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Budget 2009 - 2010
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Following are some of the reactions on the budget presented in the parliament on 6th July 2009
Mr. B Prasanna, MD & CEO, ICICI Securities Primary Dealership Ltd
The positives from the budget are its target on spending schemes designed to target inclusive growth and the continued emphasis on targeting growth at 9%. The substantial increase in expenditure over the interim budget spells good news for domestic consumption and growth. However, the bond markets would have to grapple with a higher than expected gross borrowing programme of Rs 4,50,000 Cr. There is an expectation that all the extra borrowing will be front ended and completed in the remaining 3 months of the first half when the liquidity is good. This increased borrowing may exert upward pressure in yields on a week on week basis. The budget also seems to be silent both on capital market reforms and on a road map for bigger divestments.
Mr. Kaushal Sampat, Chief Operating Officer - Dun & Bradstreet - India
The Union Budget 2009 -10 is largely positive, and seems to be an 'aspirational' budget in terms of what it seeks to achieve over a long term horizon. The short term proposals, which are focused on economic revival are welcome. Of course, these measures would have been even more welcome if a specific road map for containing the fiscal deficit had been laid out for the medium term. Having said that, the government does not have too much room to maneuver and perhaps, living with a high fiscal deficit may be inevitable for the time being. As economic revival sets in, and the high fiscal deficit becomes a potential bottleneck, monetary policy may have to be appropriately adjusted to take care of the issues pertaining to fund availability - which in itself may not have too much room. Hence, over the medium term, concerns remain over the fiscal deficit.
Mr. Gaurav Dua - Head Research , Sharekhan ltd.
The Union Budget has fallen short of high market expectations. The street has reacted negatively to issues such as high projected fiscal deficit of 6.8% (and more importantly there is no roadmap of bring it down), no mention of reforms in petroleum and insurance sectors, and absence of focus on aggressively pushing ahead the divestment program. On the positive side, the Finance Minister announced specific measures to enhance investment in infrastructure and boost domestic consumption through lower tax burden (higher standard deduction, withdrawal of surcharge and education cess). Overall, the focus continues to remain on stimulating economic growth in spite of further deterioration on fiscal front.
Mr. Kapil Wadhawan, VC & MD, DHFL (Dewan Housing Finance Corporation Limited)
The budget announced by FM for FY 2009-10 clearly focuses on improving rural housing and developing infrastructure in urban and rural India. The allocation of Rs.2,000 crore for Rural Housing Fund (RHF) through National Housing Bank (NHB) to boost the resource base of NHB for refinance operations in rural housing sector is a significant announcement and will help organizations like DHFL, which primarily focuses on the lower and middle income segment in the semi-urban and rural areas. With an acute shortage of over 25 million units, the PPP for affordable housing is a welcome step. The government should provide incentives and subsidies to developers to encourage them to focus on low cost / affordable housing.
Mr. Jai Mavani - Head, Infrastructure & Government Practice, KPMG In India
Enabling IIFCL to undertake take-out financing transactions, given the asset-liability mismatch of some Indian banks should certainly help infuse additional liquidity. Additional allocations to National Highway Authority of India (NHAI) and Jawaharlal Nehru National Urban Renewal Mission (JNURM) will also help. To surmise, there are definitely seeds sown and one should hope to see the green shoots soon. From the industry's perspective, the budget was certainly found lacking in certain areas.
Mr. Uday Ved- Head of Tax, KPMG in India
The FM stressed on the expectations from the new Government and the aim was to provide stability, continuity and prosperity. The FM has laid a very challenging goal of getting back to a growth rate of 9% and 12 million new jobs a year. The Governments has a clear focus on increasing spending in the infrastructure space. Forming of a SPV ('IIFCL') will indirectly make available funds for infrastructure sector. For inclusive growth of economy government has given emphasis on development of social infrastructure (education and health), rural and agricultural growth.
Mr. Gautam Adani, Chairman, Adani Group
"The gradual ramp up of investment in infrastructure in excess of to 9% of GDP by 2014 indicates clear focus on infrastructure, flexibility to IIFCL and increased expenditure on NHAI are welcome steps. The exports too are getting push; this will help the domestic economy. With abolition of FBT and Surcharge on IT, more money will be available in individual hands in these challenging times; this will catalyze savings, investments and spending; which in turn will help the economy. An appropriate budget."
Mr. Pranav Ansal, Vice Chairman, & Managing Director, Ansal API
The hike in infrastructure spending will be a huge boost for the real estate industry as the two are directly related for the most part. Any increase in the spending on infrastructure results in an increase in value of real estate development. This also bodes well for the future as with increased and improved infrastructure, the potential of India as being a significant destination for investment improves significantly.
Mr. Anil Agrawal, Whole Time Director, Sanwaria Agro Oils Ltd.
The budget lacks long-term policies and objectives. It has got some good announcements like abolishment of FBT, CTT, and surcharge from personal income tax whereas some discouraging announcements like increase in MAT tax and non touching of corporate tax rate and dividend distribution tax. Thus the budget is basically status-quo statement and there is nothing in budget for edible oil industries and edible oil seeds in particular. Reintroduction of import duty on edible oils was badly needed which is not taken care. In overall the budget lacking directions and it is revenue neutral to greater extent.
Mr. Bikram Dasgupta, Chairman and CEO, Globsyn Group
The budget has been balanced and has opened doors for education and made sufficient efforts for bringing in much needed reforms in the society. Increasing over all budget allocation for higher education is indeed a welcome move and clubbed with tax benefit under Section 80E for education loan will also further give a boost to the sector and bring education closer to many deserving youngsters. Move to set up central university in each state and redefining the investment for higher education by setting up of more IITs and IIMs are indeed steps in the right direction. In case of the Information Technology sector, extension to the STPI scheme is welcome as also defining the software product as a service. However much is left for the SME sector of Software Industry to give it a further fillip in order to march the growing requirements of the economy.
Mr. Sanjay Pai, Chief Financial Officer, Plethico Pharmaceuticals Ltd.
