2008 - Budget Simplified

An analysis by Religare Research
Budget focus
Budget Simplified ‘08 Religare Research
Boosting
Consumption
Protection of Controlling
Industry Inflation
Budget
2008‐09
Social Sector
Promoting
(Healthcare &
Agriculture
Education)
Balancing populism with growth
• Aims to drive consumption and investments while addressing the risks
of inflation, rupee appreciation and a global slowdown.
Balancing Act
Political compulsions & the masses Industry
Agriculture focus CENVAT cut
Lower tax liability Excise cut
Inflation control FII status quo
Capital formation
Corporate tax unchanged
DDT streamlined
Thrust on consumption‐led growth
• Increase in disposable income led by tax sops
– Personal income tax exemption raised to Rs 1,50,000 from
Rs 1,10,000
– Debt waiver to farmers will increase cash flow for rural sector
• Measures to contain inflation
– Budget has identified three risks for the economy. rising inflation,
appreciating rupee and global slowdown
– Cenvat cut from 16% to 14%
– Excise duty cuts for Auto & Pharma
– Agri emphasis will lead to stable food grain prices
(%)
25
GCF Growth GDP Growth
20 19.1
22.4
• Raising gross capital formation 15 12.7
14.3
– Capital investment in agriculture and 10
9.4 9.6
infrastructure 5 8.5 7.5
0
2003-04 2004-05 2005-06 2006-07
Agriculture – a bumper harvest
• Focus on agriculture in order to propel India to a new growth orbit of
+10%; for this, agriculture growth must increase from an average of
2.5% to 4%
• Rs 600bn debt waiver scheme to directly bolster cash position in rural
India
• Launch of schemes under National Policy for Farmers in 11th Plan
– Rs 250bn Rashtriya Krishi Vikas Yojana
– Rs 49bn National Food Security Mission
• Agricultural credit growth set to exceed target for 2007‐08. For 2008‐
09, target set at Rs 2.8 trillion.
Infrastructure – Strong moorings
Budget allocation to major schemes
Schemes From To
Bharat Nirman Rs 241bn Rs 313bn
Urban Infrastructure Rs 55bn Rs 69bn
North Eastern region Rs 144bn Rs 165bn
NHDP Rs 109bn Rs 130bn

Social spending – health &
Budget Simplified ‘08
education Religare Research
• Sarva Shiksha Abhiyan allocated Rs 131bn.
• Mid Day Meal Scheme extended to upper primary classes in
government and government aided schools.
• Health sector allocated Rs 165bn, marking an increase of 15% over
2007‐08.
• National Rural Employment Guarantee Scheme to be rolled out to all
596 rural districts in India with a provision of Rs 160bn.
• Rs 115bn provided for women‐oriented programmes and
Rs 162bn for schemes where at least 30% allocation is for women‐
oriented programmes.
Budget Snapshot
Negatives Positives
No provisioning for Sixth Pay
Capital formation
Commission
Increase in short‐term capital gains
Taxes reduced
from 10% to 15%
STT paid will be treated like any CENVAT and Excise cut
other deductible expense against
business income
Inflation control
Agri debt waiver could impact fiscal
balance Debt waiver positive for banks
Improving fiscal fitness
Boosted by encouraging
growth in direct taxes
Decrease in interest rates
would result in lower
payments and a higher
comfort level
Off‐balance sheet approach
allows for slower growth in
subsidies
Decrease in non‐plan
expenditure as reliance on
public‐private partnership rises
FRBM compliance possible by
FY10
FRBM target of zero fiscal deficit to be delayed by one year, but confident of meeting this new
goal.
Higher tax collections would facilitate a further narrowing of the revenue deficit . In FY08, the
government would record a deficit of 1.4% as against 1.5% budgeted.
Revenue targets seem achievable…
• Direct taxes expected to remain buoyant on the back of
sustained corporate profit growth
• Tax to GDP ratio expected to increase to 13% as compared to
12.5% estimated in FY08
Direct tax assumption
conservative. FY08(RE) growth of
32.4% as compared to budget
estimates of 16.2%
Impact of cut in customs and
excise duties to control input
costs
Inclusion of more services would
boost service tax collections
…but managing expenditure a challenge
– No provisioning made for the Sixth Pay Commission’s recommendations.
– Loan waiver of Rs 600bn for small and marginal farmers not provided for in government spending. Banks
to be recompensed over a period of three years, but sources of funds are unclear.
– Revised FY08 expenditure for oil and fertiliser sectors are 94% and 68% respectively higher than earlier
budget estimates. Rising oil and fuel prices in FY09 would demand higher‐than‐allocated expenditure for
the sectors.
– Servicing of debt due to MSS, oil and fertiliser bonds to put pressure on interest payments. Lowering of
interest rates in the economy would increase the comfort level.
(%) Interest payments Others Grants to states and uts

