives. This could enable not only higher productivity but also ensure efficient distribution of goods More focus on education of farmers: This can be done by encouraging Agri Educational Institutes through proper financing to take up education of farmers in a large scale. Higher knowledge would enable farmers to take informed decisions on various aspects of his work. Encouraging more investments in R&D in the Agri sector could also have a beneficial long term impact on the Farm production Investments in Transportation and Infrastructure like Roads and Railways : This could help in reducing the cost of transport and the time needed to shift goods from 1 place to another. A faster transport facility could prevent any significant rise in price in Agri Commodity from shortage in any part of the country
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Tariff structure: for imports and exports should be kept in a manner so that it is beneficial for the consumers and also safeguard the interests of the farmers. Encourage private participation in the Agri sector: for adoption of new Technologies by providing Tax incentives. This could enable not only higher productivity but also ensure efficient distribution of goods More focus on education of farmers: This can be done by encouraging Agri Educational Institutes through proper financing to take up education of farmers in a large scale. Higher knowledge would enable farmers to take informed decisions on various aspects of his work. Encouraging more investments in R&D in the Agri sector could also have a beneficial long term impact on the Farm production Investments in Transportation and Infrastructure like Roads and Railways : This could help in reducing the cost of transport and the time needed to shift goods from 1 place to another. A faster transport facility could prevent any significant rise in price in Agri Commodity from shortage in any part of the country
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CTT imposition: A few years back, in the union budget 2008-09, the Indian government has proposed impositions of commodity transaction tax (CTT) of 0.017%. The rationale for the same was to check price rise and volatility, check speculation, generating revenue and increasing transparency in dealings. Results have however suggested that there exists a negative relationship between transaction cost and liquidity, and a positive relationship between transaction cost and volatility. Thus if the Transaction cost is raised, liquidity of the markets would fall and that would result in increased volatility and hence increased speculation for the commodities. Thus the objectives of achieving price discovery from the Futures market may be negated. The proposal currently under consideration relates to CTT on trade transactions of non-farm commodities which account for over 80% of commodity Futures transactions. We try to analyze why it may not be beneficial for the Commodities markets:
Results have shown that the securities transaction tax (STT) has resulted in a shift in volumes from domestic to foreign markets. While SGX Nifty volumes more than doubled in the last five years, the high transaction tax in India led to Nifty futures volumes on the NSE falling two thirds. Foreign institutional investors have alternatives like SGX Nifty, where transaction charges are much lower.
Imposition of CTT, in line with STT, would result in Commodities volumes shifting to illegal markets (resulting in more acute problems associated with Dabba Trading) or to foreign bourses, as the tax would add to trading and hedging costs. Liquidity from intraday arbitrageurs would be heavily impacted
For getting Fair price discovery of Commodity prices through the Futures market, it is essential that more and more participants are there. Imposition of CTT would add to the rise in cost - leading to shift to other avenues and a resultant fall in number of participants
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Budget Expectations2013 14

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Budget Preview: 2013-14

Budget Preview: 2013-14

Union Budget 2013-14 - Expectations

Wishlist for Union Budget 2013-14

Budget Preview: 2013-14

Reverse Recent Increases to Service Tax Rates

Budget Preview: 2013-14 Real Estate Regulatory Bill

Budget needs to focus on promoting infra investment

Budget Preview: 2013-14

Budget Preview: 2013-14 Infrastructure and Real Estate

Budget Preview: 2013-14

Banking and Financial Services

Budget Preview: 2013-14

Commodity & Currency Market

Expectations for Precious Metals Industry

Budget Preview: 2013-14

Expectations for Metals Industry

Expectations for Currency Market

Budget Preview: 2013-14

Budget Preview: 2013-14

Budget Preview: 2013-14

Budget Preview: 2013-14

Budget Preview: 2013-14

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