Union Budget FY12-13

7/31/2019 Union Budget FY12-13

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UNION BUDGET 2012-13 - OVERVIEW

SBICAP Securities Limited 16 March, 2012 2

BUDGET SUMMARY

The Budget 2012-13 tabled in the parliament by Honble Finance Minister Pranab Mukherjee was yet another

populist budget where the government has strived to take care of the interest of masses. We rate this

budget as negative to neutral for the stock market. The revised fiscal deficit for the year 2011-12 is at 5.9%as compared to 4.6% projected during the last budget speech. However, the fiscal deficit for the year

2012-13 is projected at 5.1%.

The growth outlook for the next year is anticipated to be better at 7.6% than current years 6.9%. The

government on one hand has announced to provide Rs.15888 crore for capitalization of PSU banks while

on the other hand, it has raised the agriculture credit target by Rs.1 lakh crore to Rs.5.75 lakh crore where

the banks face largest amount of NPAs.

The infrastructure tax free bond targets during 2012-13 has been doubled to Rs.60,000 crore including

Rs.10000 crore for NHAI. The Government also has raised the target to build 8800 kms of highway projects

during 2012-13 as compared to 7300 kms targeted during FY12. The Government, realizing the fact that

50% of USD 1 trillion required for infrastructure development is expected to come from private investments,

has opened up many more sectors like irrigation, dam, canal, soil testing, capex in fertilizer plants under

the PPP model to be eligible for Viability Gap Funding (VGF).

While the stock market reaction was muted post budget speech, we believe the reduction in STT (Security

Transaction Tax) by 20% (from 0.125% to 0.1%) on cash delivery transaction is positive for the market.

Other key developments included, the introduction of Rajiv Gandhi Equity Scheme, whereby a deduction

of Rs.50,000 for investment in equity market with a lock in period of 3 years for individuals is a positive

news. The QFIs access to Indian corporate debt market is also a positive announcement to help cashstarved Indian companies.

The decision to allow Indian aviation sector to raise ECB subject to an overall limit of $1 billion for working

capital is a positive development for debt ridden Indian carriers.

The market was disappointed with the continuous high non-planned expenditure especially subsidies.

The government plans to spend Rs.1.8 lakh crore on Food, Fuel and Fertilizers during 2012-13 which shows

that fiscal deficit will continue to remain higher in the near future. Total non-planned expenditure is

estimated to be at 9.7 lakh crore (an increase of 9%) during FY13 while the total expenditure is estimated at

14.9 lakh crore.

The Stock Market has also shown nervousness due to the proposed introduction of General Anti Avoidance

Rule (GAAR) to reduce the tax defaults and mop up tax revenues.

The increase in basic exemption limit to 2 lakh from 1.8 lakh, Rs.10,000 deduction on savings account

interest and increase in 20% income tax slab to Rs10 lakh would result into higher disposable income in the

hands of individuals. The Government is expected to have shortfall to the tune of Rs.4500 Crore, in tax

revenues, as a result of the above mentioned measures adopted for the individual tax payers.

We expect other announcements like increase in budgetary allocation towards NRHM, Tax reform (Introduction of

GST by August 2012), Disinvestment target of Rs.30,000 crore, Assistance to Delhi-Mumbai Industrial Corridor,PMGSY, RTE-SSA etc are expected to benefit economy and market directly or indirectly.


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Economy growth outlook

GDP is estimated to grow by 6.9% in 2011-12, after having grown at 8.4% in preceding two years. India

however remains front runner in economic growth in any cross-country comparison.

India's GDP growth in 2012-13 expected to be 7.6% +/- 0.25%. Headline inflation expected to moderatefurther in next few months and remain stable thereafter.

Revenue

Gross Tax Receipts estimated at Rs.10,77,612 crore. Net Tax to Centre estimated at Rs.7,71,071 crore.

Non-tax Revenue Receipts estimated at 1,64,614 crore. Non-debt Capital Receipts estimated at Rs.41,650

crore.

Expenditure

Total expenditure for 2012-13 budgeted at Rs.14,90,925 crore

Plan expenditure for 2012-13 at Rs.5,21,025 crore is 18% higher than BE of 2011-12. This is higher than

15% projected in Approach to the Twelfth Plan.

Non-plan expenditure estimated at Rs.9,69,900 crore

Rs.3,65,216 crore estimated to be transferred to States including direct transfers to States and district

level implementing agencies.

Net market borrowing required to finance the deficit to be Rs.4.79 lakh crore in 2012-13.

Fiscal Deficit

Fiscal deficit at 5.9% of GDP in RE 2011-12 whereas 5.1% of GDP in BE 2012-13.