Major subsidies Defense expenditure
100
12.0 11.9 11.4 11.0 10.0 9.7
12.0 12.0 11.7 10.1 10.3 9.2
80
12.7 13.4 14.0 16.7 17.5 18.3
60
28.4 28.4 29.9 32.0 33.0 34.3
40
20 34.8 34.3 33.0 30.2 29.2 28.5

0
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 (BE)
Hidden arithmetic
No provisions made for
oil and fertiliser bonds
for FY09. Focus on
controlling inflation
despite high fuel price
would result in more
bonds issued in FY09.
However, conservative direct tax estimates would come to the rescue. GDP growth of
9% would allow the revenue collection to surpass estimates of direct taxes as seen in
FY08
Lowering of interest rates will bolster comfort level
Increasing capital inflows and high
fuel prices could induce inflationary
pressures, resulting in continued
subsidies through oil/fertiliser
bonds.
MSS limits raised in order to contain
increasing capital inflows. Focus on
reining in inflation would keep MSS
borrowing high.
Servicing of oil and fertiliser bonds
would increase interest payments.
Issuance of bonds to continue in
order to subsidise these sectors.
Lowering of interest rates would
reduce future interest cost.
Sector snapshot
Sector Impact Key measures Winners
Automobiles
& Excise duty cuts on 2‐wheelers, 3‐wheelers, small cars;
hybrid cars; CENVAT on CVs
Tata Motors,
M&M
Banking
& Agriculture debt waiver and set‐off of DDT ICICI Bank, SBI
Broking ' Change in treatment of STT and introduction of

commodity transaction tax
Edelweiss, Motilal
Oswal
Cement , Increase in excise duty on bulk cement and clinkers Grasim, Binani
Fertilisers , Customs duty cut on sulphur from 5% to 2% and
phosphoric acid from 7.5% to 5%
Tata Chemicals,
Coromandel Fert
FMCG
& Excise duty cut on food processing segments like
cornflakes, sharbat. Excise duty cut of refrig equip
ITC, Nestle
IT , Increased allocation for education fund. Higher excise
duty for packaged software from 8% to 12%
Educomp, Everonn
Infrastructure
& Increased fund allocation to various infra schemes IVRCL, Madhucon
Media , Customs duty exemption in specified parts of set‐top
boxes
Dish TV, WWIL
Sector Snapshot
Sector Impact Key measures Winners
Metals , Reduction in excise duty on steel from 16% to 14%. Removal of
customs duty on steel melting scrap
Surana Industries
Oil & Gas
, Reduction of ad‐valorem excise duty to Rs 1.35/ltr for unbranded
petrol and diesel
IOC
Pharma
& Reduction in excise duty from 16% to 8% will lead to availability of
cheaper medicines
Glaxo, Pfizer
Power
& Thrust on rural electrification, improvement of T&D infrastructure Power Grid, GIPCL
Real Estate , Indirect benefits to realty ‐ hike in income limits, reduction in

construction cost due to excise reduction
HDIL, DLF
Retail
& Increase in disposable income through reduction of direct taxes
Pantaloon, Vishal
Retail
Telecom , Focus on increasing broadband penetration in the country;
increased allocation to SWAN projects
Tulip IT
Textiles
& NCCD on 1% removed on polyester yarn and allocation under TUF
increased
Sri Lakshmi, Indus Fila
Automobiles
BUDGET IMPACT SECTOR OUTLOOK WINNERS
& POSITIVE Tata Motors