Overall: very pragmatic budget, considering the fact that, Indian consumers have been (in various patches) been deprived of spending money either in terms of layoffs, salary cuts, high tax for individuals etc. The other highlights which were interesting:
Abolishing of FBT. It was a tax which was yielding peanuts to the department, but was costing the employees (FBT on ESOP's) and was a arduous task for accountants. Besides, it is painstaking even for the department to go after small ticket items. Hence it was a win win. Surcharge of 10% and the cess etc. on the surcharge. This will leave some money in the Individuals pockets.
Marginal increase in Tax exemption for Senior citizen, women and others. 150% tax deduction for R&D - good for various Companies - especially Pharma. Co's. 10A/10B extended for one more year. MAT increased from 10% to 15% was I think a counter balancing measure, but it should be fine.
Mr. Saurav Arora, Sr. Vice president - Jaypee Capital
It was widely expected that the government would take a positive stance towards CTT. It has finally been abolished, which in turn would lead to growth of Indian Commodity Exchanges and development of the market. New and existing exchanges would benefit from the same. We would expect more market participants to enter the market and foresee this as a very good step for the commodity futures market, making it efficient for the natural hedgers to hedge cost effectively.
Mr. Sanjay Kaul, MD & CEO, National Collateral Management Services Limited.
"The budget proposal to offer 25 kg rice / wheat @Rs 3 /kg, per BPL family per month is commendable. Also, the interest subsidy scheme for farmers is a justifiable reward for continuing in a business, the fortunes of which are dependent on the vagaries of nature. The other sector which has deservedly received the Finance Minister's attention is the Infrastructure sector. The promotion of infrastructure finance by banks and institutions to the tune of Rs 1,00,000 crore through take-out financing support by IIFCL is also a step in the right direction, given the massive requirement for infrastructure in the country. In this context, the investment linked incentives for setting up and operating cold chain warehousing is welcome; however, had the same incentive also been extended to regular warehousing, it would have been a huge plus for the storage industry with beneficial effects on the economy of the country, given the potential to reduce loss due to deterioration of food grains owing to poor storage practices. On the taxation proposals, the abolition of CTT is welcome considering that the commodities markets are still in the nascent stages of development and CTT was detrimental to the growth and development of the markets".
Mr. Dinesh Thakkar, CMD - Angel Broking
EFFECT ON EQUITY MARKET: "The Budget proved to be a 'low-on-deliverance' affair and this was magnified on account of the huge expectations that the market had built from it. Amongst the many shortfalls in the Budget, it was silent on the timeline for tackling the Fiscal Deficit position of the country, and the Reforms process announcements expected from it which would have aided in handling the fiscal situation of the government. As far as the various tax reforms were concerned, no significant changes in the same goes well in line with our expectation as the government would need to focus on spending. We believe a silver lining in the Budget was the increase in outlay for Planned Expenditure, which is necessary to push India into a higher growth trajectory. Overall, while the Budget did not stand true to all of market expectations, we expect that the government's efforts will continue outside the Budget also and will help improve Corporate India's earnings going forward. Thus, we expect the stock market to reflect this improvement in earnings and would advise investors to stay long on the India story."
EFFECT ON COMMODITY MARKETS: Commodities Transaction Tax (CTT) to be Abolished. "A very positive sign for Indian commodities market. Being in the nascent stage of development, abolition of CTT will reduce transaction costs in commodities trading, thereby the burden will come down and participation in these markets shall increase.CTT was to be introduced in the last budget and was causing concern in the growth of the Indian commodities market. This news of abolition of CTT has brought in great relief".
Mr. R Chandrasekaran, President and Managing Director, Global Delivery, Cognizant
The extension of the sunset clause on STPI by a year is welcome. While this will benefit the entire industry, it will specifically benefit the small and medium sized companies in the industry that needed this critical impetus for growth. This is also important in this turbulent global economic environment, in the context of emerging locations such as China, Philippines or Vietnam continuing to offer attractive tax incentives. A substantially higher outlay for institutions of higher learning such as IITs and NITs should increase the R&D throughput and innovation quotient in a material way. At a time when industries are undergoing structural changes globally, it is innovation that can catalyze the next phase of growth. The support provided by way of subsidy for poor students pursuing higher education should provide the required impetus for enhancing the overall employable talent pool. The modernization of employment exchange under the PPP (private-public partnership) mode will help align skills with available employment opportunities at the national level and on a real time basis. The abolition of fringe benefit tax is also welcome since the administrative hassle involved in FBT compliance was very high. The clarity on transfer pricing assessments and the setting up of an independent dispute settlement mechanism is something that the industry sought. That the Finance Minister has announced an industry-specific safe-harbour provision will be notified, will help in resolving assessment issues relating to transfer pricing."
Mr. Ashank Desai's (Founder - Mastek)
I feel that the budget announced today is directionally positive for the IT sector in building long term growth and overall potential at a global level. We had issues at various levels of taxation but most of them have been addressed. The government is also looking to invest in the infrastructure and education sectors, thus removing the constraints for their growth in the medium and long term. The government is investing in e-governance projects to make government services effective, thus giving boost to the Indian IT market which is a very good strategy. We are confident that the government is looking positively towards the IT industry for making global impact as well as building knowledge economy in the country. The budget points towards the government's intention in that direction.
Mr. Partha Iyengar - VP distinguished analyst and regional research director, Gartner, India.
The budget overall was a disappointment in the context of the huge expectations everyone had in terms of the bold brave strokes that Mr. Mukherjee was expected to (or everyone was hoping he would) paint for the direction of the Indian economy. Instead it has turned out to be a sober, minimalist, practical budget with some tweaks and correction of anomalies (e.g. dropping the FBT tax) rather than any major path-breaking steps. From an IT perspective, the two main areas of expectations related to an aggressive stance on education and infrastructure reform. While there were some steps on the infrastructure side, very little to no attention was made on the critical education front, specifically revamping of primary education. Some allocation and 'tinkering' with the IITs is not what India needs now, but unfortunately that is all we have gotten in this budget. The 1 year extension of the tax holiday was a good move in that it provides some short-term relief, but also clearly puts the writing on the wall that this is not a scheme that is going to be continued beyond this 1 year extension, thus allowing IT companies to plan accordingly for the medium to long term. Some of the bold measures expected were also as it relates to aggressive disinvestment, FDI reform, specific pronouncements on increase in focus on governance and transparency of money being spent. None of these had any mention, other than an oblique reference to PSU disinvestment. Overall, a fairly ho-hum budget. Maybe there is more to be read in Mr. Mukherjee's preamble that talked of the budget not being the 'be all and end all' of policy statements, and this might have been the first concrete step in that direction.
