from the desk of rajesh mokashi, md & ceo · - enhanced disinvestment target of rs 1.05 lkh cr...

From the Desk of Rajesh Mokashi, MD & CEO

The Union Budget for 2019-20 should be read in conjunction with the Interim Budget to get a complete picture. While one part of the Government’s agenda was addressed depending on the expediency during the Interim Budget, the other issues have been taken up in this Budget. Therefore, while the overall numbers of the Budget have not really changed significantly over the Interim Budget, it can be seen that there have been some very positive steps that have been announced especially pertaining to the financial markets. This, to my mind, has been the most significant part of the Budget which recognizes the importance of the corporate bond market, NBFCs and banks and has suggested appropriate measures. I do look at a Budget as work-in-progress where the overall agenda is implemented in stages depending on the fiscal space that is available. We can see some definite emphasis on the SME sector as well as rural economy with specific measures being announced for affordable housing. It is heartening to know that the government is committed to fiscal prudence as seen in the path chosen for the fiscal deficit ratio. Therefore we do not expect any discernible impact on the market as the borrowing programme remains unchanged. In a way we can call this exercise as one relating to managing the budget. We have put forward this analysis from our economic research, industry insights and ratings team to present a comprehensive view of how these numbers and measures should be interpreted and do hope you find it useful. We would be glad to receive any feedback on the content.

“A well planned work produces good results, even in adverse condition”

- Kautilaya on Financial Success

Index

1. Summary and focus areas of budget

2. Snapshot of budget

3. Budget Highlights and Analysis

4. Industry-wise analysis

Summary and Focus areas of Budget

Rural Economy

MSMEs, Start-ups

Banking and NBFCs

Make in India

Capital Market

Budget FY20

- The final budget for 2019-20 has been largely in line with the interim budget in terms of the overall fiscal math

- Continued emphasis laid on boosting the economy via investments mainly in infrastructure

- Focus on improving ease of living and doing business

- Measures aimed at attracting foreign capital to boost infrastructure financing have been announced

- Included measures to promote domestic industries viz. MSME and startups

- Higher allocations made to boost the rural economy

- The government remains on the path of fiscal consolidation

Rs lakh Crore FY19 (RE) FY20 (BE)

1. Revenue Receipts 17.3 19.6

1.1 Tax Revenue 14.8 16.5

A Corporation Tax 6.7 7.7

B Taxes on Income 5.3 5.7

C Union Excise Duties 2.6 3.0

D GST 6.4 6.6

1.2 Non tax revenue 2.5 3.1

2. Capital Receipts 7.3 8.2

2.1 Disinvestment 0.8 1.1

3. Total Receipts (1 + 2) 24.6 27.9

4. Revenue Expenditure 21.4 24.5

4.1 Interest payments 5.9 6.6

4.2 Subsidies 3.0 3.4

a Food Subsidy 1.7 1.8

b Fertilizer Subsidy 0.7 0.8

c Petroleum Subsidy 0.2 0.4

4.3 Defense Expenditure 2.9 3.1

5. Capital Expenditure 3.2 3.4

6. Total Expenditure (4 + 5) 24.6 27.9

7. Revenue Deficit (4 - 1) 4.1 4.9

8. Fiscal Deficit 6.3 7.0

9. FD/GDP (%) 3.4 3.3

10. Gross market borrowings 5.7 7.1

11. Debt/GDP (%) (RE nos) 48.4 48.0

12. GDP 188.4 211.0

Snapshot of Budget 2019-20

Budget Highlights : Fiscal scenario

- The size of the FY20 budget at Rs 27.9 lakh crs is 13% higher than year ago

- Fiscal deficit for FY20 budgeted at Rs 7.0 lkh cr or 3.3% of GDP, 0.1% lower than revised estimates of FY19(RE)

- Gross market borrowings for FY20(BE) have been estimated at Rs 7.1 lkh cr (unchanged from interim budget).

- Government plans to raise a part of its gross market borrowing in external markets in external currencies

- Enhanced disinvestment target of Rs 1.05 lkh cr for FY20(BE), Rs. 0.25 lkh cr. higher than FY19(RE)

- Revenue receipts budgeted at Rs 19.6 lk cr, a 13% increase from FY19 (RE)

- The upward revision in GDP growth for FY20 has led to lower projection of fiscal deficit target

- The lower fiscal deficit target indicates the commitment towards fiscal consolidation

For Individuals - Tax rebate for income up to Rs 5 lkh

- Additional income tax deduction of Rs. 1.5 lakh each

- on interest paid on loan taken to purchase of electric vehicle and

- on interest paid on loan taken to purchase house (valued up to Rs. 45 lakhs)

- The tax rebates and tax deduction could aid in improving consumption

- Enhance surcharge on individuals having taxable income from Rs 2 cr. to Rs 5 cr. and Rs 5 cr. and above which would increase the effective tax rate by 3% to 7% respectively

- TDS of 2% on cash withdrawal exceeding Rs 1 cr. in a year

- Measures to simply filing of income tax returns (pre-filled income tax returns interchangeability of AADHAR and PAN)

For Corporates - Lower corporate tax rate of 25% for companies with annual turnover up to Rs 400 cr (raised form

Rs.250 crs) . This would improve corporate profitability and could potentially stimulate investments

Budget Highlights: Taxation Measures

Budget Highlights: Capital Markets

• Measures to boost corporate bond market - Credit enhancement corporation to be set up

- To deepen corporate tri-party repo market in corporate debt securities, a proposal to enable stock exchanges to allow AA rated bonds as collateral

- Trading platforms for corporate bonds to be made user friendly

- FPIs will be permitted to subscribe to listed debt securities issued by ReITs and InvITs.