M&M
Budget
Segment Previous New Impact
Provision
Reduction in Commercial Manufacturers to absorb raw material price hikes.

16% 14%
CENVAT vehicles Positive: Tata Motors, Ashok Leyland.
Excise duty cuts to drive sales volumes.
Excise duty cut Small cars 16% 12%
Positive: Maruti, Tata Motors
Hybrid cars 24% 14% Positive: Maruti, M&M
Vehicles carrying
16% 12% Positive: Tata Motors, Ashok Leyland
> 13 persons
Automobiles
&
Maruti
POSITIVE
Bajaj Auto
Budget
Provision
Excise duty cut Vehicle chassis (> 16% + 12% +

Positive: Tata Motors, Ashok Leyland
13 persons) Rs 10,000 Rs 10,000
2‐wheelers &
passenger 3‐
16% 12% Positive: Bajaj Auto, Hero Honda, TVS Motor
wheelers
(<7persons)
Electric cars 8% Nil Boost to electric car sales.
Specified parts of
16% Nil Reduces cost of production.
electric cars
Automobiles
& POSITIVE
Apollo Tyres
MRF
Budget
Provision
Steel and
Customs Lowers procurement cost for auto and
aluminium 5% Nil
duty cut scrap auto ancillary companies.
Chlorobutyl,
bromobutyl Relief to tyre manufacturers.
10% 5%
rubber,polyester Positive: Apollo Tyres, MRF
tyre chord fabric
Subsidies & Improved cash flow of farmers will
relief package NA NA bolster auto and tractor demand.
for farmers
Positive: M&M
Increased demand for passenger cars
Reduction in
NA NA and two wheelers.
personal tax
Positive: Maruti, Bajaj Auto
Banking
&
ICICI Bank
POSITIVE
State Bank of India
Budget Provision Previous New Impact
Government to reimburse waived amount over 3 years,
Waiver of farm loans NA NA
improving asset quality and profits.
Set‐off of DDT (Dividend Beneficial to banks with profitable subsidiaries; DDT set‐off
NA NA
Distribution Tax) to boost shareholders fund.
Withdrawal of banking cash Nil Less paperwork for banks and greater convenience for

0.1%
transaction tax (From April, 2009) customers on fund withdrawals.
Broking
BUDGET IMPACT SECTOR OUTLOOK LOSERS
' Negative
Edelweiss Capital
MOSL
Introduction of commodities Commodity market volumes to be adversely hit, reducing
Nil 0.017% / 0.125%
transaction tax revenues for broking houses.
Increase in short‐term capital
10% 15% Overall volumes would be affected, lowering revenues.
gains tax
Treatment of STT (Securities Rebate against tax Brokerage margins and profitability to take

Business expense
Transaction Tax) liability a hit.
Cement
Grasim
, POSITIVE
Binani Cements
Rs 400/MT or 14% ad‐
Excise duty hike on bulk Cement sales only marginally affected as bulk cement is less
Rs 400/MT valorem, whichever is
cement than 10% of total sales.
higher
Excise duty hike on cement
Rs 350/MT Rs 450/MT Limited impact as volume sales of clinker are very low.
clinker
Fertilisers
Tata Chemicals
, NEUTRAL
Coromandel Fert
Customs duty cut on
5% 2%
sulphur
Mildly positive for phosphatic fertiliser
manufacturers like Tata Chemicals and
Coromandel Fertilisers.
Customs duty cut on
7.5% 5%
phosphoric acid
FMCG
& POSITIVE
ITC
Nestle
Excise duty cut on cornflakes Will reduce production costs for players in the food
16% 8%
and sharbat processing segment.
<60mm length: Rs <60mm length: Rs Increase in cost burden for non‐filtered cigarette