Subsidies

Endeavour to keep central subsidies under 2% of GDP in 2012-13. Over next 3 year, to be further

brought down to 1.75% of GDP.

Based on recommendation of task force headed by Shri Nandan Nilekani, a mobile-based Fertilizer

Management System has been designed to provide end to- end information on movement of fertilisers

and subsidies. All three public sector Oil Marketing Companies have launched LPG transparency portals to improve

customer service and reduce leakage

Subsidy bill for Food, Fuel and Fertilizers is estimated at Rs.75000, Rs.43580 and Rs.60974 crore

respectively during 2012-13.

Disinvestment

The government has set a target of Rs.30000 crore to be raise through disinvestment.


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Taxes

Service tax rate is increased to 12% from 10%.

GST network to be set up as a National Information Utility and to become operational by August 2012

Exemption limit for the general category of individual taxpayers proposed to be enhanced

from Rs.1, 80,000 to Rs.2, 00,000 giving tax relief of Rs.2,000.

Upper limit of 20% tax slab proposed to be raised from Rs.8 lakh to Rs.10 lakh.

Proposal to allow individual tax payers, a deduction of up to Rs.10,000 for interest from savings bank

accounts. Proposal to allow deduction of up to Rs.5,000 for preventive health check up.

Proposal to provide weighted deduction of 150% on expenditure incurred for agri-extension services.

Sector Spending

A provision of Rs.1,93,407 crore made for Defence services including Rs.79,579 crore for capital

expenditure.

Allocation for NRHM proposed to be increased from Rs.18,115 crore in 2011-12 to Rs.20,822 crore in

2012-13.

For 2012-13, Rs.25,555 crore provided for RTE (Right to Education)-SSA representing an increase of

21.7% over 2011-12.

Agriculture

Target for agricultural credit raised by Rs.1,00,000 crore to Rs.5,75,000 crore in 2012-13.

Plan Outlay for Department of Agriculture and Co-operation increased by 18%.

Outlay for Rashtriya Krishi Vikas Yojana (RKVY) increased to Rs.9,217 crore in 2012-13.

Short term RRB credit refinance fund being set up to enhance the capacity of RRBs to disburse short

term crop loans to small and marginal farmers.

Allocation for AIBP in 2012-13 stepped up by 13% to Rs.14,242 crore.


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POSITIVE ON:

GVK Power

GMR Infra

IRB Infra

IL&FS TransportNetworks Ltd

HCC

IVRCL etc..

The key industry impact analysis is as under.

Infrastructure

Budgetary Measures

During Twelfth Plan period, investment in infrastructure is to go up to

Rs. 50 lakh crore.

Tax free bonds of Rs.60,000 crore to be allowed for financing

infrastructure projects in 2012-13.

First Infrastructure Debt Fund with an initial size of Rs.8,000 crore

launched earlier this month.

More sectors added as eligible sectors for Viability Gap Funding under

the scheme "Support to PPP in infrastructure"

IIFCL has put in place a structure for credit enhancement and

take-out finance for easing access of credit to infrastructure projects.

Outlook:

Positive

Power

Budgetary measures

Coal India Limited advised to sign fuel supply agreements with power

plants, having long-term PPAs with DISCOMs and getting

commissioned on or before March 31, 2015.

External Commercial Borrowings (ECB) to be allowed to part finance

Rupee debt of existing power projects.

Proposal to extend the sunset date for setting up power sector

undertakings by one year for claiming 100% deduction of profits for

10 years.

Full exemption from basic duty provided to certain fuels for powergeneration.

Outlook:

Positive

POSITIVE ON:

GVK Power

Adani Power

JSW Energy

Torrent Power

NTPC

Lanco Infra.


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Automobile

Budgetary Measures

Specified parts required for the manufacture of hybrid vehicles enjoy

full exemption from basic customs duty and special CVD withconcessional. Excise duty/ CVD of 6%. This concession is being extended

to specified additional items and lithium ion batteries imported for the

manufacture of battery packs for supply to electric or hybrid vehicle

manufacturers.

Basic customs duty on Completely Built Units of large cars/ MUVs/

SUVs having engine capacity above a prescribed threshold and whose

value exceeds US dollar 40,000 being enhanced from 60% to

75% ad valorem.

Increase in excise duty from 22 to 24% on large car. In the case

of cars that attract a mixed rate of duty of 22% + Rs.15000

per vehicle, now switch over to an ad valorem rate of 27%.

Outlook:

Negative to Neutral

Chemical & Fertilizers

Budgetary Measures

Government has taken steps to finalize pricing and investment policies

for urea to reduce India's import dependence in urea.

Full exemption from basic customs duty for import of equipment for

expansion or setting up of fertilizer projects up to March 31, 2015.

