india budget 2018 budget analysis ... the salaried tax payers too expected a cut in the tax and a no...

India Budget 2018 Economically Populist – Arguably Industry

Languish

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Contents

Introduction Financials

Expectations Announcements & Implications

< > I< >I India Budget Analysis - Arguably Industry Languish

Introduction

Introduction


Home < >

Union Budget 2018 was having a decent built-up as it was touted to be the last budget possibly for this Government because

the polls are forecasted to be organized by the end of this year. Much to the anticipation the Budget pushed for scores of

benefits and incentive packages for the farmers and economically poor segments of the economy, perhaps purely resting

eye‘s on poll bound country. Undoubtedly, the identification of Indian economy globally has been that of an agrarian one and in

line with the identity Government did chose to be focused upon agriculture and rural gamut of the economy. Much to the

delight of the farmers scores of incentives and schemes were announced in favor to realize the objective of doubling an

ordinary farmer‘s income by double till 2022.

The salaried tax payers too expected a cut in the tax and a no revision in taxation scheme for them might dwell neutral for them

and with facility of raising the standard deduction towards travelling and medical allowance shall add to their comfort. For the

industry the Budget 2018 appeared more of a scorecard than actual announcement and was more of an extension of already

existing schemes with an enhanced allocation. Talking in particular for the energy & infrastructure sector Union Budget 2018

did offered positives in a way by extending some the recently announced schemes as for instance ―Saubhagya Scheme‖ for

power sector. Arguably, though Budget 2018 in our opinion perhaps was missing the very push what could lead to a further

bullish energy segment especially for the renewable space.

The purpose of utilizing technology appeared another major takeaway from the Budget 2018 in which the Government focused

on embedding smart tech in developing cities and other key infrastructure projects which shall enhance safety and security.

This year the allocation of infrastructure sector stood at INR. 50,000 Crores, which factored multiple schemes like smart city

mission, AMRUT scheme, embellishment of road infra both at national & state levels, railways infrastructure improvement

(inclusive of station & gauge's), airports development and application of AI & IoT in a larger way under the energy & infra

space by urging more private investments. Government has also announced the finance ratings of the major cities in the

country which is likely to be the key index for investing in the country. Further, strong investment market is also likely to be

promoted by the Government for energy & infrastructure sector of the country as more leeway shall follow post the

strengthening of bond‘s market. However, if all the industry expectations are factored against what Union Budget 2018 has

dished out it arguably rests as an industry languish fiscal in sighting for the FY 2018-19. Although, there still remains scores of

positive which the players in energy & infrastructure sector shall like to harp upon and build following which we have

attempted to determine the implications on these sectors based upon the budgetary announcements and allocations.


Introduction Home < >

Financials 2018-19 - Snapshot

FY 2016-17

(Actuals) (Billion INR)

FY 2017-18 (Budget Estimates)

(Billion INR)

FY 2017-18 (Revised) (Billion INR)

FY 2018-19 (Budget Estimates)

(Billion INR)

Revenue Receipts 1374203 1515771 1505428 1725738

Capital Receipts 600991 630964 712322 716475

Total Revenue Receipts 1975194 2146735 2217750 2442213

Total Expenditures 1975194 2146735 2217750 2442213

Revenue Deficit 316381 321163 438877 416034

As a percentage of GDP 2.1% 1.9% 2.6% 2.2%

Effective Revenue

Deficit

150648 125813 249632 220689

As a percentage of GDP 1% 0.7% 1.5% 1.2%

Fiscal Deficit 535618 546531 594849 624276


Primary Deficit 54904 23453 64006 48481


Source: India Budget 2018-19


Introduction Home < >

Summary of Expenditure


Central Sector

Schemes

24.27%

Other Central

Expenditure

23.22%

Establishment

17.40%

Finance Commission

Transfers

3.75%

Other Transfers

4.51%

Centrally

Sponsored

Schemes

10.47%

Resources of Public

Enterprises

16.38%

Summary of Income

Corporate Tax

28.40%

Personal Income Tax

23.10%

Excise Duty

21.30%

Services

14.40%

Customs

12.80%

Financials

Budget Expectations – Energy Resources


Home < >

Overview

When it comes to harnessing the economic growth for any country its energy resources are extremely pivotal. The development pace of these resources shall

be a clear determinant of growth paradigm for the country as well. Last year of the total infrastructure funds of INR. 3,96,135 crores were allocated for the

infrastructure development and is expected to be in the similar tune for this Union Budget too.