Excise duty hike on
168/1,000; >60mm: Rs 819/1,000; >60mm: manufacturers.
non‐filtered cigarettes
546/1,000 Rs 1,323/1,000 Positive: ITC
Removal of customs duty on Positive for dairy product‐based companies.
7.5% Nil
bactofuges Positive: Nestle
FMCG
&
Temptation Foods
POSITIVE
Himalya Intl
Customs duty cut Positive for poultry companies as input costs will
on feed additives/pre‐ 30% 20% reduce.
mixes Positive: Venky’s India, SKM Egg Products
Excise duty exemption on
Excise duty exemption
packaged tender coconut Beneficial for food processing players by way of
on refrigeration
water, tea/coffee pre‐ ‐ Nil reduction in input costs
equipment
mixes etc
Equipment to install cold storage and
Excise duty exemption
Customs duty hike on Aims to discourage production and consumption
refrigerated vehicles exempt; Positive for food
on refrigeration
cigars, cheroots and ‐
30% Nil
60% of these products.
processing companies.
equipment
cigarillos Positive: ITC
Positive: Temptation Foods, Himalya Intl
Customs duty hike on Aims to discourage production and consumption
cigars, cheroots and 30% 60% of these products.
cigarillos Positive: ITC
Information Technology
Educomp
, NEUTRAL
Bartronics
Brings imported software packages at par with domestic
Excise duty on packaged packages.
8% 12%
software raised
Negative: Cranes Software
Bottomline of many domestic IT players to
Service tax introduced on IT be hit.
Nil 12%
services
Negative: Rolta, TCS, Infosys & Wipro
To start in Chandigarh and Haryana on pilot basis; will
Smart cards for foodgrain improve efficiency of govt schemes.
NA NA
delivery
Positive: Bartronics
Information Technology
Evronn
, NEUTRAL
Educomp
Increased budgetary Positive for companies catering to govt. schools.
Rs 286.7bn Rs 344bn
allocation for education Positive: Educomp, Evronn
Customs duty on raw
7.5% (Select products:
materials used by hardware 10% Brings down cost of computers, raising their penetration.
Nil)
industry
Infrastructure
&
IVRCL
POSITIVE
Madhucon
Increases project opportunities in irrigation,
Bharat Nirman roads, housing and power.
Rs 240.6bn Rs 312.8bn
allocation raised Positive: IVRCL, L&T, NCC, Madhucon
NHDP allocation Eases funding issues and promotes timely
raised; 300km of roads Rs 108.7bn Rs 129.7bn execution of the NHDP plan.
targeted for 2008–09 Positive: IVRCL, NCC, Madhucon,
Gammon, IRB, Maytas
Impetus to urban civil construction activities,
JNNURM allocation
Rs 54.8bn Rs 68.7bn primarily in the housing segment.
hiked
Positive: Unity, B.L. Kashyap
AIBP* outlay Boost to major and medium irrigation
enhanced; grant of Rs Rs 110bn Rs 200bn projects. Positive: IVRCL, Gammon, Gayatri,
55.5bn from Rs 35.9bn NCC
* Accelerated Irrigation Benefit Programme
Infrastructure
&
Lanco Infra
POSITIVE
C&C Construction
Set up of Irrigation and Water
To be incorporated by March to fund major and medium
Resources Finance NA Rs 1bn initial outlay
irrigation projects, promoting resource mobilisation.
Corporation
Dividend Distribution Tax Dividend received to Positive for infrastructure companies with long gestation