- These measures would aid the deepening and be a viable alternative for much needed infra financing given the limitation in bank financing

• Equity Markets - Proposal to raise the current minimum public shareholding from 25% to 35%

- Social stock exchange for listing social enterprises and voluntary organisations

- Securities Transaction Tax (STT) to be restricted to the difference between settlement and strike price in case of exercise of options

Budget Highlights: Foreign Investment

• Measures to attract foreign investment (FPIs, FDIs and NRIs) - Permit investments made by FIIs/FPIs in debt securities issued by Infrastructure Debt Fund – Non-

Bank Finance Companies (IDF-NBFCs) to be transferred/sold to any domestic investor within the specified lock-in period

- Rationalisation and streamlining the process of KYC norms for FPIs

- Proposal to merge the NRI – portfolio investment scheme with the FPI route

- Boosting FDI in certain sectors

- 100% FDI for insurance intermediaries

- Further opening up FDI in aviation, media and insurance sectors to be examined

- Local sourcing norms to be eased for FDI in single brand retail sector

- Foreign investment is being looked upon for bringing in investment for infrastructure building

Budget Highlights: Banking and Financial Institutions

• Budgetary support to banks and financial institutions - Banking recapitalisation of Rs 70,000 cr. If this is used only for bank lending it could increased bank

credit lending upto Rs 6 – 6.5 lakh crs under ceteris paribus conditions

- For purchase of high-rated pooled assets of financially sound NBFCs aggregating Rs 1 lkh cr. during the current financial year government to provide one time six months' partial credit guarantee to public sector banks for first loss of up to 10%

• Regulation

- The requirement of maintaining a debenture redemption reserve for public placement of debt has been removed

- Regulation authority of Housing Finance Companies have been moved from NHB to RBI

- These measures would help improve investor sentiments and overall confidence in the segment

Budget Highlights: Domestic Industry

MSMEs - 2% interest subvention for all GST registered MSMEs for both fresh and incremental loans

- Creation of a payment platform for MSMEs for bill filing and payments

Start-ups - E-verification for establishing investor identity and source of funds to resolve tax issues relating to

fund raising

- Special administrative arrangements for pending assessments of start-ups and no inquiry to be carried out without approval of supervisory officers

- Proposal to relax some conditions for carry forward and set-off of losses

- No scrutiny in respect of valuations of share premiums of start-ups and their investors who file requisite declarations and provide information in their returns

- The various schemes for MSME and start-ups including the changes in customs duties are mainly aimed at boosting domestic industry

Budget Highlights: Rural Economy and Labor Reforms

Rural Economy and Social Schemes - Rural development schemes have seen increase in allocation for rural roads (22.6% growth over

FY19), MGNREGA (9%), rural electrification and housing.

- With a focus on women SHG, interest subvention programme has been expanded to all districts and women in SHG will be eligible for overdraft of Rs 5,000 and MUDRA loan of Rs 1 lakh

- A robust fisheries management framework is planned

- Boost to agro-rural industries through cluster based development

• Labour - Proposal to streamline multiple labor laws into a set of 4 labor codes

- Various labor related definitions getting standardized to reduce disputes

Analysis: Receipts

• Revenue receipts: Rs 19.6 lakh crore for FY20 (BE) , revised downwards from the interim budget (by Rs 0.2 lakh cr) but 13% higher than FY19 RE

– Tax revenues (85% of revenue receipts) budgeted to increase by 11% (to Rs. 16.5 lak cr) in FY20. However it is Rs 55,000 cr lower than that in interim budget on account of reduction in revenue from income tax and GST

– Corporation tax to grow by 14% in FY20 and income tax by 8% from FY19(RE). Both these taxes account for 70% of tax revenue

– GST collections are budgeted to grow marginally by 3% in FY20. This could pose a challenge to the fiscal management in case it doesn’t materialize

– Non tax revenue (16% of revenue receipts) budgeted to grow by 28% , chiefly aided by the Rs 1.06 lakh crs of dividends/surplus transfer from the RBI,

– the highest quantum of transfer from the RBI

• Capital Receipts : Rs 8.2 lakh crs for FY20 (BE), 13% increase from FY19 (RE)

– Borrowings and other liabilities budgeted at Rs 7.04 crs

– Disinvestment target for FY20 has been revised upwards by Rs 0.2 lakh crs from interim budget to Rs. 1.05 lakh crore. It is 31% over FY19 (RE)

Analysis: Expenditure

• Total expenditure at Rs 27.9 lakh crore, 13% higher than Rs. 24. 6 lakh crore in FY19(RE) and fairly in

line with interim budget

• Revenue expenditure (89% of total expenditure) budgeted to grow by 14% in FY20

– It mainly comprises of interest payments (27% of total revenue expenditure), subsidies (14%) and defense

expenditure (12%)

– Subsidies are budgeted to increase by 13% in FY20. Highest allocation are towards food subsidy (over 55% of

total subsidies) followed by fertilizer (27%) and petroleum products (11%)

• Capital expenditure at Rs 3.4 lakh crore, 7% higher than FY19(RE)

– Capex is concentrated on the defense services (31% share)

– 47% of capital expenditure is towards roads, railways and housing

Expenditure Towards Social Schemes

Thrust on rural development in the form of higher allocations towards roads , clean drinking water, education, health and employment generation.

