Prepared by Research Team Budget Highlights 2009-10

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Overview
Finance Minister, Pranab Mukherjee, has presented the budget for FY 2010. The estimated expenditure has crossed
Rs 10,00,000cr mark for the first time and stands at Rs 10,20,838cr, of which planned estimated expenditure is Rs
3,25,149cr and non-planned estimated expenditure is Rs 6,95,689cr. Pranab Mukherjee aims to sustain a GDP
growth of 9.0% at the earliest and create 12mn jobs per annum by targeting 4.0% growth in agriculture and sustaining
momentum in exports. He also plans to reduce the number of people living below poverty line to less than 50% of
current level by 2014. The fiscal deficit in FY2009 has widened to 6.2% of GDP from 2.7% in the last fiscal. Further,
the fiscal deficit is expected to increase to 6.8% of GDP in FY2010.

The Finance Minister has planned to complete tax reform process in next four years. Some of the major changes in
relation to direct taxes include the following:

• No changes in the Corporate Tax rates

• Surcharge of 10.0% on personal income tax has been abolished
• Exemption limit in personal income tax has been raised by Rs 15,000 to Rs 2,40,000 for senior citizens; by Rs
10,000 to Rs 1,90,000 for women; and by Rs 10,000 to Rs 1,60,000 for all other categories of individual taxpayers
• The government will also announce new direct tax code in 45 days
• Deduction under section 80-DD in respect of maintenance, including medical treatment, of a dependent who is a
person with severe disability being raised from the present limit of Rs 75,000 to Rs1lac
• Fringe Benefit Tax (FBT) on the value of certain fringe benefits provided by employers to their employees has
been abolished
• Minimum Alternate Tax (MAT) has been increased to 15.0% of book profits from 10.0%. The period allowed to
carry forward the tax credit under MAT to be extended from seven to ten years
st
• The government will introduce Goods & Service Tax (GST) with effect from 1 April, 2010
• Commodity Transaction Tax (CTT) has been abolished