(DDT) with regard to Double taxation be set off with projects via SPVs.
subsidiaries dividend paid Positive: IVRCL, Lanco Infra
Higher allocation for North Positive for players with a presence in the region.
Rs 143.7bn Rs 164.5bn
Eastern region Positive: C&C Constructions, Gammon
Infrastructure
&
Jyoti Structure
POSITIVE
EMCO
Project import duty cut 7.5% 5% Would benefit companies starting new projects.
Larger corpus for rural
infrastructure development Rs 120bn Rs 140bn Encourages development of roads in rural areas.
fund
Media
Dish TV
, POSITIVE
WWIL
Customs duty cut on set‐ Positive for media companies directly or indirectly
7.5% Nil
top box parts involved in DTH operations and broadcasting.
Metals and Mining
, NEUTRAL Surana Ind
Beneficial for small steel players using
Customs duty on scrap‐based method of steel making.
steel & aluminium 5% Nil
melting scrap Positive: Surana Industries
Helps ferro alloy producers to source
Export duty on Rs 2,000/ Rs 3,000/ raw material.
chrome ore tonne tonne
Mildly negative for Tata Steel.
Coal regulator To monitor the new coal distribution
NA NA
appointed policy notified in October 2007.
Reduction in excise Safeguards companies against soaring
16% 14%
duty on steel raw material prices.
Oil & Gas
,
IOC
POSITIVE
Withdrawal of duty
exemption on naphtha used in Nil 5% Marginally negative for RIL.
polymers
Ad‐valorem duty on petrol & 6% +
Rs 14.35/ltr for petrol
diesel replaced by specific Rs 13/ltr for petrol & Slightly positive for OMCs like IOC, BPCL and HPCL in a
&
duty of 6%+ Rs 3.25/ltr for rising crude price scenario.
Rs 4.6/ltr for diesel
Rs 1.35/ltr diesel
Would slightly reduce the under recoveries of OMCs like
Central sales tax on declared
3% 2% IOC, BPCL and HPCL, as LPG and kerosene come under
goods reduced
declared goods.
Pharmaceuticals
&
MNC Pharma cos
POSITIVE
Hospitals
Customs duty cut on five
life‐saving drugs & one 10% 5% Positive for MNC pharma companies.
anti‐cancer drug
Excise duty reduction on Beneficial to all pharma companies, particularly
16% 8%
all goods in pharma sector MNCs.
Five‐year tax holiday for
Positive for hospitals like Apollo, Fortis and
hospitals in tier II and III NA NA
Wockhardt.
cities
Weighted deduction on
companies outsourcing Nil 125% Large pharma companies to benefit.
R&D
Pharmaceuticals
&
Panaca Biotech
POSITIVE
Cipla
Removal of excise duty on
16% Nil Positive for Emcure Pharma.
AIDS drug Atazanavir
Infusion of Rs 10.4bn in 2008–
NA NA Positive for Bharat Serum, Panacea Biotech and Cipla.
09 to eradicate polio
Power
& POSITIVE GIPCL