Rs cr Schemes FY19(RE) FY20(BE) % growth

ROADS Pradhan Mantri Gram Sadak Yojna (PMGSY)

15,500 19,000 23

CLEAN DRINKING WATER

National Rural Drinking Water Mission 5,500 10,001 82

EDUCATION National Education Mission 32,334 38,547 19

HEALTH National Health Mission 31,187 33,651 8

AGRICULTURE PM-Kisan 20,000 75,000 275

EMPLOYMENT MGNREGA* 61,084 60,000 (-)2

*The allocation towards MGNREGA in FY19(RE) is 11% higher than the budgeted FY19 numbers.

Additional borrowing by Public Sector Enterprises

Public Sector Enterprises (PSEs ) are likely to raise Rs 2.13 lakh crs by way of bonds and ECBs in FY20, 2% decline from FY19

Infrastructure

Some key announcements expected to provide thrust to Infra development

- Government has announced its intention to invest 100 lakh crore in infrastructure over the next five years.

- Second phase of Pradhan Mantri Awas Yojana (Gramin) aims to achieve construction of 19.5 million houses by 2022

- Pradhan Mantri Gram Sadak Yojana envisages to upgrade 1.25 lkh km of rural roads at an estimated cost of Rs 80,250 cr over the next 5 years

- Government ot adopt congenial and suitable policies for development of Maintenance, Repair and Overhaul (MRO) segment of aviation industry.

- New Metro routes for a total length of 300 km have been approved in FY19. Currently, 657 kms of Metro Rail network has become operational across India

- integrating the Ministry of Water Resources, River Development and Ganga Rejuvenation and Ministry of Drinking Water and Sanitation and ensure piped water supply to all rural households by 2024 under Jal Jeevan Mission

- Public Private Partnership to be a key strategy to mobilize Rs 50 lkh cr investment in the Railway Infrastructure Development by 2030

Automobiles & Auto components Positive

Custom Duty on Automobile and automobile parts From To

Friction material and articles thereof etc. 10% 15%

Glass mirrors, whether or not framed, including rear-view mirrors 10% 15%

Locks of a kind used in motor vehicles 10% 15%

Catalytic Converter 5% 10%

Oil or petrol filters for internal combustion engines 8% 10%

Intake air filters for internal combustion engines 8% 10%

Lighting or visual signaling equipment of a kind used in bicycles or motor vehicles 10% 15%

Vehicle Horns 10% 15%

Other visual or sound signalling equipment for bicycle and motor vehicle 8% 15%

Parts of visual or sound signaling equipment, windscreen wipers, defrosters and demisters of a kind used in cycles or motor vehicles

8% 10%

Windscreen wipers, defrosters and demisters, Sealed beam lamp units, Other lamps for automobiles.

10% 15%

Completely Built Unit (CBU) of vehicles 25% 30%

Chassis fitted with engines, for the motor vehicles of headings 8701 to 8705 10% 15%

Bodies (including cabs), for the motor vehicles of headings 8701 to 8705 10% 15%

Automobiles & Auto components Positive Custom Duty on Automobile and automobile parts From To

Parts for exclusive use Electric vehicles - Applicable rate Nil

a. E-drive assembly

b. On board charger

c. E compressor

d. Charging Gun

GST on Electric Vehicles (EVs) 12% 5%

− In order to incentivize and promote local manufacturing under governments’ ‘Make in India’ campaign,

increase in customs duty on auto components not manufactured in the country is expected to provide

level playing field to the domestic manufacturers and boost manufacturing of such products in the

country

− Also, with exempting the exclusive parts used in Electric vehicles from customs duty, the government

wants to promote electric mobility in the country by bringing down the cost of EVs, thereby boosting EV

sales in the country

Automobiles & Auto components Positive Budget proposals Impact on the Industry

Key schemes announced –

− GST on EVs reduced from 12% to 5%

− Additional income tax deduction of Rs 1.5 lakhs on

interest paid on loan taken to purchase Evs

− Vision for pollution free India

− One time 6 month partial credit guarantee by GoI

for financially sound NBFC on purchase of high-rate

pooled assets amounting of Rs 1 lakh crore

− Public Sector Banks (PSB’s) are proposed to be

provided with Rs 70,000 crore capital to boost

credit for a strong impetus to the economy

− This is to make the EVs affordable to consumers

and thereby boost sales in the country

− Schemes announced for NBFC’s and PSB’s in the

budget FY20 do not have a direct impact on the

auto component industry, however auto comp

demand is directly proportional to the

automobiles demand. With the prime focus

towards improving liquidity to the NBFC’s & PSB’s

is a positive for auto demand (as liquidity crunch

in the economy has so far been plaguing the

automotive sector), and the same is likely to

impact auto comp industry positively.