Key Issues for Sector

Power for all by March 2019, seems a bullish target for now and GoI has to revamp the speed of augmentation meeting up this deadline. Moreover, with

fiscal buoyancy embellishment it is expected that the expenditure outlay shall increase for the very purpose of schemes like ―Saubhagya‖

More policy reforms are expected to decrease India‘s reliance on imports for oil & gas sector in country which consumes about 15% of the GDP. More

emphasis on domestic exploration and production required.

Solar sector is witnessing scores of equipment being imported from South Asia region in the country which is hampering the interests of the domestic

OEMs and thus a push for promoting anti-dumping duties are rising. However, in case of enhanced anti-dumping duties the country shall stare at

escalation in prices of modules which will averse the capacity growth planning

Mining sector in India carries risk of non-productive mines wherein the companies invest large capital. Insignificant or no production from some mines

results in high cost which turns futile for companies. The sector needs integrated policy & regulatory reforms boost in the form of subsidies, cheaper funds

from government

Expectation from Union Budget 2018

Reduction in corporate tax rate from 30% to 25% anticipated to be applied for all sectors as it is yet to be applied all across uniformly

Abolition of MAT (Minimum Alternative Tax) has been a gripping agenda for infra & energy participating companies in India. It is expected that the MAT

provisions shall be done away with

Electricity needs to be put under zero rating items under GST regime so that input tax credit can be claimed

The proposal for tax consolidation for energy & infrastructure sector is long anticipated and is expected to find a mention in Union Budget 2018.

Application of anti-dumping duties on solar panels is another announcement which industry anticipates. However, the levels shall not be beyond 10-15%

Removal of generation-based incentives, reduction in accelerated depreciation rate and removal of section 80-IA benefit has affected the power sector.

Independent power producers expect revival of some of these incentives or new sops

Financials

Budget Expectations – Energy Sources – Power Generation


Home < >

Overview

The gaining momentum for renewable energy in India provides for promising future in India and the development of these resources are likely to take center

stage in the Budget 2018 as well. However, the thermal side of the power generation too needs an improvement and investment flow keeping the COP21 in

mind some relief for IPPs and OEMs are expected in this year‘s budget.


Government has embarked on ‗24X7 power for all‘ by March 2019, and also set target of 175 GW of renewable energy capacity by 2022, which would

require multi-fold growth

Huge amount of foreign investments shall be required in the renewable segment for the Government to achieve the target of 175 GW by 2022

Uncertainty of the Tax structure for the IPP‘s and Captive power producers in the country and reduction of MAT being applicable for the power generation

sector


Exempt power and renewable energy businesses from provisions of section 94B of Income-tax Act on limitation of interest deduction

Roll out geography-based tax incentives for renewable energy clusters such as solar parks, wind energy farms

Extend investment-linked deduction under section 35AD of Income-tax Act, to firms engaged in generation and /or distribution and transmission of power,

similar to infrastructure projects

Customs duty on import of power plant equipment for captive power generation should be exempted to improve cost competitiveness of Indian industry

Exempt /rationalize levy of MAT for power generation business and customs duty on import of power plant equipment for captive power generation should

be exempted to improve cost competitiveness of Indian industry

Duties/cess on captive power generation be subsumed in GST since such levies adversely impact advantages of setting up captive power plants

Installation of solar roof top under EPC contract should be considered as supply of ‗solar power generating system‘ (taxable at 5 percent) under GST

Renewable Energy Certificates should be exempt from GST

Government should consider exemption of GST on goods/ services rendered to setting up and operation of power plants should be exempt from GST

Financials

Budget Expectations – Oil & Gas Sector


Home < >

Overview

Undoubtedly demand wise India stands as one of the leading country of the world for oil & gas and boasts an overall share of 5.3% in global

energy demand. According to BP Energy Outlook 2016, India's energy consumption is projected to grow at 4.2% per annum, up to 2035, faster

than all major economies in the world. With this fast pace demand and continued dependence on fuel imports to meet its energy demand,

ensuring energy security is crucial to sustain the country‘s growth momentum.