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 `
Road transportation companies like
TCI and Gati would benefit from the
allocation to NHAI
Concor, Gateway Distriparks are
likely to benefit from the increased
allocation to railways
Tata Motors, Ashok Leyland and
Eicher Motors are expected to
benefit from the excise duty
reduction on petrol driven
trucks/lorries
6th July, 2009
Impact on Industries
Logistics
Logistics sector in India will be indirectly benefited from the recent budget
announcement by the Finance Minister. The Finance Minister has increased the
allocation on National Highways Authority of India (NHAI) for the National Highway
Development Programme (NHDP) by 23.0% over FY2009.
We expect companies like TCI, Gati would be able to get the benefits from this
development as these companies are mainly in road transportation and any
development in road and highways would be beneficial to these companies since
this development would save the operating expenses of the company by reducing
its fuel cost and time.
However, the Finance Minister has imposed service tax in relation to service
provided on transport of goods by rail, service provided in relation to transport of
coastal cargo and goods through inland water including National Waterways. We
expect this step would have an overall negative impact on all the companies
operating in this sector. This would include all the operators in Shipping sector and
rail-based transportation sector.
The allocation for Railway has also been increased to Rs 15,800cr in FY2010 from
Rs 10,800cr. We expect increased allocation to help the rail based container
movement. Companies like Concor, Gateway Distriparks would be able to get
its benefit as Concor is the leader in rail-based transportation while Gateway
Distriparks is the second largest in this business.
Automobiles
The Finance Minister has announced reduction in excise duty on petrol driven
trucks/lorries to 8.0% from the earlier rate of 20.0%. The excise duty on chassis of
these trucks/lorries would be reduced to 8.0% plus Rs 10,000 from 20.0% plus Rs
10,000. While the Passenger vehicle segment is witnessing continuous growth
every month, the commercial vehicle segment is not showing any sign of recovery.
We expect that this step will definitely benefit the commercial vehicle sector which is
registering negative growth in unit sales since last couple of months. This will
directly reduce the cost of production and ultimately turn out to be beneficial to the
customers as the manufacturer would reduce market price of the vehicle. We
believe this step will be beneficial to Tata Motors which is the largest
manufacturer of commercial vehicles. Apart from Tata Motors, commercial
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Biscuit manufacturers like ITC,
Britannia will continue to enjoy excise
duty at 4%
Increase in tax exemption is expected
to spur consumer demand but the
increase in MAT by 5% is likely to be
negative for GCPL and Dabur
The excise duty exemption on
branded jewellery will prove to be
beneficial for Gitanjali and Titan who
are the leading players in the segment
6th July, 2009
vehicle manufacturer companies like Ashok Leyland, Eicher Motors, etc.
would also get benefit from this move.
Consumer Goods
• There has been a reintroduction of concessional customs duty of 5% on
specified machinery for tea, coffee and rubber plantations for a period of one
th
year up to 6 July 2010
• However, customs duty on ‘mechanical harvester’ for coffee plantation would be
reduced from 7.5% to 5%. Countervailing Duty (CVD) on such harvesters has
also been reduced from 8% to 0% by way of excise duty exemption. This could
be a positive move for companies like Nestle, HUL and Tata Tea in the
sector
• The excise duty on biscuits, sharbats, cakes and pastries would continue at 4%
as against other categories where the duty has been raised to 8%. But, the
biscuit manufacturers were expecting total excise duty exemption and reduction
in VAT rate to a uniform 4% which varies to as high as 12.5% in many states.
This would have resulted in passing of lower prices to consumers and increase
in volume growth for biscuit manufacturers like ITC and Britannia
• There has been no change effected in the import duty on edible oil and this
category continues to attract nil import duty. This is beneficial for players like
Hindustan Unilever Ltd (HUL) and Godrej Consumer Products Ltd (GCPL)
• The abolishment of FBT and implementation of GST which will align the taxes
across the country is expected to be positive for the sector as it will lower the
cost burden
• The rural demand is expected to get a push from the NREGA and Bharat
Nirman initiatives
• The increase in tax slabs by Rs 10,000 would increase the disposable income
which is expected to increase the consumer demand
• The increase in MAT rate from 10% to 15% would be negative for companies
who pay lower tax rate like GCPL and Dabur
Retail
• In the Gems & Jewellery segment, the excise duty on branded jewellery
segment has been reduced from 2% to Nil. This exemption is expected to be
beneficial for leading companies like Titan whose brand Tanishq is into branded
jewellery retail and Gitanjali Gems. This could result in a fall in the prices of
branded jewellery in the market. The exemption has come at a strategic
moment when these retailers are planning for aggressive expansion of their
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The increase in custom duty on gold
and silver is likely to bring down the
imports in the country
The demands of the retail industry for
FDI increase, industry status and
abolition of service tax have not been
addressed in the budget
The introduction of GST is expected