Mr. Narayan S.A., Managing Director, Kotak Securities.
The Finance Minister has rightly focused on sustaining the GDP growth in the current year and has even set a target of returning to the 9% growth rate at the earliest, which is encouraging. To achieve this target, he has committed significant investments in the physical and social infrastructure. These investments will allow the economy to restrict any further impact of an uncertain global economy. The FM has also put more money in the hands of the consumers by withdrawing the sur-charge on personal income tax. These committed investments have led to an increase in the target of fiscal deficit. However, we expect the same to be addressed in the next fiscal. Moreover, the fiscal deficit figure can surprise positively, if the disinvestment process picks up steam in the current fiscal or if the economic growth leads to a growth in taxes as compared to the budgeted flat receipts. As far as the markets are concerned, the recent out-performance over other emerging markets and the over-bought status of the markets has led to the correction. The increase in the rate of MAT may also have an impact on profits of select companies. We see this fall in markets as a short term phenomenon and focus will now shift to more fundamental factors like earnings growth and the near term phenomenon of monsoon. Abolishment of FBT will be profit accretive for corporates. In the case of employees ESOPs it is neutral as the benefit of abolishing FBT is introduced by taxing the gain as perquisite.
Mr. Vipul Jain - CEO & Managing Director, Kale Consultants Ltd.
The finance minister has given a balanced approach to the budget. Initiatives towards abolishing FBT and increase in tax exemption for salaried employees is commendable. The 1 year extension of the STPI scheme is appreciated, but a longer extension would have definitely helped the industry. Increase in MAT is also not a favourable move. The honorable minister had a good chance to boost the corporate sector in face of the economic conditions, but the focus seems to be on driving demand by giving incentives to the rural sector.
Mr. H. Tripathi, CEO & MD of Infrasoft Technologies Ltd.
As I had commented pre-budget, we were not expecting much change; neither sops nor pains from the Union Budget released today. However, on a very positive note, removal of FBT is very encouraging as it will reduce accounting hassles and unforeseeable losses. Removal of FBT also covers ESOPs. FBT had made ESOPs unattractive to companies. With removal of FBT, ESOP scheme will become simple to operate. In present circumstances where 'the fair market price' for stocks would be lower for most organizations, you may suddenly see an increase in ESOP issues; which is good for enhancing people participation in businesses. Removal of surcharge on personal income is also a very positive development as it will leave a little more money in the hands of employees. Considering most companies are increment shy presently, it will help individuals to have more cash at hand. Extension of STPI scheme for tax exemption by one more year is welcome but does not provide any long term vision. Mid-sized companies will once again be unable to plan their investments in new premises & people into SEZs. Realistically, the problem only gets postponed by another 9 months considering one quarter of the current financial year is over. The new budget has to be seen in the light of the fact that the new government is only 45 days old and they have not put negative measures in large doses in the budget. The government's positive intent is clearly seen.
Mr. S Gopalakrishnan, CEO and Managing Director of Infosys Technologies Ltd.
"The Finance Minister has talked about the creation of twelve million jobs, reaching a growth rate of 9% and investment in infrastructure at the rate 9% of GDP. From a taxation perspective, increasing the income tax slabs, removal of the surcharge on personal income taxes and FBT stands out. For the IT industry, extension of 10A/10B exemptions by 1 more year is a move that is more emotional than of actual benefit since most STPs would have come out of the tax holidays. The government's focus on IT investment for enhanced governance is encouraging. The move to increase investment in higher education, especially in the IITs and NITs, will greatly benefit the industry in the medium and long term. On the whole, directionally it is a good budget given the current economic situation. However, I would have liked to see a clear road map on how the FM would bring down the deficit from 6.8% to perhaps 3%. The second thing I would have liked to hear about is how he intends to enhance foreign direct investment. "
Mr. Girish Trivedi, Deputy Director,ICT Practice, Frost & Sullivan, South Asia & Middle East Impact
Positive - launch of unique ID, higher financial inclusion will mean better opportunities for IT (upgrading the rural exchange, allocation and dependence on IT for successfully implementing NREG, infrastructure development etc). Reduction on duty cuts on LCD is positive step. More IITs and NITs will lead to enhancing better skill sets which is very positive. MAT implementation might create some burden, need to read fine print. We still need to assess if increase in consultancy service tax rate includes IT consulting services as well, if yes might be an additional burden on most of the large IT companies who have started taking lot of consulting work along with their IT projects. No announcements of 3G and revenues that can be generated as a result of auctions etc. it also means that the overall 3G launch might take a bit more than expected. Extension of tax holiday for STP scheme which was expected is positive, however a longer term view should have given a better impetus to the industry which is suffering due to low opportunities in traditional US/ European market. Duty on set -top box might be good for local manufacturing companies, but since most of these boxes are imported, the costs will get passed on to the users. There was an announcement on tax reforms, and making income tax filing easier over 3/4 years online, this will be positive for IT sector.
Mr. Manoj Agarwal, Managing Director, Adhunik Metaliks Ltd said
"It's a growth budget with emphasis on generating consumption and investment by increasing money in the hands of individuals. The Finance minister has made a bold statement of getting the GDP growth rate back to 9 %, which in itself will provide impetus by way of large spending in infrastructure projects".
Mr. Jai Hiremath, President of Indian Chemical Council
"The budget was a little disappointment as it did nothing for the chemicals industry. However, there weren't any negative surprises either. Removal of FBT and extension of EOU benefits were some minor positives, while increase in MAT rate was the key negative. Overall, the budget was a non-event as far as the chemicals industry is considered."