Significant initiatives undertaken to overhaul energy policy including HELP to replace previous NELP & introduction of demand-based

bidding under OALP instead of cyclical bidding

Shift from cost recovery model to progressive revenue sharing model and grant of pricing and marketing freedom

National Data Repository set up to provide investors with access to Exploration and Production seismic data

Government has approved merger of HPCL into ONGC, as part of previous Budget proposal to create integrated public sector oil major

through consolidation to bear higher risks, avail economies of scale, take higher investment decisions and create more value


Align provisions of Income-tax Act with revenue sharing contract which seeks to allow deduction of expenditure incurred by contractor on

exploration, development and production and also it should clarify scope of ‗mineral oil‘ to include natural gas, eligible for tax holiday

Budget should clarify that offshore platforms used for oil exploration /extraction activities be classified as ‗plant and machinery‘ for

claiming depreciation under the Income-tax Act

To rationalize tax structure for the sector, petroleum products should be brought under GST to enable free flow of credits and avoid

cascading of taxes

Exempt LNG imports from customs duty to promote use as fuel for industrial operations

Financials

Budget Expectations – Transport – Roads & Highways


Home < >

Overview

Roads & highway sector in India provides for an important link for the economic growth considering the vast expansion of the country.

Recent regulatory changes and adaptation of GST apart from other legacy issues can potentially be an impediment for the sectorial

growth which government would like to address in the Budget 2018.


Increased allocation of funds and setting up of dedicated road sector financing institution. Government plans 83,677 kilometres of

roads by spending INR. 7 lakh crore over 5 years. Bulk of financing shall have to be borne by government

Success of PPP model in operation of national highways under different models needs to applied over the state highways as well

Gradual phasing out of toll roads and adaptation of integrated technology to build smart infrastructure for roads at all national, state

and rural levels


In taxation, sector wants revenue to be offered to tax for the Operation Maintenance period, not over construction period as

projects are in Build-Operate model, which typically applies to concession agreements for the development of National Highways

To felicitate better urban transport promotion of sustainable financing via dedicated funds and specifying allocation

National Urban Transport Fund be created at national level. States/city governments encouraged to generate additional funding.

Equal matching from NUTF be provided

Transport sector is debt-intensive, high interest costs. Limit on interest deduction should be higher in initial years. Further,

restriction on interest deduction should attract when either of the associated enterprises is non-resident

Amendment on disallowance under section 14A should not apply in investments in SPVs which are strategic and not for dividend

earning

Financials

Budget Expectations – Transport – Railways & Urban Transport


Home < >

Overview

In India‘s transport sector railways play an important role in both the passenger & freight mobility. It shall not be an aberration to term

it as lifeline for the country, given the dependence of common man & large freight movement on railways. Although, government has

already initiated scores of reforms for the sector ensuring better infrastructure but the issue of security still remains to be addressed

and is likely to gain central stage for India Budget 2018.


In Railways, government has planned several measures including the deployment of safety corpus of INR 100,000 crores under Rail

Sanraksha Kosh. Comprehensive plan for Railways to achieve target of 40% freight share, 10% increase in throughput in 3 years

Doubling of tracks on an escalated pace shall demand huge funds to be borne in by Central Government

Integration of electric locomotives gradually phasing out fossil fuel based diesel locomotives shall need greater power procurement

which shall mean requirement of embellished funds.

Budget should promote urban mobility solutions along with promoting electric vehicles. Opportunity for government to introduce

portfolio of measures in urban transport ecosystem through structured policy and planning


On model of roads of roads and highway sector railway's might also involve private companies to operate projects on BOO or BOOT

basis

Plan for scale-up of high-speed train network in India. Plan to specify funding requirements, integration of technology transfer into

railways

With reversal of PPP plan for railway station development, larger commitment from Railways‘ allocations and also the action on

listing of IRCON, IRFC, IRCTC could unlock value for Indian Railways

In Urban Transport, promote sustainable financing via dedicated funds and specifying allocation and also Budget provides

opportunity to plan, promote electric vehicle ecosystem to meet targets of 100% electrification by 2030

Financials

Budget Expectations – Transport – Aviation, Ports & Logistics


Home < >

Overview

Development of aviation sector is key for sustaining the flow of passenger traffic is important for India as it will provide for low cost

carriers to expand their business to smaller cities. Hence, on lines of railway infrastructure it is important to embellish the airport

network across the country as well. Ports are very important as they become central for economic activities and shall be a great

enabler for import of gas and facilitation of LNG terminals as well.