to eliminate the negative effects of
multiple taxes across the states
6th July, 2009
retail network. Tanishq is planning to set up 3-4 large-format stores in leading
metros during FY2010. The brand is also looking to be a bigger player in the
wedding market. Gitanjali Group, which others offers branded ornaments under
Gili, D’Damas, and Nakshatra brands, is also planning to launch 30 new
branded jewellery ‘Gitanjali Jewels’ stores across the country, to its already
existing retail chain of 38 stores.
• Customs duty on serially numbered gold bars (other than tola bars) and gold
coins would be increased from Rs 100 per 10 gram to Rs 200 per 10 gram.
Customs duty on other forms of gold to be increased from Rs 250 per 10 gram
to Rs 500 per 10 gram. Customs duty on silver to be increased from Rs 500/kg
to Rs 1000/kg. These increases would also be applicable when gold and silver
(including ornaments) are imported as personal baggage. With India being the
largest consumer and importer of gold and silver in the world, the increase in
customs duty is likely to result in fall in the import of gold and silver in the
country. Industry players like Rajesh Exports may get impacted by this move.
• The budget remained muted on the issue of allowing FDI (Foreign Direct
Investment) in multi-brand retail and increasing FDI limit in single brand retail
from the existing 51% to 74% which would have been positive for many retail
companies which are falling short of funds for expansion. The retail sector was
also demanding “industry” status which would have reduced interest rate
burden on debt taken by retailers. The retail companies were also seeking the
abolition of service tax charged at 12.5% on retail rentals which would have had
positive impact on the net profit of all the retailers.
Textiles
• The textile industry was eagerly awaiting the implementation of a
comprehensive Goods and Service Tax (GST), which will help in eliminating
multiple taxes. This demand has been met by the budget wherein the
government would accelerate the process for smooth introduction of the GST
st
with effect from 1 April, 2010
• Customs duty on cotton waste and wool waste has been reduced from 15% to
10%
• Excise duty exemption of 4% on pure cotton would now be restored
• Excise duty on man-made fibre and yarn has been increased from 4% to 8%.
This measure was against the industry demand for a complete removal of the
duty
• List of specified raw materials and equipment imported by manufacturer-
exporters of textile products which are fully exempt from customs duty, subject
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The budget did not address some of
the major demands from the textile
sector which is likely to impact
companies like Century Textiles, Alok
Industries and others
IIFCL and banks are in a position
support projects for infrastructure
development
6th July, 2009
to specified conditions, to be expanded. The inclusion of more items in this list
would have a positive impact on the sector as companies would be able to
enjoy more benefits on imports of a large variety of items
• Extension of the existing 2% interest subvention scheme for exporters till March
2010
• One handloom mega cluster each in West Bengal and Tamil Nadu and one
powerloom mega cluster in Rajasthan would be set up. New mega clusters for
carpets would be set up in Srinagar (J&K) and Mirzapur (UP)
The budget has been quite disappointing for this sector as the key demands for the
sector have not been met. The industry had been asking for removal of excise
duties on all man-made fibres and scrapping of service tax. Also, there was demand
for restoration of a 4% interest rate subsidy on bank loans for exporters. Though the
government has announced extension of the existing 2% interest subvention
scheme for exporters till March 2010, the same was not increased to 4%, as
demanded by the sector. The industry had also expected increase in duty drawback
and DEPB (Duty Entitlement Pass Book) rates to 5% from 3%, but the same has not
been done. The impact of these government moves could negatively impact
companies like Century Textiles, Alok Industries.
Infrastructure
As expected, the government has sustained thrust on the infrastructure construction
sector taking into consideration its impact on the overall economic development of
the country. Finance Minister Pranab Mukherjee in his Budgetary Speech has
th
announced the UPA Government’s long term plan which is in pace with the 11 five
year plan, to hover up Infra investment above 9% of GDP by 2014.
• IIFCL to evolve a takeout financing scheme in consultation with banks to
facilitate lending to infrastructure sector.
• IIFCL to refinance 60% of commercial bank loans for PPP projects in critical
sectors over the next 15-18 months. IIFCL and banks are now in a position to
support projects involving total investment of Rs 1,00,000cr
• Allocation to NHAI for NHDP to increase by 23% over budget estimate (B.E)
2008-09 in B.E. 2009-10 and allocation for Railways increased from Rs
10,800cr in Interim B.E. 2009-10 to Rs 15,800cr in B.E. 2009-10 from B.E 09-10
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The government initiatives including
easier lending by IIFCL; increased
outlay for roads, highways and
railway development would be
beneficial for major players in the
sector like IVRCL, Simplex
Infrastructure and others
Government’s thrust on infrastructure
will directly benefit key players in the
cement sector
The government plans to set up an
expert group for establishing a
system to viable petrol pricing which
is likely to benefit OMCs like IOCL,
BPCL and HPCL as well as upstream
companies like ONGC
6th July, 2009