Mr. P.K. Ghose, Executive Director and CFO, Tata Chemicals
"The India budget 2009 can be termed "a fiscal stimulus budget" as there has been a major hike in total expenditure by 36%. After many years, capital expenditure is expected to grow by 33%. The focus on infrastructure is expected to boost demand for cement and steel. The elimination of surcharge on income tax, abolition of Fringe Benefit Tax and extension of the sunset clauses u/s 10 and 10A are big positives. On the Fertiliser subsidy front, the move towards a nutrient based subsidy regime is a welcome move, as it will free the MRP and fix the subsidy. I feel that since this budget was prepared in the backdrop of the international financial meltdown it has tempered huge expectations."
Mr. Saurabh Nanavati, Chief Executive Officer, Religare Mutual Fund
"The market had huge expectations from the budget. Therefore post the 17% rise in one day post the election results, the markets are now correcting in line with the operating fundamentals. Think through this - a) In tough times, people need cash money in their hands to decide on the area they want to spend on - the FM has reduced tax surcharge and given money in their hands. b) The core sectors from a long term India story perspective are the rural / agri sectors and the infrastructure areas. The budget has again been very generous in these areas. What the FM has lacked is better Selling / Marketing skills in presenting the budget which is unfortunately what the market is focused on. This is a good, stable budget - nothing reformist - but in the right direction of reducing complexities and taking incremental steps towards taking the country's GDP back to 8%+ levels. Let's empathize with the FM's tough position of balancing growth and fiscal discipline. Its time for the industry to get back to work, improve productivity and implementing at the ground level. That will result in sustainable growth, not a budget speech."
Dr. Naushad FORBES, Chairman, CII Western Region
"We welcome the reaffirmation of the Government's intention to implement GST by April 2010. We further welcome the abolition of Fringe Benefit tax and Commodities Transaction Tax. However there is a big lacuna in the impetus provided by the Government in boosting industrial investment. There is a missed opportunity of setting out the new government's overall 5 -year reform agenda in areas like education, power sector reforms, etc."
Dr. Rahul Mirchandani, Executive Director, Aries Agro Ltd on the Budget said:
"The budget has made great moves on infrastructure development, including cold storages and warehousing, and irrigation development which will both be positive for agriculture. There is also a good focus on knowledge creation with R&D expenses being incentivized for industry, however there is no focus at all on incentivizing knowledge spread using tax breaks on extension services by private companies. A lot more could have been done on funding agricultural universities and research institutions and also the primary and secondary basic education. Education seems to have taken a back seat in these budget proposals, though infrastructure has been made a primary focus. The nutrient based subsidy regime is great for the sector, however a proper delivery mechanism to ensure that the farmers are made subsidy payments in time and efficiently would be critical to ensure success in the long term."
Mr. Anand Ladsariya, Chairman, CHEMEXCIL (Basic Chemicals, Pharmaceuticals & Cosmetics Export Promotion Council)
BUDGET ON EXPORT SECTOR - "For export sector, budget is reasonably satisfactory. Interest rate subvention has been extended upto 31 March 2010. Allocation for Market Development Assistance has been increased substantially by 148%. Export Promotion Councils as well as FIEO have been exempted from Service Tax. Exporters have been exempted from Service Tax for foreign agent's commission, freight as earlier getting refund of these service taxes was very difficult. Further, exemption under Section 10A / 10B has been extended by one year. A fund for exporters liquidity and credit has been created which will be very useful. We were expecting revival of Section 80 HHC as well as resolving the income tax problem with regard to taxation of DEPB. Unfortunately this has not been resolved."
Mr. Dilip Bhatia, Director, Kotak Commodity Services ltd.
Primary Focus ·Agricultural, infrastructure and social engineering have been major highlights of this budget. ·The Budget fails to pay attention to commodity markets in general with an exception of CTT. ·The budget did not give any clarity on FRCA and making warehouse receipts negotiable. ·The government is geared to make GST applicable from April 2010. Increased Focus on Agriculture, Irrigation, Fertilizer and Warehousing ·The target agricultural credit flow increased Rs.325000 crore from Rs.287000 crore. ·Interest subvention to farmers for short term crop loans to be continued at the rate of 7%. Additional interest subvention of 1% announced for those farmers who repay loans on time. ·The Acceleration Irrigation Benefit Programme to get additional 1000 over interim budget allocation. ·To ensure balanced application of fertilizers, the Government intends to move towards a nutrient based subsidy regime instead of the current product pricing regime. ·Investment linked tax incentives to cover businesses of setting up and operating 'cold chain', warehousing facilities for storing agricultural produce. Impact: Positive. It would facilitate the growth of the agriculture sector, the back bone of the Indian economy. The growth of agriculture would help in enhancing production of grains, cereals and oilseeds and thereby help in consolidating commodity business in the long term.
Mr. Surjeet Singh, Chief Financial Officer, Patni
"Overall, the Budget is a growth budget and stimulates consumption of investment. The target of 9% GDP growth is indeed an encouraging sign and the Finance Ministry has made some bold attempts at tax reforms. For the IT Services sector in particular, the removal of FBT and the reforms in indirect taxes is seen as a major plus, allowing for stock based compensation to be more effective. In a knowledge sector such as ours, this calls for better attraction and retention of talent across all levels, and inspires innovation and entrepreneurship. The extension of 10A and STPI is seen as another positive move by the Ministry, and although the expectations that the industry had, were for an extension beyond 1 year, in light of the overall incentives laid down, I find the budget to be promising. That said, the 5% increase in MAT to 15% is a slight disappointment and will lead to higher cash output in the short term. We are also awaiting greater clarity on the service tax on IT services exports, and expect further policy announcements in public sector disinvestment and infrastructure reforms in the days to come."
Taxes on Commodity - ·Commodities Transaction Tax (CTT) abolished from current year. Impact: Neutral. Although the tax was imposed, it was not notified. But the removal of tax could improve sentiments. Other Highlights ·Gold: Customs on gold bars increased to Rs.200 per 10gm from Rs.100 per 10 gm. ·Silver: Customs on silver bars increased to Rs.1000 per 1 kg from Rs.500 per 1 kg. ·Branded Jewellery has been fully exempted from the custom duty. ·Petro-diesel blended with bio-diesel will be exempt from duty.