In Aviation, with 104.2 million Indian domestic passengers carried in FY17, a growth rate of 22%, there is need for capacity

expansion in airports and for improvement of quality of services

Major initiatives in Ports include Sagar Mala Project, plan to develop 2,000 km of coastal roads to improve connectivity with remote

villages, strategy to increase cargo and passenger traffic via inland waterways by nearly five-fold and construction of 34 mega

multi-modal logistics parks


Need policy framework to support development of ‗seamless‘ payment infrastructure in Ports. Need to formulate policies for

development, integration of payment infrastructure at tolls and fuel retail outlets

All tariff regimes on same level, provisions for review of tariff on inflation, political / regulatory changes

Need to bring petroleum products such as motor spirit, high speed diesel, natural gas, crude within GST. With input tax credit, it

would reduce logistics, transportation cost

Provide exemption from provisions of e-way bills for import and export consignments routed via vessels and elimination of

differential tax treatment for shipping industry


Announcements & Implications Home < >

Implications

Sector Rating

Energy Resources Positive

Oil & Gas Marginally Positive

Solar Power Generation Positive Plus

Wind Power Generation Marginally Positive

Thermal Power Generation - IPP Marginally Positive

Thermal Power Generation - CPP Marginally Negative

Roads & Highways Positive Plus

Railways Positive

Aerospace & Defense Positive

Aviation Marginally Positive

Ports Positive

Urban Transport Positive

Logistics Positive


Ratings

Marginally Positive Positive Proposals but

lacks industry

expectations at large

Positive Positive Proposals

Positive Plus Predominantly

positive proposals

Marginally Negative No positive proposals


Home < >

Announcements - Proposals Involving Changes In Customs Duty Rates

Item From (Per Cent) To (Per Cent)

Solar tempered glass or solar tempered 5 NIL

Motor spirit commonly known as petrol INR 6.48 per litre INR 4.48 per litre

High Speed Diesel INR 8.33 per litre INR 6.33 per litre

Specified parts/accessories of motor

vehicles, motor cars, motor cycles

7.5/10 15

CKD imports of motor vehicle, motor

cars, motor cycles

10 15

CBU imports of motor vehicles 20 25

Truck and Bus radial tyres 10 15

Cellular Mobile Phones 15 20

Specified parts and accessories of

cellular mobile phones

7.5/10 15

Levy of Road and Infrastructure Cess on

imported motor spirit commonly known

as petrol and high speed diesel oil

NIL INR 8 per litre


Announcements & Implications

Energy Resources &

Power Generation – Key Announcements

& Implications


Key Announcement Rating Implication

Farmers who set up distributed solar power

projects on their land can avail of remunerative

tariff for surplus power sold to discom‘s. Positive Plus (++)

Shall see a further push for capacity addition

from solar power and that too on off-grid scale.

Good market can be opened for battery energy

storage in rural areas of the country

Reduction of corporate tax rates for corporates

with turnover below INR.250 Crore

Positive Plus (++)

This shall directly benefit the renewable

energy companies and distributed power

players and may enhance the tariff

competitiveness

Allowing ‗A‘ rated issuers to access bond

capital via institutional investors

Positive Plus (++)

It indeed is a very positive step to boost

investment and a large number of energy sector

companies to access such finance particularly

in clean energy space

Long-term capital gains derived on transfer of

equity shares or a unit of an equity oriented

funds or a business trust (including unit of

InvITs) taxable at concessional rate of 10 per

cent subject to conditions

Marginally Negative (-)

Though, in a greater perspective the step

doesn't seem too negative but is for sure shall

dent the industry sentiments for gains over

equity. May also impact investments in the

sector in near-term.