Tyres Neutral

Budget proposals Impact on the Industry


While there are no specific budget announcements pertaining to the Tyre industry, the following factors are

likely to have positive impact:

− One time 6 month partial credit guarantee by GoI

for financially sound NBFC on purchase of high-rate

pooled assets amounting of Rs 1 lakh crore.

− Public Sector Banks (PSB’s) are proposed to be

provided with Rs 70,000 crore capital to boost

credit for a strong impetus to the economy.

− They key schemes announced in the budget 2019-

20 do not have a direct impact on the tyre

industry, however tyre demand is directly

proportional to the automobiles demand. With

the prime focus towards improving liquidity to the

NBFCs & PSBs is a positive for auto demand (as

liquidity crunch in the economy has so far been

plaguing the automotive sector), and the same is

likely to impact the tyre sector positively.

Textiles Neutral

Custom Duty on Textiles From To

Wool fibre, wool tops 5% 2.5%

Water blocking tapes for manufacture of optical fiber cables Nil 20%

− In order to incentivize domestic value addition and promote local manufacturing under governments’

‘Make in India’ campaign, reducing customs duty on input and raw material costs (wool fibres and tops) to

2.5% is expected to reduce costs for manufacturers while increasing custom duty on water blocking tapes

to 20% will provide level playing field to the domestic manufacturers going forward

Textiles Neutral



− Budgetary allocation for procurement of cotton by

CCI under Price Support Scheme has been more

than doubled from Rs 924 crore (FY19 (Revised

estimates) to Rs 2,018 crore in budget FY20

− Allocation for Central Silk Board (CSB) has been

increased by 22% in Budget FY20 compared with

FY19 (Revised estimates)

− Budgetary allocations of Rs 700 crore to A-TUFS

scheme is higher than the Revised Budget estimates

for FY19 (of Rs 623 crore) but lower than the earlier

allocation of Rs 2,300 crore for the Budget FY19

− Increase in the budgetary allocation for

procurement of cotton will encourage the farmers

to cultivate the crop and increase its availability

− Will help in the overall development of the local

silk industry

− Lower budget allocation for ATUFS will be

negative for the fresh capex. However, the

amount is 12% higher than the Revised Budget

estimates for FY19

Consumer Durables Positive

Custom Duty on Electronic goods and machines From To

Indoor and outdoor unit of split system air conditioner 10% 20%

Charger/ power adapter of CCTV camera/ IP camera and DVR / NVR Nil 15%

Loudspeaker 10% 15%

Digital Video Recorder (DVR) and Network Video Recorder (NVR) 15% 20%

CCTV camera and IP camera 15% 20%

Optical Fibres, optical fibre bundles and cables 10% 15%

− In order to incentivize and promote local manufacturing under governments’ ‘Make in India’ campaign,

increase in customs duty is expected to provide level playing field to the domestic manufacturers

Hospitality & Tourism Neutral


Key schemes announced -

While there are no specific budget announcements pertaining to the Hotels industry, demand for the industry

may still pick up due to Tourism related announcements listed below:

− Proposed to develop 17 prominent tourist sites into

Iconic Tourism destinations. Out of 17 iconic tourism

sites, 7 are being developed to enhance visitor’s

experience (both domestic & foreign travelers)

− Modernization of railway network

− Is expected to marginally benefit the Hotels

industry as the increased tourism to these

locations would augur well for room demand in

those location

Cement Neutral



− Increased allocations towards

• Pradhan Mantri Gram Sadak Yojna Rs 19000 cr

• AMRUT and Smart Cities Mission allocation at Rs

13,750 cr

• Allocation to Pradhan Mantri Awas Yojana

reduced marginally to Rs 25,853 cr

− Increased capital allocation to North-Eastern region,

Railways, Ministry of Housing and Urban Affairs,

MoRTH and in line with the announcements made

during interim budget

− With Government of India (GoI) continuing to

focus on rural development, affordable housing

and infrastructure development; we expect the

current consumption growth to continue for the

sector and the capacity utilization to sustain in

FY20

Renewable Energy Negative



− Allocation to Ministry of New and Renewable

Energy (MNRE) marginally increased to Rs 5,255

crore from Rs 5,147 crore in previous budget

− Budget is a disappointment for the renewable

energy sector as no major subsidies or incentives

were announced. The marginal increase in the

Budgetary Support for MNRE, indicate a higher

dependence on the private sector for meeting the

ambitious renewable energy target of 225 GW by

2022. The thrust towards renewable energy is not

complemented by enhancing the outlays for the

sector

− Schemes include green energy corridors, the ultra-

mega solar power projects requires high allocation

for viability gap funding to support project

developers.

Roads & Highways Neutral



− The total allocation made to the Ministry of

Roads and Highways has been increased to Rs

83,016 crore

• An additional allocation of Rs 19,000 crore

towards PMGSY (Rural Roads) is a sizable

increase over Rs 15,500 crore made in the

previous year’s budget

− Given thrust on road development through

Bharatmala and large funding requirement of NHAI,

allocation to the sector is below expectations

though increased by 5.6% over previous year’s

budget

− The allocations are in line-with the announcement

made during the interim budget

Capital Goods Neutral



− Overall allocation to railways has been increased to

Rs 68,019 cr.