Impact: Neutral. There shall be an appreciation in prices of gold and silver to the extent of the gain in customs. Otherwise there shall not be any change in demand for the metal. The removal of duties on petro-diesel blend has more to do with India's commitment towards arresting climate change. We do not feel it will have a direct impact on commodities.
Conclusion: The budget in general is disappointing for the commodity markets. We do not feel the budget would impact commodities in general. Hence we term it as neutral.
"We welcome the Union Budget 2009. It is a growth-oriented move from the Finance Ministry with the GDP target kept at 9% - certainly a step in the right direction. We also appreciate the steps taken on IIFCL front, which would strengthen its role in developing India's infrastructure. The initiative of take-out financing would allow easier and greater funds for infra projects. Besides this, the increased spending on national highways, higher allocation for rural electrification, JNNURM and Commonwealth Games would serve as growth stimuli to not only Simplex Infrastructures but also to the sector by providing a great degree of sustainability to infra projects. Similarly, outlays for rural roads under the Pradhan Mantri Gram Sadak Yojana Scheme and others would ensure a complete Bharat Nirman. Overall raising the total infra outlay to 9% of GDP is also a step in right direction.
Moreover, we appreciate the thrust laid on the implementation aspect by the Finance Minister at the state and implementation body level. This would ensure faster translation of outlays into action, which has been long expected.
Ms. Madhabi Puri Buch, MD & CEO, ICICI Securities Ltd
Unlike many other global economies, the Indian economy is not in the emergency room of the hospital and therefore our doctors are rightly recommending a good, strong diet of sustainable growth based on investment in infrastructure and inclusive growth rather than giving in to the temptation of fast-acting drugs. Consistent with this philosophy, it would be good if there was an articulation of how the fiscal deficit would be brought back to sustainable levels over the next few years. Clearly, this is a budget from a government that has five years in which to build a strong economy and investors who are looking at a three to five year time frame for their investments might find the opportunity that the market is currently presenting, interesting.
Fitch Ratings: India FY10 Budget Impact on Corporates Credit Neutral
Fitch Ratings-Mumbai/Singapore-06 July 2009: Fitch Ratings says today that the impact of India's FY10 union budget on corporates is expected to be broadly neutral from a credit perspective. While the new budget seeks to continue providing relief to export hit sectors and also provides for tax and other benefits to other sectors such as oil and gas, autos, gems and jewellery, the benefits on account of these, in Fitch's opinion, are likely to be marginal. Fitch also notes that the union budget does not adequately address the issue of subsidies in the fertilizer and petroleum sectors. The adhoc nature and timeliness of the subsidy policy has in the past, resulted in liquidity pressures for entities within these sectors and while these risks have abated due to declining prices of crude and inputs costs for fertilisers, the risks cannot be ignored. Fitch however, notes that the government has proposed to set up an expert panel to look at the petroleum pricing mechanism and has also laid out a direction for future fertilizer policy, the timelines for implementation of these initiatives remains uncertain and could potentially impact short-term liquidity for entities in these sectors. The risks could be accentuated by India's increasing fiscal deficit.
The impact of the budget proposals on some key corporate sectors are summarized below:
Oil & Gas - The budget makes several proposals for the O&G sector, the most important one being that related to extending the tax holiday, under section 80-IB(9) of the Income Tax Act, to commercial production of natural gas. There are some proposals which could have a long term impact on the O&G sector - like the setting up of a National Gas Grid and the Expert Group on pricing petroleum products. Some proposals meanwhile would rationalize the tax regime or provide specific incentives, like that on man-made fibres and intermediaries, blended petro-diesel and cross-country pipelines. The long term impact of this budget on the O&G sector depends on the speed with which the government acts on its proposals and its willingness to accept expert committee recommendations. For details on the impact of the budget on this sector, please refer to our comment titled "India Budget Proposals Long Term Positive for Oil & Gas Sector" and available on our website www.fitchratings.com
Auto Sector - The budget has been marginally positive for the auto sector, primarily in the form of a reduction in indirect taxes. Excise duties for petrol trucks have been reduced to those applicable for diesel trucks. In addition, the ad valorem (duty by value) duty on cars and Utility Vehicles (UVs) above 2,000cc has been reduced by INR5,000/unit which will benefit the respective OEMs. In terms of volumes, this measure will have a wider impact on the UV market. In addition, the budget has further provided for a more level playing field between road freight and other modes of transport (including coastal shipping and railways) by applying a uniform service tax rate. This will reduce the incremental disadvantage in pricing faced by road freight operators
Gems & Jewellery Jewellery (finished product) exporters are likely to be impacted by the increase in excise duty on gold bars, which will increase their raw material costs marginally by under 1%. However, domestic jewellery players have been provided with an offset in the form of a reduction in excise duty to nil from 2%. Man-made textile and yarn players have also been impacted by the increased excise duty, which will marginally reduce their cost differential with cotton textiles.
Steel and Cement - The focus on infrastructure with an additional outlay of INR610bn during the current financial year could potentially provide some impetus to demand for steel and cement. Domestic volumes across both sectors have continued to remain strong despite the global contraction in construction and automotive demand, reflecting the demand from infrastructure and growing demand from rural India. With a greater focus on the National Rural Employment Guarantee Scheme through increased allocation and impetus from additional infrastructure spending, Fitch expects volumes for both sectors to remain strong during FY10. However, pricing pressures are likely to persist, reflecting the continuing structural imbalances in global steel markets and the risks of additional domestic cement capacities coming onstream during the current financial year.
Mr. Vikram Kotak, CIO, Birla Sun Life Insurance Company (Market Outlook)
In my view equity market is disappointed because finance minister did not touch generic announcements like FDI hike in few sectors and no significant mention on divestments also made short-term participants more jittery. The laxity on the fiscal situation was also a disappointment. A higher than expected fiscal deficit also impacts investment cycle recovery. In my opinion, equity market is likely to regain its momentum soon as government has focused on 'Aam Aadmi' by giving more money in hands of tax payers via removal of surcharge or increased limit on income tax slabs. Overall budget will boost growth in medium-term and also offer protection against global worries if any".