• Brihan Mumbai Storm Water Drainage Project (BRIMSTOWA) project was
initiated in 2007 to address the problem of rain water flooding in Mumbai; the
budgetary allocation for this project has been enhanced from Rs 200cr in
Interim B.E. 2009-10 to Rs 500cr in B.E. 2009-10 to expedite completion of the
project
• Allocation in Accelerated Irrigation benefit program (AIBP) has been increased
by 75% over the previous year’s budgetary allocation
• Allocation for Bharat Nirman has been increased by 45% in B.E 09-10. The
allocation for Pradhan Mantri Gram Sadak Yojana (PMGSY) increased by 59%
over B.E. 2008-09.
We expect the union budget to have a positive impact on the sector. Easier lending
to this sector has been on top priority in the wish list which has partly been taken
care of through higher allocation by way of providing a mechanism through IIFCL
.Our belief that the road sector would witness a jump in order inflow has been
successfully met with. The intended clearing of regulatory bottlenecks for
infrastructure projects will help bring forward many pending projects, thereby
boosting the construction sector. However, we had expected a re-introduction of
Section 80M, which provides for deduction in dividends received from subsidiaries
for computation of dividend distribution tax, and that has not been taken into
consideration. Key beneficiaries from higher order inflows are expected to be
IVRCL, Nagarjuna Constructions, Patel Engineering, Simplex Infrastructure,
Madhucon Projects and Unity Infra projects.
Cement
There was no major announcement in today’s Budget directly impacting the Cement
industry. However we believe that the sector will indirectly benefit from the
government’s thrust on infrastructure and the huge infra spending announced.
However considering the huge capacity additions by leading cement companies, the
budget impact on the sector is likely to be neutral.
Oil & Gas
Government to set-up expert committee to advice on petrol pricing
With almost three quarters of oil consumption met through imports, the government
has said that it is important to keep the domestic prices of petrol and diesel in sync
with global prices. Hence, the government has planned to set up an expert group to
advice on a viable and sustainable system of pricing petroleum products. Thus,
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Tax holiday extended to natural gas
would benefit E&P companies like
ONGC, RIL, Cairn
Government plans to link gas
pipelines across the country with the
National Gas Grid which will be
beneficial to CGD companies like
GAIL, IGL and GSPL
The pipeline projects in oil and gas
sector to be incentivized by
investment linked tax exemption will
prove favorable to dominant players -
GAIL
6th July, 2009
domestic oil marketing companies (OMCs) like IOCL, BPCL and HPCL, if allowed to
follow global prices for petrol and diesel, will see less under-recoveries leading to
less subsidy burden for the government as well as upstream companies like ONGC,
GAIL and OIL. This will also help private players like RIL and Essar oil to reopen
their outlets for petrol and diesel distribution that they had to close down because of
government regulated prices which hampered their margins.
Tax holiday on commercial production of mineral oil and natural gas on NELP
VIII
Tax holiday under section 80-IB(9) of the Income Tax Act, which was so far
available in respect of profits arising from the commercial production or refining of
mineral oil, is now proposed to be extended to natural gas. This tax benefit will be
available to undertakings in respect of profits derived from the commercial
production of mineral oil and natural gas from oil and gas blocks which are awarded
under the NELP-VIII round of bidding. The section to be retrospectively amended to
provide that “undertaking” for the purposes of section 80-IB (9) will mean all blocks
awarded in any single contract. Exploration & Production (E&P) companies like
state-owned ONGC as well as private players like RIL, Cairn, Shell are expected to
be benefited from this seven years tax holiday, if contracted.
Natural gas infrastructure development to facilitate transportation of gas
across the country
With the exploration of natural gas in the KG Basin on the Eastern offshore of India,
the indigenous production of natural gas is expected to double, thus, emerging as
an important source of energy. LNG infrastructure in the country is also being
expanded. Government proposes to develop a blueprint for long distance gas
highways leading to a National Gas Grid. This would facilitate transportation of gas
across the length and breadth of the country. We expect the government to come
up with different contracts for the gas infrastructural development across the country
which would attract city gas distribution companies like GAIL, IGL and GSPL.
Pipeline network to be incentivized by providing investment linked tax
exemption
In this budget, the Finance Minister has also proposed that the businesses would be
incentivized by providing investment linked tax exemptions rather than profit linked
exemptions. Investment linked tax incentives is to be provided to the business of
laying and operating cross country natural gas or crude or petroleum oil pipeline
network for distribution on common carrier principle. Under this method, all the
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 capital expenditure, other than the expenditure on land, goodwill and financial
instruments would be fully allowable as deduction. GAIL, being the dominant
player in gas distribution business is expected to be profited from this policy
as the operational cost is anticipated to decrease leading to higher
operational margin.