Transfer of a capital asset between holding and

subsidiary not liable to tax in the hands of

recipient

Positive (+)

Good for the small scale companies involved

under the power generation business and

business diversion for such companies

Minimum Alternate Tax (MAT) provisions not

applicable to foreign companies engaged in the

business of - Civil construction, erection of plant

and machinery or testing or commission in

connection of a turnkey power project approved

by the central government

Positive (+)

Foreign Direct Investment shall gain momentum

in the sector which shall prove an enabler for

the desired impetus required for adding

renewable power capacities of 175 GW by 2022.

It is positive step overall for the sector.

Home < >

Energy Resources &

Power Generation – Key Announcements

& Implications (Contd.)



Introduction of new levy by the name Social

Welfare Surcharge (SWS) at the rate of 10 per

cent on imported goods in lieu of Education

Cess (2 per cent) and Secondary and Higher

Education Cess (1 per cent)

Marginally Negative (-)

This step shall be resulting into

marginal increase in effective Customs Duty

rate for most products, which might see an

increase in the cost for the power and

renewable sector

Basic Customs Duty rate on solar tempered

glass or solar tempered (anti-reflective coated)

glass for manufacture of solar cells/

panels/modules reduced from 5 per cent to Nil.

Positive Plus (++)

The danger which was lurking upon the solar

segment capacity addition pace and hence the

diminished BCD shall be a great enabler.

However, for the domestic OEM‘s it might not

augur well.

Greater focus on implementation and

information transparency has been brought in

Positive Plus (++)

Good step for the industry overall as it shall

bring the much desired transparency in the

segment

Home < >

Oil & Gas Sector – Key Announcements

& Implications



Pricing freedom has been granted for difficult,

marginal gas fields Positive Plus (++)

The step is a welcome one as it shall grant the

necessary cost-economics balance to the

investors as the returns shall be better for if

pricing freedom linked with market is granted

Consideration paid to the Government in the

form of Government‘s share of profit petroleum

in respect of services provided or agreed to be

provided by the Government by way of grant of

license or lease to explore or mine petroleum

crude or natural gas or both, is proposed to be

exempted from service tax for the period

commencing from 1st April, 2016 and ending

with the 30th June, 2017

Positive Plus (++)

As the pricing in India is heavily regulated this

step shall grant a breather for the companies in

the upstream business in the country. Though

marginally beneficial shall be able to help the

big players at large

Exemption from IGST on rigs imported for oil/

gas exploration projects under lease.

Positive (+)

Although, the tune for E&P activities and the

pace is not as much in India, however this step

shall be a positive as shall reduce the tax

burden on procurement of equipment

GST rate on offshore works contract services

relating to oil and gas exploration and

production reduced to 12%

Positive (+)

Off-shore exploration does involve heavy

engineering and multiple contracts and

reduction of GST rate is a positive move again

by GoI to promote off-shore exploration

Transportation of natural gas through pipeline

subject to 12% GST with ITC and 5% without ITC

Positive Plus (++)

Shall see the transportation sector be the

biggest beneficiary and the likes of GAIL shall

be benefitted. Further, the inclusion of input tax

credit shall speed up the capacity addition of

pipeline networks in the country as well.

Home < >

Transportation Sector – Roads &

Highways – Key Announcements &

Implications



Increased allocation in the development of road

network

Positive Plus (++)

The step along with announcement of ―Bharatmala

Pariyojana‖ shall enable the

creation of seamless connectivity to remote areas

and country borders, improving the safety and

reducing the cost of transportation while also

allowing business activities to flourish in such

areas

The Government has allocated approximately

INR.1.2 lakh crore for the Ministry of Road

Transport and Highways, which comprises an

investment of INR.91,663 crore in National

Highways Authority of India (NHAI) and INR.29,762

crore in roads and bridges

Positive Plus (++)

This shall increase the road capacity addition pace

in the country ensuring last mile connectivity.

Further, the utilization of funds to connect far flung

areas shall boost the economy and trade in the

country.