Mr. Chandrajit Banerjee, Director General, Confederation of Indian Industry (CII)
Tthe Union Budget 2009-10 addresses the kay priorities of the economy and focuses on inclusiveness, Economic Revival and Tax Reforms. The Budget proposals to expand the NREGP through increased allocation of 144% and overall increase in allocation for Agriculture and rural sectors is welcome. The Budget proposals with focus on retaining the excise duty and service tax rates, incentivising investments, focus on infrastructure investments and boosting consumption through increasing exemption limits on personal income tax are also welcome steps towards reviving the economy. Tax Reforms measures such as abolishing FBT, CTT and announcing the implementation of dual GST by 1 April 2010 are welcome and these measures would lead to simplification and greater tax compliance. An expansionary fiscal policy is welcome during times of economic difficulties, but the very mention of FRBM targets assumes greater significance and sends a signal that FRBM target would not be compromised once the economic out of the difficult times. Further, the budget has several enabling provisions and we look forward to lot of reforms during the course of the year.
Mr. Anil Sethi, Chairman, Subhash Projects And Marketing Ltd (SPML)
The Budget has sent the right signals to the Infrastructure industry and should provide the necessary fillip to accelerate the overall growth and development in the country. It seems that there is emphasis on Infrastructure development. The government has stated that bottlenecks for speedy implementation of infrastructure projects will be removed to ensure that sufficient funds are made available for this sector. Allocation for the National Highways Development Programme being increased by 23 per cent, Jawaharlal Nehru National Urban Renewal Mission by 87 per cent and Accelerated Power Development and Reform Programme by 160 per cent are a definite welcome signal for renewed growth across the board. Rajiv Awas Yojana, the new scheme introduced with the aim to make the country slum free in the next five years is a progressive initiative".
Mr. Rajesh Vardhman - MD - Vardhman Group states,
"The Budget has been a big disappointment as far as real estate sector is concerned. The FM has not done even marginal to give impetus to already troubled sector. No measures were taken to boost demand for residential housings. The tax exemption limit has been increased by mere Rs.10,000 which does not have any impact in this inflationary times. The much talked about increase in deduction for interest on housing loans was not made. The Budget was a complete thumbs down as far as Real Estate Sector is concerned.
Mr. Shyamak Tata, Partner, Deloitte
Union Budget for 2009 has generally been very tax neutral on an overall level. However there are small pockets of benefits that have come out that will specifically impact Consumer business. Some of the impacts are as follows:
Income tax surcharge of 10% has been removed for people with income of Rs. 10 lakhs and above. This will lead to increased spending with the appropriate middle to high end customer base.
There has also been a marginal decrease in direct tax payout of individuals, pensioners due to minimum taxable limit being increased leading to more spending power for consumers.
There has also been a promise of increased spending in infrastructure over the next 5 years. Funding in infrastructure will result in increased employment leading to increase in spending power. This will help CPG entities.
An added incentive for Consumer Business entities would be incentivising corporations who invest in cold chain warehousing facilities.
Retailers should be happy about initiative to merge service tax and sales tax into Goods and Service tax (GST) allowing them to claim credit of service tax paid by retailers for services availed by them from 3rd parties. This will enable management of costs of operations whereas today service tax is taken as a expense in their income statement.
Mr. Kaushal Aggarwal, Managing Director, Avendus Capital Pvt. Ltd.
The budget has attempted a balance between the expectations of acceleration in infrastructure creation and the constraints imposed by the high deficit and contraction in tax receipts. The markets may take time to appreciate the stimulus provided to consumption by the increase in allocation to targeted programs such as NREGS on one hand and, the removal of surcharge on personal income tax on the other hand. This would be good for several sectors such as consumer durables and non-durables and, pharmaceuticals. Given the stability of the government it is surprising that more has not been done for infrastructure by raising resources through disinvestment. The overriding effort in this budget seems to have been to restrict the rise in the fiscal deficit in a still difficult year without sacrificing too much of growth.
Mr. Harsh Mariwala - CMD, Marico Ltd.
Overall a 'welfare budget' which indicates inclusive growth with a focus on infrastructure development. Employment schemes will help in wider disposal of income throughout the Indian population. Increased outlay on social infrastructure and reduction in tax burden on individuals is likely to result into increase in disposable income, which should in turn positively impact demand for FMCG in general and Marico in specific. We are pleased with the Governments renewed commitment towards a robust GDP growth rate. The Government has presented a well-balanced budget emphasizing both on much needed macro infrastructural development and the basic alleviation of the common man, with a focus on inclusive growth. The increase in tax exemption limits coupled with the emphasis on social infrastructure will enhance disposable incomes and bring back consumer demand. On the corporate front, we welcome the increase in weighted deduction on in-house R&D spends, which is an increasingly important component of companies today. The removal of the FBT was long awaited and will have a positive impact. Rollout of Dual GST from April 2010 spells good news for the sector.
Mr. Milind Sarwate, Chief HR & Strategy, Marico Ltd.
Welfare Budget!
The Union Budget 2009-10 is a welfare budget focused on inclusion of as many constituencies as possible. There is also an effort to rise above mere populism and strike at some building blocks if not all. It was interesting to find that while quoting Kautilya, the Finance Minister has also deftly recognized current realities and the need to simplify the fiscal regime. Financial inclusion is another focus area. Broad basing the shareholding in listed companies could provide greater liquidity to stock markets. It is interesting that divestment of Public Sector Undertakings is being seen as financial inclusion measure rather than a resource mobilization measure.
Key Success Factors
Eventually, any budget succeeds if its revenue targets are realistic and its components effectively implemented. Both these success factors appear to have been dealt with. The focus on process improvement and automation in the tax administration area should hopefully lead to more efficient revenue collection. There does seem to be, however, some undue optimism about the global economic downturn not worsening or the monsoon not failing seriously. There is welcome focus on creating organized systems for effective implementation of government schemes. E.g. the unique identification code. These efforts have to succeed at the grass root level. The Union Budget preparation, like the Railway Budget, may have suffered from lack of quality time, apparent in important issues being parked for subsequent action. E.g. divestment planning, FDI clarity, long term reforms in general. Ambitious time lines have been proposed for some like the direct tax code or GST implementation. Hopefully these will be met. Fiscal deficit continues to be a cause of concern. The increase in Minimum Alternative Tax (MAT) will help to some extent- it will however affect funds flow for the industry.