Tax Proposals
Deduction on various taxes on • The ad valorem component of excise duty of 6% on petrol intended for sale with
petroleum products will boost the
operational margin of refining a brand name has been converted into a specific rate. Consequently, such
companies like IOCL, HPCL, RIL petrol would now attract total excise duty of Rs 14.50 per litre instead of 6% +
Rs 13 per litre
• The ad valorem component of excise duty of 6% on diesel intended for sale with
a brand name has been converted into a specific rate. Consequently, such
diesel would now attract total excise duty of Rs 4.75 per litre instead of 6% +
Rs.3.25 per litre
• Customs duty on bio-diesel has been reduced from 7.5% to 2.5%
• Duty paid High Speed Diesel (HSD) blended with up to 20% bio-diesel has
been fully exempted from excise duties
• Excise duty on naphtha has been reduced to 14%
• Increase in MAT rate from 10% to 15%

The taxes imposed on various petroleum products dampen the margin of the
refining companies. Thus, the reductions of such duties on various products would
enhance the operational margin of companies like IOCL, BPCL and HPCL. The
propose increase in MAT rate from 10% to 15% is expected to negatively impact
private players like RIL and Essar Oil

CVD exemption on packaged software
will help the IT companies in easier
valuation
IT & Telecom
CVD exemption to be provided on packaged software
The IT industry had indicated that it is facing difficulties in the assessment of
software which involves transfer of the right to use after the levy of service tax on IT
software service. To resolve this issue, Finance Minister has proposed the
exemption of CVD on packaged or canned software which would be provided on the
portion of the value which represents the consideration for transfer of the right to
use such software, subject to specified conditions.

National Web Portal for employer and employee to be launched

Finance Minister has also proposed the launch of a new project for modernization of

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Government expenditure of Rs 120cr
on UIDAI will be an opportunity for top
players like Infosys, Wipro, TCS and
Mahindra Satyam for implementing a
project of national importance
th th
628 July, 2009
April, 2009
the Employment Exchanges in public private partnership so that a job seeker can
register online from anywhere and approach any employment exchange. Under the
project, a national web portal with common software will be developed. This will
contain all the data regarding availability of skilled persons and requirements of
skilled persons by the industry. It will help youth in getting jobs and enable the
industry to procure required skills on real time basis. Thus, IT companies like TCS,
Wipro and Infosys will not only get opportunity to develop such web development
project but also expect to gets its maintenance project later on adding to their
revenues.
Government to spend Rs 120cr on Unique ID cards
The setting up of the Unique Identification Authority of India (UIDAI) is a major step
in improving governance with regard to delivery of public services. The top private
sector talent in India like Infosys, Wipro, TCS and Mahindra Satyam is expected to
step forward to take the responsibility for implementing projects of vital national
importance. The UIDAI will set up an online data base with identity and biometric
details of Indian residents and provide enrolment and verification services across
the country. The first set of unique identity numbers is expected to be rolled out in
12-18 months and the proposed provision of Rs 120cr has been made for this
project.
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