− Capital outlay for metro projects increased to Rs

17,714 cr from Rs 14,865 crore.

− Allocation to AMRUT & Smart Cities increased to Rs

13,750 cr

− Optical Fibre Based Network for Defence Services

allocated Rs 4,725 cr

− Capital outlook on Defence Services increased to

Rs 1.03 lakh crore

− NCR Transport Corporation Allocated Rs 974 cr

− Green Energy Corridor, Strengthen of Power

systems and integration of power development

allocated ~Rs 8,300 cr

− Total allocation to the railways has increased by

23%. This would translate to higher orders for

railway equipment manufacturers and capital

goods sector including coach and wagon

manufacturers, metal fixtures, pipes, escalators

and elevators etc.

− An 10% increase in defence capital allocation

would directly benefit defence equipment

manufacturers, including overseas suppliers.

− Sustained implementation of projects across

infrastructure services is expected to provide

support to segment of goods like power

equipment, waste management, water supply,

smart metering, routers and digital equipment etc.

Capital Goods Neutral

Budget proposals Impact on the Industry − Government of India (GoI) is now expected to

focus on improving the railway infrastructure and

has estimated that it will need an investment of

Rs.50 lakh crore by 2030. The Government will

focus on more Public-Private partnership to ensure

faster development and completion of tracks,

rolling stock manufacturing and delivery of

passenger freight services.

Paper & Paper products Positive



− Introduction of customs duty on the following

paper categories

− Acceding to long standing demand of the industry,

Customs Duty has been introduced to provide a level

playing field to domestic manufacturing industry

− The impact of this will be lower in case of imports

from Korea and ASEAN nations with whom India has

a CEPA/FTA. However, imports from other countries

are expected to reduce and in turn domestic

companies are expected to benefit.

Custom Duty From To

Newsprint Nil 10%

Uncoated paper used for printing newspapers Nil 10%

Lightweight coated paper used for magazines Nil 10%

Printed books (including covers for printed books) and printed manuals Nil 5%

Education Positive



− Increase in allocation for National Education

Mission to Rs 38,547 crore for FY20

− Decline in allocation for Higher Financing

Education Agency from Rs 2,750 crore for FY19 to

Rs 2,100 crore for FY20

− Allocation towards interest subsidy and

contribution for guarantee funds to the tune of

Rs 1,900 crore for FY20

− Expected to benefit institutions which receive aid

from Government

− Could result in lower availability of funds capex at

premier higher educational institutions

− Could benefit institutions offering technical/

professional education courses in terms of higher

enrolment by increasing the affordability of the

same

− The Government would also bring in the National Education Policy which proposes changes in school and

higher education, governance systems, and greater focus on research and innovation

Education Positive


− Establishment of National Research Foundation

(NRF) to fund, coordinate and promote research.

NRF to assimilate research grants given by various

Ministries. The funds available with all Ministries

to be integrated at NRF which would be

adequately supplemented with additional funds

− ‘Study in India’ programme to be started to focus

on bringing foreign students to study in higher

educational institutions. For this, regulatory

systems of higher education would be reformed

comprehensively to promote greater autonomy

and focus on better academic outcomes. Draft

legislation for setting up Higher Education

Commission of India would be presented in the

year ahead

− No major impact as grants being received by the

educational institutions involved in research

activities will now be routed through NRF. However,

availability of additional funds may provide support

to these institutions to carry out additional research

work

− Greater autonomy would provide impetus to

educational institutions involved in providing higher

education by providing flexibility in their operations

thus improving their financial profile and quality of

education

Healthcare Neutral



− Significant increase in allocation towards

Ayushman Bharat – Pradhan Mantri Jan Arogya

Yojana (PMJAY) to Rs 6,400 crore from Rs 2,400

crore in the previous year

− The government continued with its allocation

towards Jan Aushadhi Scheme that stood at Rs 42

crore. The allocation remained almost at the

same level compared with previous year’s funds

− Higher allocation of funds by the government for

Ayushman Bharat scheme will result in an increase

in healthcare expenditure by the centre. This will

augment and expand the reach of healthcare

services to remote, rural and vulnerable sections of

the society thus enlarging healthcare cover to this

part of the nation

− The number of pharmacy outlets under the scheme

are expected to increase which, in turn, will help

improve drugs and pharma access to common

populace

Aviation Neutral



− Allocation has been sharply reduced by over 50%

to Rs 4,500 crore

− An allocation has been made towards Air India

Asset Holding Limited (SPV) of Rs 2,600 crore

− Government to move-forward with planned

strategic divestment of Air India and has reduced

capital outlay for the National Carrier

Ports Neutral



− Allocation kept stable at Rs. 1,902 crore and in

line with allocation during the interim budget and

a marginal decline from last year’s allocation of

1,939 cr in FY19

− Capital outlay for Sagarmala Scheme at Rs 550

crore

− Proposal to strengthen inland and national

waterways to reduce congestion in cargo

movement through roads and railways.

− No major change in allocation and is in line with

expectations and announcements made during

interim budget.