What's in it for the FMCG Industry
There are some welcome measures in the personal Income Tax area such as raising of basic exemption limits, abolition of FBT etc. Hopefully these will push up disposable income in the hands of consumers. Other than this there do not seem to be any specific measures for or against the FMCG sector. The government has effectively maintained the "downturn relief" measures announced in 2008-09. However there is no roadmap for the long term. This budget therefore leaves some questions unanswered. That could make the Industry and the Market somewhat jittery and negative. The opening remarks by the Finance Minister rightly highlighted the fact that Union Budget is not the only tool at the disposal of the government for implementing its agenda. Hopefully this will also be realized by the industry and markets and excessive hype associated with the Union Budget will be tempered. More importantly, the Government should continue to provide the fiscal support needed to resume the high growth path in line with India's potential.
Mr. Satish Reddy, Managing Director & COO, Dr Reddy's Laboratories
There were no big moves for pharma sector but the some of the announcements made are interesting. Increased government spending on healthcare is bound to make an impact in more ways than one. The reduction in Custom duty on Life saving drugs and devices is a welcome move as it will improve affordability. Retention of excise duty at 4% for some of the sectors and the abolishing of FBT is good news for corporate India. Increased allocation under National Rural Health Mission (NRHM) is important for continuity. Extension for scope of provisions relating to weighted deduction of 150% on expenditure incurred on in-house R&D to all manufacturing businesses (except for a small negative list) is a positive move. The fiscal deficit is huge at 6.8% of the GDP and no big announcements were made on how this issue will be tackled. There were also no structural changes that speak of a long-term vision indicated in the Budget. Four years have passed since the patent regime commenced in the country. No moves have been made by the Government to encourage innovation or support Pharma Industry by announcing any grants for Research & Development. Incentives to boost research would have created numerous spin-off benefits to help create the much needed base for Pharma innovation in the country.
Mr. Shivinder Mohan Singh, Managing Director, Fortis Healthcare
This budget is a unique budget as it has focused on the "aam admi" while setting a new tone on policy matters. It has focused on macro policy instead of just specific policies and sops for individual sectors. While the budget has touched on disinvestment policies, no details have been tabled. The Hon'ble Finance Minister in this budget has promised nine months of activities leading to the next budget. As far as the healthcare sector is concerned we were expecting granting of infrastructure status which has not happened again. We are hopeful that the finance minister has taken cognizance of this requirement to encourage investments to this sector and we see the announcement of the same in the near future.
Interim Budget 2009-10 Reactions
Mr Kaushal Sampat, COO, Dun & Bradstreet India on the budget
Although this was an interim budget, it was expected that there would be announcements of some policy measures that would be growth-stimulating in nature. While acknowledging that the Indian economy is faced with significant challenges in the financial year ahead, the Finance Minister stuck with the conventions of an interim budget and did not announce any policies that could trigger retrieval of the economy from the current slowdown. Although the outlay on certain infrastructure projects have been increased, it is doubtful if this would be enough to kick-start investment at the required levels." stated Mr Kaushal Sampat, COO, Dun & Bradstreet India. "In line with our expectations, the fiscal deficit has surged and stands at around 7.8% of GDP in FY09 (including off-budget liabilities). Although the high fiscal deficit has potential risks for the economy in the future, it is inevitable given the need for substantial increase in Government expenditure and the limited scope for revenue mobilisation. With the lack of major growth stimulating measures in the interim budget, we expect the RBI to cut interest rates further before the April 08 monetary policy review to stimulate demand to a certain extent. he added
Religare Asset Management Co. Pvt. Ltd
The interim budget or vote on account was a non-event as we had expected. As was the obvious the Fiscal Responsibility and Budget Management (FRBM) target has been officially relaxed. Taking the reported headline deficit of 6% of along with off budget items of 3.5% the central fiscal deficit for the year rises to nearly 9.5-10% of GDP. This combined with the state level deficits shoots up to over 12% of GDP which is the highest ever in our history. The good news is that with the off-budget deficit dropping to nearly zero in FY2010 the estimated gross deficit (centre+ states) should fall to about 9%. While expectations have been postponed to the actual budget that would be presented in May/June by the new government, looking at these numbers our expectation would remain modest. The Government has guided for a 10% increase in revenue collection which could be tough to achieve given declining corporate profitability and increasing joblessness (reduced tax collections). In this scenario, fiscal deficit could slip further and India runs the risk of being downgraded by rating agencies. Given large rollover of t-bills through the first half of FY09, borrowings are expected to be mostly on long ended securities and could keep the longer end of the yield curve under pressure. The extent of the overshoot on the government borrowing program and the lack of a buffer in terms of MSS buyback in the next fiscal would impact bond yields negatively. With significant amount of fiscal easing already in pipeline, all eyes would be on RBI. We expect the RBI to cut rates, 50 basis points each on Reverse Repo and Repo in the days ahead but the fall in interest rates will be muted by the pressure from the government borrowing program. For a recovery of growth rates in India we will have to wait for the impact of the monetary easing to filter through the system, which might well take another 2-3 quarters and also an improvement in global growth and capital flows.