The government expects completion of national

highways exceeding 9,000km in length by the end

of FY18; it has also approved the ‗Bharatmala

Pariyojana‘ which aims to develop a 35,000km road

network (in Phase I) providing connectivity to

interior and border areas of the country — at an

estimated cost of INR.5.35 lakh

crore

Positive (+)

If implemented at the pace anticipated shall be of

greater boon to the country‘s transport

infrastructure and the border area connectivity

shall also support the defense sector mobility.

To raise funds, the NHAI would consider

organising its road assets into Special Purpose

Vehicles and use innovative monetising structures

such as Toll, Operate and Transfer (TOT) and

Infrastructure Investment

Funds (InvITs)

Positive (+)

Innovative financing model shall be a help to

infrastructure and EPC companies raising money

and shall be an enabler in raising capacity of road

network

Fastags and other electronic payments would

replace cash payments at toll plazas; the

government is also planning to introduce a policy

for a toll system on a ‗pay as you use‘ basis

Positive Plus (++)

Shall reduce the burden upon the travellers and toll

road shall be better utilized to reduce congestion

in transportation

Home < >

Transportation Sector – Railways –

Key Announcements & Implications



During FY19, Indian Railways‘ capital

expenditure has been estimated at INR.1.48

lakh crore Positive Plus (++)

Positive for embellishing railways infrastructure

in the country like doubling of tracks, using

electrical locomotives, escalating to broad

gauge etc.

Doubling of 18,000 km with third & fourth line

works

Positive Plus (++) Capacity constraints shall be better dealt with

addressing more trains and connectivity

Electrification of rail network spanning 4,000

km by the end of FY18

Positive (+)

This shall reduce the bill for railways in terms of

fuel sourcing and enable them to invest to

alternate resources for technology integration

Rolling stock for Dedicated Freight Corridors

comprising 12,000 wagons, 5,160 coaches and

700

locomotives to be procured during FY19

Positive (++)

DFC shall be good for transportation of coal and

other heavy equipment's aiding manufacturing

sector . Also, public transport shall gain from

enhanced infrastructure

The Indian Railway Station Development Co.

Ltd. would be undertaking the redevelopment of

600 major railway stations; further, all stations

with footfalls over 25,000 to have escalators,

and all railway stations and trains would be

equipped with Wi-Fi and CCTV cameras

Positive Plus (++)

Good for technology companies in India to

integrate such facilities in embellishing

infrastructure of the railways

Track renewal of rail network ranging 3,600km

is targeted during the current fiscal; moreover,

the use of technologies such as ‗Fog Safe‘ and

‗Train Protection and Warning System‘ would be

increased

Positive Plus (++)

Shall be a great boon for promoting safety in rail

transport and also be an enabler in generating

mass employment

Home < >

Transportation Sector – Urban

Transport, Aviation & Ports – Key

Announcements & Implications



The government is expanding the Mumbai local

rail network by adding 90km of double line

tracks at an investment of INR.11,000 crore; in

addition, 150km of suburban rail network is

being planned with an estimated cost of

INR.40,000 crore

Positive (+)

Good for a city like Mumbai enabling the urban

transport shall be better and generate local

level employment as well

Through the Regional Connectivity Scheme of

UDAN, the government plans to connect 56

unserved airports and 31 unserved helipads

across the country

Positive Plus (++)

Great for last mile connectivity and again a

policy initiative for the end consumers. Low cost

carriers may gain heavily from this, apart from

increase in revenue for Government.

The government also plans to expand the airport

handling capacity of the Airport Authority of

India (AAI) by five times under a new initiative

called ‗NABH Nirman‘ initiative.

Positive (+)

The expansion in the airport capacity shall be

seen as a boon for enhancing travel in smaller

cities through airline. Move again likely to

benefit LCC‘s .

The Ministry of Shipping has been allocated

INR.4,292 crore for port and marine

infrastructure development

Positive (++)

Good move again to improve waterways

transport in the country. The ―Sagarmala‖

project shall be another integrated benefit with

this initiative generating skilled employment

opportunities for the sector.

Home < >

Home < >

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from the afterglow of satisfaction that comes after

the achievement of a difficult task that demanded

our best

- Theodore Isaac Rubin

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india budget 2018 budget analysis ... the salaried tax payers too expected a cut in the tax and a no...

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