− Sagarmala Development Company is expected to

function as an implementation body and is likely to

mobilize funds as an umbrella body for the

development of Port and related infrastructure.

Real Estate Positive



− Increase in deduction of interest on housing loan

from current Rs. 2 lacs to Rs 3.5 lacs for housing

value upto Rs 45 lacs for borrowing availed till 31

March, 2020

− About 19.5 million houses are proposed to be

constructed under PMAY by FY22

− Easing of NBFC liquidity

− Pradhan Mantri Awas Yojna (PMAY) stood at Rs

25,853 crores and kept steady with marginal

decrease over previous year’s allocation.

− Total Allocation for Housing and Urban Affairs has

been increased to Rs 48,032 cr.

− Overall allocation to housing urban development

has witnessed an increase of 11.6% over FY19

− Tax exemption for home buyers is likely to drive

demand in the affordable housing segment. As

against the subdued demand for real estate over a

prolonged period, the proposal is expected to

provide a timely boost to home sales in the

affordable housing segment

− The proposal of increase in construction of the

houses under PMAY will augur well for the real

estate developers

− To provide the much needed liquidity support to the

real estate segment

Ceramics Positive



− Under the Pradhan Mantri Awas Yojana – Gramin

(PMAY-G), 1.95 cr houses are proposed to be

provided during FY20 to FY22

− Increase in tax deduction for housing loans by Rs

1.5 lakh for affordable housing under the goal of

‘Housing For All’.

− With the government determined to achieve the

‘Housing for All by 2020’ vision, higher impetus to

ceramic tiles industry through the affordable

housing is likely to continue, with focus on rural

areas, Tier II and Tier III cites, as projects have begun

to expand there.

− To a certain extent, this deduction could boost the

demand for affordable housing and consequently

that of building materials, including ceramic tiles

and sanitaryware

Customs Duty From To

Ceramic Products (roofing tiles, ceramic flags and pavings, hearth or wall tiles, vitrified tiles, etc.)

10% 15%

− Post the anti-dumping duty on import of tiles from China, the increase in the customs duty comes acts as add on to protect the domestic industry from cheaper imports.

Fertilizers Neutral



− The fertilizer industry has received Rs 0.8 lkh cr.

as subsidies where Rs 0.5 lkh cr. is earmarked as

the urea subsidy and the remaining Rs 0.3 lkh cr.

is to be given as the nutrient based subsidy

(NBS).

− The government has increased the overall fertilizer

subsidy by 14.1%. Within the subsidy, the allocation

towards the urea subsidy has increased by 19.2%

and allocation towards the NBS has increased by

5.1%.

− The government has factored in the fact that there

has been an increase in urea plants/urea capacity in

the country. Thus there has been an increase in the

urea subsidy.

Oil & Gas Neutral

− Prices of petrol and diesel is to increase by Rs 2/litre

Excise Duty From To

Motor Spirit/Petrol (Special Additional) Rs 7/litre Rs 8/litre

High Speed Diesel oil (Special Additional) Rs 1/litre Rs 2/litre

High Speed Diesel oil (Special Additional) Rs 1/litre Rs 2/litre

From To

Road and Infrastructure cess Rs 8/litre Rs 9/litre

Oil & Gas Neutral



− The oil and gas industry has received as Rs 0.37

lkh cr. as subsidies where Rs 0.33 lkh cr. is

earmarked as the LPG subsidy and the remaining

Rs 0.04 lkh cr is to be given as the kerosene

subsidy.

− The PMUY scheme aims to distribute 8 crore LPG

connections. So far more than 7 crore

connections have been distributed. To ensure

every single rural family, except those who are

unwilling to take the connection to have access to

clean cooking gas by 2022.

− Incentives towards the manufacturing of EVs

− The government has increased the fuel subsidy by

50.9%. Within the subsidy, the allocation towards

the LPG subsidy has increased by 62.9%

− This augurs well for the industry as the number of

LPG connections will increase and the distribution

network of OMCs will widen

− In the short run we do not foresee an immediate

impact on OMCs but in the long run increase in EVs

is to lead to a negative impact of OMCs sales of

petrol and diesel

Oil & Gas Neutral



− The oil and gas industry has received as Rs 0.37

lkh cr. as subsidies where Rs 0.33 lkh cr. is

earmarked as the LPG subsidy and the remaining

Rs 0.04 lkh cr is to be given as the kerosene

subsidy.

− To ensure every single rural family, except those

who are unwilling to take the connection to have

access to clean cooking gas by 2022

− EV Push

− The government has increased the fuel subsidy by

50.9%. Within the subsidy, the allocation towards

the LPG subsidy has increased by 62.9%

− The PMUY scheme aims to distribute 8 crore LPG

connections. So far more than 7 crore connections

have been distributed. This augurs well for the

industry as the number of LPG connections will

increase and the distribution network of OMCs will

widen

− Roughly during FY20 there will be an increase of EV

by 1.5-2.5%. In the short run we do not foresee an

immediate impact OMCs but in the long run

increase in EVs is to lead to a negative impact of

OMCs sales of petrol and diesel

FMCG Neutral

Excise Duty on Products From To

- Other than filter cigarettes, of length not exceeding 65 millimetres

Nil

Rs 5 per

thousand

- Filter cigarettes of length (including the length of the filter, the length of filter being 11 mm or its actual length, whichever is more) not exceeding 65 mm