Mr. Venu Srinivasan, President-Designate, CII
CII welcomed the Interim Budget 2009-10 and said that it was along expected lines in a press release issued here today. CII also welcomed the increase in budgetary allocation to the Government's flagship programmes such as NREGS, Bharat Nirman and JNNURM. "CII is keen to see an increase in the funds flowing into infrastructure projects and the social sector. While the former will have a multiplier effect on the economy, the latter will put money into the hands of the people. Both are required to help the economy get out of the current economic stagnation," said Mr. Venu Srinivasan, President-designate, CII. The two stimulus packages announced so far have addressed critical areas of weaknesses in the economy such as housing, SMEs and exports. As a result of increased spending and the slowdown in revenue collection, the fiscal and revenue deficits have turned out to be much higher than budgeted. According to the CII release, the doubling of the fiscal deficit from 3.0% of GDP in 2007-08 to 6.0% this year should be seen in the context of the global economic crisis, which calls for extra-ordinary measures. Fiscal expansion is being used all over the world as a counter-cyclical measure. For these measures to be effective, the RBI should follow it up with further monetary easing in the form of an interest rate reduction, said Mr. Srinivasan. CII would like to welcome the extension of the interest subvention on pre and post shipment credit to exporters. Given the difficulties being faced by exporters in getting credit at a reasonable cost, this is a timely measure. Another measure welcomed by CII is the attempt to ensure better delivery of social sector schemes through the allocation of Unique Identities. "This is a long pending reform that will help target the beneficiaries of these schemes and prevent misuse", said Mr. Srinivasan.
Mr. Tushar Poddar, Vice President - Asia Economics Research, Goldman Sachs
The government did not announce any major policy changes in its interim budget for FY10. The government provided its estimate of the central fiscal deficit for FY09 at 6%, in line with our estimate of 6.1%. The yield curve steepened on the back of the interim budget announcement, as we had expected. The focus of the interim budget was to increase allocations on current central government sponsored schemes. Going forward, the mantle of providing stimulus to the economy will fall disproportionately on the Reserve Bank of India (RBI), as the government cannot take any further measures before a new Parliament is elected.
Edelweiss Research
In the interim budget today, the government has stayed within the conventional ambit of interim budget and kept away from any big-bang announcement. Our expectations were generally muted from the budget (refer Interim Budget: FY10 - More than the usual vote-on-accounts? dated February 11). Nevertheless, we expected some tax exemptions for the housing sector and hike in import duty on steel, which did not come through in the budget. The focus, as expected, was largely on social and rural infrastructure, employment generation, SMEs, labour intensive and export oriented sectors. The government has extended interest subvention of 2% on export credit for sectors like textiles, carpets, leather, gem & jewellery, marine products and SMEs. Recapitalization of PSU banks over the next two years was already announced in the stimulus package and, therefore, does not come as a surprise. Budgetary support has been increased for road and rail transport, power, defence and IT.
Mr. Rajesh Vardhan, Managing Director, Vardhman Group
The most heartening point to note post the announcement of the interim budget is that India is still the second fastest growing economy in the world, even in times of downturn, which means there is still reason to be optimistic about the real estate sector in India. The government could have increased the deduction for interest paid on housing loans from 1.5 lakhs to 2 lakhs per annum. Infact any steps to reduce interest on housing loans would have been welcome in the current market conditions. Hopefully, the budget by new government should incorporate reintroduction of section 80(IB), which is a tax benefit given for dwelling units with a size upto 1000 sq. feet of build-up area, in a plot of one acre and above.
Sharekhan: A low-key affair
Set against the background of a worsening fiscal position, slowing growth and the end of the United Progressive Alliance's term, the interim budget for FY2010 turned out to be a low-key affair. The budget did not spell out any sector-specific tax sops for the industries hit by the global economic slowdown and was also silent on changes in direct or indirect taxes. Despite lowered expectations from the interim budget, the absence of tax sops and sector-specific stimulus package has not gone down well with the street. However, the finance minister has emphasised the need for additional fiscal measures by the new government after the forthcoming general election.
Reliance Money
The Interim Budget for FY2009-10 announced by Finance Minister Pranab Mukherjee turned out to be just a Report Card on the performance of the UPA government over the last five years with no changes proposed in both Direct and Indirect Taxes. However as expected by us earlier, the government has continued to focus on the social sector by encouraging public spending on programs for increased capital outlays on Rural Employment, Drinking Water and Mid day meal Schemes and primary education. Some of the large flagship programmes such as National Rural Employment Guarantee Scheme, Jawaharlal Nehru National Urban Renewal Mission and the Rajiv Gandhi Drinking water Mission have been given a continued thrust.
Care Ratings
A continued emphasis on Infrastructure is evident from proposed allocations in both rural and urban infrastructure projects. The funding towards existing projects like Bharat Nirman, JNNURM has been maintained and further strengthened with the provision of RIDF XV. There have been renewed efforts towards fresh infrastructure projects with prompt investments via fiscal packages proposed earlier. In order to bridge the existing infrastructural gap to sustain the economic growth, an investment in infrastructure sector of more than 9 per cent of the GDP by 2014 is proposed.
February 16, 2009: Being a vote on account budget, NASSCOM and the IT Industry did not expect major announcements. It was however good to see continued focus by the Government on infrastructure and education. It was also heartening to see the benefits that the Government is seeing in adopting IT, through projects like 'Arrow'. To drive economic activity, the Government needs to expedite spending of these allocated funds particularly for IT projects, to stimulate the domestic market. We will engage with the new Government on specific policy initiatives to sustain industry's growth. However, in the interim there is need for urgently removing the inequities and multiplicities of taxes and procedural issues even before the new Government comes in. It is important to free up the bandwidth of companies, from these issues so that they are able to better manage the downturn and focus on business. This is also important to ensure India remains a preferred partner to do business in and with.
Mr. Vijay Kalantri, President, All India Association of Industries (AIAI)
The Interim Budget presented by the Union Minister Mr. Pranab Mukherjee, reinforces its commitment to comprehensive tax reforms undertaken for both direct and the indirect tax system which have enabled the tax administration to enhance its functional efficiency and provide better tax payer services leading to increased compliance. Also the Rates of Union Excise Duties and Service Tax rationalized for eventual shift the Goods and Service Tax on 1st April, 2010 is a step in the right direction. However, AIAI feels that the budget could have unveiled measures to tackle the economic slowdown by giving stimulus packages to sectors such as steel, cement, textiles, automobiles, infrastructure and exports which would enable these sectors to combat the adverse effect of the global meltdown. Though the Budget has increased allocation for planned expenditure, the Government should ensure its proper implementation in order to reap benefits for the economy. Sops could have been given to the MSME sector which would enable the sector to grow and contain unemployment.
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