Power Grid
Budget
Previous New Impact
Provision
Enhanced RGGVY Lends further thrust to RGGVY
Rs 39.8bn Rs 55bn
allocation programme.
Continuation of Indicates seriousness in development
Rs 8bn Rs 8bn
APDRP scheme of T&D systems.
Set up of
Transmission and NA NA Promotes investment in T&D.
Distribution Fund
Cheaper imports of power equipment.
Withdrawal of 4% additional customs duty
Customs duty cut
7.5% 5% exemption for non‐mega power projects
on project imports
negates reduction to some extent.
Real Estate
HDIL
, POSITIVE
DLF
Will lead to fresh investments in IT‐SEZs which are a focus
Benefit to expire in
STPI tax benefits 100% tax exemption area for all realty companies. Positive: HDIL, Parsvnath
March, 2009
Dev, DLF
Increase in tax slabs for
To boost realty demand. Reverse mortgage clarification to
individuals; Reverse mortgage NA NA
largely help senior citizens.
not an income & transfer
Only applicable to hotels starting between FY07 and FY13.
Tax benefit for new 2, 3 and 4‐ 100% tax holiday for 5
‐ Positive for players with tie‐ups with hotel chains such as
star hotels in UNESCO areas years
PDL and DLF.
Real Estate
Parsvnath Dev
, POSITIVE
Fund of Rs 12bn to be created Bolsters NHB’s refinance operations in rural housing. Would
NA NA
in NHB also drive prompt action for slum rehabilitation initiatives.
Five‐year tax holiday for
NA NA Advantageous to players with a presence in smaller cities.
hospitals in tier II and III cities
Sugar
BUDGET IMPACT SECTOR OUTLOOK
, Neutral
Lower pricing of molasses used for manufacturing
Reduction in CENVAT 16% 14%
ethanol and other distillery products.
Telecom
Tulip IT
, NEUTRAL
Increased allocation for Set up of 100,000 rural broadband internet service centres,
broadband internet service Rs 15bn Rs 16.8bn SWANs and state data centre schemes hold potential for
centres infrastructure mgm service providers. Positive: Tulip IT
Textiles
&
Sri Lakshmi Cotsyn
POSITIVE
Indus Fila
Allocation of TUF raised
(Textile Upgradation Rs 9.1bn Rs 10.9bn Encourages expansion of the textile industry.
Fund)
Removal of NCCD* on Reduces purchase cost of polyester yarn by 1% for
1% Nil
polyester yarn the consumer.
30 integrated textile Government to provide funding of
NA NA
parks approved Rs 4.5bn; fillip to industry growth.
Thank You

2008 - Budget Simplified

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2008 - Budget Simplified

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An analysis by Religare Research

– Rs 250bn Rashtriya Krishi Vikas Yojana

Bharat Nirman Rs 241bn Rs 313bn

Urban Infrastructure Rs 55bn Rs 69bn

North Eastern region Rs 144bn Rs 165bn

NHDP Rs 109bn Rs 130bn

• Sarva Shiksha Abhiyan allocated Rs 131bn.

(%) Interest payments Others Grants to states and uts

20 34.8 34.3 33.0 30.2 29.2 28.5

Sector Impact Key measures Winners

Broking ' Change in treatment of STT and introduction of

Cement , Increase in excise duty on bulk cement and clinkers Grasim, Binani

Sector Impact Key measures Winners

Real Estate , Indirect benefits to realty ‐ hike in income limits, reduction in

& POSITIVE  Tata Motors

Reduction in Commercial Manufacturers to absorb raw material price hikes.

Hybrid cars 24% 14% Positive: Maruti, M&M

Excise duty cut Vehicle chassis (> 16% + 12% +

Electric cars 8% Nil Boost to electric car sales.

Budget Provision Previous New Impact

Withdrawal of banking cash Nil Less paperwork for banks and greater convenience for

Budget Provision Previous New Impact

Treatment of STT (Securities Rebate against tax Brokerage margins and profitability to take

Budget Provision Previous New Impact

Budget Provision Previous New Impact

Budget Provision Previous New Impact

<60mm length: Rs <60mm length: Rs Increase in cost burden for non‐filtered cigarette

Budget Provision Previous New Impact

Budget Provision Previous New Impact

Budget Provision Previous New Impact

Budget Provision Previous New Impact

Budget Provision Previous New Impact

Dividend Distribution Tax Dividend received to Positive for infrastructure companies with long gestation

Budget Provision Previous New Impact

Project import duty cut 7.5% 5% Would benefit companies starting new projects.

Budget Provision Previous New Impact

Budget Provision Previous New Impact

Budget Provision Previous New Impact

Budget Provision Previous New Impact

Budget Provision Previous New Impact

& POSITIVE  GIPCL

Budget Provision Previous New Impact

Budget Provision Previous New Impact

Budget Provision Previous New Impact

Budget Provision Previous New Impact

Budget Provision Previous New Impact

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& POSITIVE Tata Motors

& POSITIVE GIPCL