- Filter cigarettes of length (including the length of the filter, the length of filter being 11 millimetres or its actual length, whichever is more) exceeding 65 mm but not exceeding 70 mm

- Other than filter cigarettes, of length exceeding 65 mm but not exceeding 70 mm

Filter cigarettes of length (including the length of the filter, the length of filter being 11 mm or its actual length, whichever is more) exceeding 70 mm but not exceeding 75 mm

FMCG Neutral


Homogenised” or “reconstituted” tobacco Chewing tobacco Preparations containing chewing tobacco Jarda scented tobacco Snuff Preparations containing snuff Tobacco extracts and essence Other (manufactured tobacco and substitutes)

Nil 0.5%


Other Cigarettes

Nil

Rs. 10 per thousand

Cigarettes of tobacco substitutes Rs. 5 per thousand

Hookah or gudaku tobacco 0.50%

Smoking mixtures for pipes and cigarettes 1%

Others (Biris) 10 paisa per thousand

Other smoking Tobacco 0.50%

FMCG Neutral



− Excise duty hike on cigarettes − Though the Budget has announced a hike in excise

duty on cigarettes, it is much lesser than expected.

Usually, there are substantial increases in duties,

however, this Budget announced much lower than

expected, so we don’t see much impact on the

cigarette and tobacco players of the domestic

market

Gems & Jewellery Negative

Custom Duty on Automobile and automobile parts From To

Silver (including silver plated with gold or platinum) unwrought or in semi-manufactured forms, or in

powder form 10% 12.5%

Silver dore bar, having silver content not exceeding 95% 8.5% 11%

Base metals clad with silver, not further worked than semi-manufactured 10% 12.5%

Gold (including gold plated with platinum) unwrought or in semi-manufactured forms, or in powder

form 10% 12.5%

Gold dore bar, having gold content not exceeding 95% 9.35% 11.85%

Base metals or silver, clad with gold, not further worked than semi-manufactured 10% 12.5%

Platinum, unwrought or in semi-manufactured forms, or in powder form [ other than Rhodium] 10% 12.5%

Base metals, silver or gold, clad with platinum, not further worked than semi-manufactured 10% 12.5%

Waste and scrap of precious metals or of metal clad with precious metals; other waste and scrap containing precious metal compounds, of a kind used principally for the recovery of precious metal

10% 12.5%

Gold and Silver imported by an eligible passenger as baggage 10% 12.5%

Gems & Jewellery Negative Budget proposals Impact on the Industry


− Increase Import duty on Gold & other precious

metals

− Increase in the import duty on gold from 10% to

12.5%, will inflate gold prices in the domestic market

− However, the Indian consumer’s demand for this

metal is largely inelastic to changes in duty structure

and hence we do not expect a major impact on the

revenue of companies in the sector.

Media & Entertainment Positive



− Relaxation in the FDI norms for media sector

− An improved FDI inflow in this sector shall positively

impact the domestic players, by bringing in

additional funding and boosting growth for the

sector

Custom Duty Rate of duty

Impact From To

Set Top Box

Applicable

rate Nil

− Since set top boxes are mostly imported, the reduction

in custom duty shall benefit margins of domestic cable

TV distributors

Steel Positive

Custom Duty on commodities From To

Inputs for the manufacture of CRGO steel: a) MgO coated cold rolled steel coils b) Hot rolled coils c) Cold-rolled MgO coated and annealed steel d) Hot rolled full hard

5% 2.5%

Stainless steel products 5% 7.5%

Other alloy steel 5% 7.5%

Wire of other alloy steel (other than INVAR) 5% 7.5%

− The proposed hike in custom duty on the above mentioned alloy/non-alloy steel products, is largely on

account to curb cheaper imports of these products in the domestic market. This is likely to benefit the

domestic steel players manufacturing these products.

Steel Positive



− The Government proposes to allocate Rs 1 lkh cr.

towards infrastructure projects over the next

five years

− The government continues to lay focus on the

objective of Housing for All by 2022

− The Government proposes to further increase

it’s focus on the Railway infrastructure by

− Investment in suburban railways through

SPV’s like Rapid Regional Transport System

(RRTS)

− Additional metro railway projects to be

undertaken under the PPP route

− Upgradation of the existing railway

infrastructure

− The above proposals are likely to augment well for

the steel industry, as investment in infrastructure

activity is likely to increase the demand for steel

products, especially long steel products.

Furthermore, upgradation in the railway

infrastructure is also likely to support the demand

for both long as well as flat steel products.

Telecom Neutral



− Allocation to Universal Services Obligation Fund

(USOF) for service providers augmented by 67%

y-o-y to Rs 8,350 crore

− Increase in allocation towards USOF hints the

government’s aim to expand connectivity in rural

India thereby giving a push to the Digital India

initiative and telecom infrastructure in these areas.

Custom Duty on commodities From To

Optical fibres, optical fibre bundles and cables 10% 15%

− The hike in custom duty rate of the above mentioned products are expected to result in higher costs for

the telecom companies that are dependent on imported optical fibres, optical fibre bundles and cables.

Nevertheless, in the long run, the increase in custom duty rates will encourage ‘Make in India’ initiative of

the government and thus support domestic manufacturing of these products

Non-Ferrous Metals Positive



− Incentives offered to promote EVs

− The PMAY-G, scheme aims to provide 1.95 crore

houses till FY22 whereas PMAY-Urban aims to

provide over 81 lakh houses (with an investment

amount sanctioned around Rs 4.83 lkh cr)

− Manufacturing of EVs uses 3 times the copper than

normal automobiles whereas usage of lead is also

likely to increase. Lead powered batteries provide

auxiliary power to EVs

− Development of housing for all will augment the

use of copper. Copper is widely used in

electrification of domestic households. Increased

households also leads to increased demand for

transmission coverage, which is majorly done

through aluminium transmission lines

− Though there hasn’t been any formal announcement directly pertaining towards the base metals sector,

the allocation towards infrastructure development and the incentives towards the usage of EVs is likely to

augment the demand/usage for non-ferrous metals. The Government has also announced its intention to

invest Rs 100 lkh cr. in the infrastructure segment over the next 5 years

Budget Proposals Impact

‒ PSBs to get Rs 70,000 crore capital ‒ Improve capitalization especially for weaker PSBs

and more room available for stronger PSBs for credit growth

‒ Government to provide one time six months’ partial

credit guarantee to PSBs for investing in highly

rated pooled assets of financially sound

NBFCs/HFCs, up to Rs 1 lakh cr during FY20. First

loss default guarantee of up to 10%.

‒ A good beginning but more steps need to be taken boost liquidity for NBFCs/HFCs

‒ Increase RBI supervisory powers over NBFCs and

return regulatory jurisdiction over HFCs from NHB

to RBI

‒ Centralize supervision in one regulator for uniformity

‒ Would also allow NHB to focus on refinance activities

‒ Permit 100% FDI for insurance intermediaries. ‒ Attract investments in the sector and boost the

delivery channels to increase penetration

BFSI Neutral


‒ Permit FIIs/FPIs investments in debt securities

issued by IDF-NBFCs to be transferred/sold to

domestic investors within lock-in period. Increase

FPI investment limit in a company from 24% to

sectoral foreign investment limit. Allow FPIs to

subscribe to listed debt securities issued by ReITs

and rationalize Know Your Customer (KYC) norms

for FPIs

‒ Boost FII/FPI investments by increasing stock of available companies/ securities and increasing the ease of doing business

‒ Proposed to reduce NOF requirement for

reinsurance companies from Rs 5,000 cr to Rs

1,000 cr in the IFSC

‒ Attract more global reinsurance players to open branches in India

‒ Debenture Reservation Reserve requirement to be

relaxed for NBFCs accessing public funds ‒ Enable more NFBCs to access retail funds

‒ Government will work with regulators RBI/SEBI to enable stock exchanges to allow AA rated bonds as collaterals

‒ Deepen the Corporate tri-party repo market in Corporate Debt

‒ Securities and provide liquidity

BFSI Neutral


‒ Tax Proposals

‒ Interest on bad or doubtful debts for NBFC-D and NBFC-SI-ND to be

charged to tax on receipt basis

‒ Allow pass through of losses in cases of Category I and II AIF similar

to pass through of income

‒ Provide direct tax incentives to an IFSC including 100% profit-linked

deduction under section 80-LA in any 10-year block within a 15-year

period, exemption from dividend distribution tax from current and

accumulated income to companies and mutual funds, exemptions on

capital gain to Category-III AIF and interest payment on loan taken

from non-resident

‒ Investment made by CAT-I AIF is exempted from the applicability of

the provisions of section 56(2)(viib) of the Income-tax Act. It is

proposed to extend this exemption to CAT-II AIF

‒ Tax to be withheld on taxable payout of life insurance companies on

net basis at 5%, instead of 1% on gross

‒ Bring parity of tax treatment between NBFCs and Banks

‒ To promote the International Financial Services Centre and to create global financial hub

BFSI Neutral

Contributors

Economics Team Industry Insights Team Industry Insights Team

Kavita Chacko Saurabh Bhalerao Urvisha Jagasheth

Dr. Rucha Ranadive Darshini Kansara Vahishta Unwalla

Manisha Sachdeva Ashish K Nainan Purnima Nair

Sushant Hede Bhagyashree Bhati

Ratings Team Ratings Team Ratings Team

Pulkit Agarwal Naresh M. Golani Maulesh Desai

Sudeep Sanwal Harshveer Trivedi Rajashree Murkute

Karthik Raj Sudhir Kumar Radhika Ramabhadran

Manek Narang Ratnam Nakka Krunal Modi

Shivangi Sharma Hardik Shah Gaurav Dixit

Ravleen Sethi Naresh Golani Ujjwal Patel

Hitesh Avachat Anil More Divyesh Shah

Naveen Kumar Ramadasu Bandaru Aditya Acharekar

Harshraj Sankhla

Chief Economist - Madan Sabnavis (+91-22-68374433) Media Contact - Mradul Mishra (+91-22-68374424)

Thank You

from the desk of rajesh mokashi, md & ceo · - enhanced disinvestment target of rs 1.05 lkh cr...

Documents