VGF for capex on fertilizer plants.

Based on recommendation of task force headed by Shri Nandan

Nilekani, a mobile-based Fertilizer Management System has been

designed to provide end-to-end information on movement of fertilisers

and subsidies. Nation-wide roll out during 2012.

Outlook:

Positive

POSITIVE ON:

M&M TATA Motors

TVS Motors

POSITIVE ON:

Deepak Fertilizers

Coromandel Fertilizers

GNFC

GSFC

Rallis India


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Telecom

Budgetary Measures

Viability Gap Funding (VGF) under the Scheme for Support to PPP in

Infrastructure in Telecom Sector.

Outlook:

Positive

Logistics

Budgetary Measures

Investment linked deduction for container freight station and inland

container depots

Outlook:

Positive

Capital goods

Budgetary Measures

Basic custom duty proposed to be reduced for machinery and

instruments needed for surveying and prospecting for minerals.

Reduction of basic customs duty on plant and machinery importedfor setting up or substantial expansion of iron ore pellet plants or iron

ore beneficiation plants from 7.5% to 2.5%.

Outlook:

Positive

Retail

Budgetary Measures

Channelize efforts to arrive at a broadbased consensus in consultationwith the State Governments in respect of decision to allow FDI in

multi-brand retail upto 51%.

Tax concession for branded ready made garments

The Finance Minister indicated that GST network will be set up as a

National Information Utility and is expected to become operational

by August 2012

Outlook:

Neutral

POSITIVE ON:

Bharti Airtel Idea

TTML

POSITIVE ON:

Container Corporation

of India Aegis Logistics

POSITIVE ON:

Tractors India Ltd.

McNally Bharat

POSITIVE ON::

Shoppers Stop

Trent


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Aviation

Budgetary Measures

Indian Carriers have been permitted to directly import Aviation turbine

Fuel (ATF) as actual users.

Airline industry has also been allowed to raise ECB for working

capital requirement for a period of one year subject to a total ceiling of

USD 1 billion.

The budget proposes tax concessions for parts of aircraft and testing

equipment for third party maintenance, repair and overhaul of civilian

aircraft.

It has also proposed to reduce withholding tax rate on interest

payments on ECBs from 20% to 5% for 3 years for certain sectors as ameans to provide low cost funds to stressed aviation sector.

It indicated that proposal to allow foreign airlines to participate upto

49 per cent in the equity of an air transport undertaking is under active

consideration of the government.

Outlook:

Positive

Banking

Budgetary Measures

Infusion of Rs 15888 Cr for recapitalization of PSU Banks, RRBs and

financial institutions like NABARD which will help them to maintain

their Capital Adequacy Ratio (CAR) at required levels.

Development of a central "Know Your Customer" depository in

2012-13 to avoid multiplicity of registration and data upkeep.

Priority sector guidelines to be revised.

Outlook:

Positive

POSITIVE ON:

Kingfisher Airlines

Spice Jet

POSITIVE ON:

Dena Bank

Allahbad Bank

Central Bank

IDBI

SBI


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Education

Budgetary Measures

Provision of Rs.25,555 crore for Right to Education through the Sarva

Shikshan Abhiyan an increase of 21.70% over 2011-12. 6,000 schools proposed to be set up at block level as model schools in

Twelfth Plan.

Rs.3,124 crore provided for Rashtriya Madhyamik Shiksha Abhiyan(RMSA) representing an increase of 29% over 2011-12.

To ensure better flow of credit to students, a Credit Guarantee Fundproposed to be set up.

Inclusion in the Negative list of pre-school and school education,recognized education at higher levels and approved vocational

education.

Outlook:

Neutral to Positive

Precious Metals

Budgetary Measures

One of the primary drivers of the current account deficit has been thegrowth of almost 50% in imports of gold and other precious metals inthe first three quarters of this year.

Levy of excise duty of 1% on branded precious metal jewellery to beextended to include unbranded jewellery.

Branded Silver jewellery exempted from excise duty

Customs duty on standard gold & Platinum to be raised from 2% to 4%.

Customs duty on non-standard gold to be raised from 5% to 10%.

Basic duty on gold ore, concentrate and ore bars for refining is beingenhanced from 1% to 2%. On the excise side, duty on refined gold is

being increased in the same proportion from 1.5% to 3%.

Tax collection at source on purchase in cash of bullion or jewellery inexcess of Rs.2 lakh.

Outlook:

Negative

POSITIVE ON:

Core Projects

Educomp

Everonn Education

Zee Learn


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Media

Budgetary Measures

Inclusion of entertainment services in the Negative list.

To exempt the industry from service tax on copyrights relating torecording of cinematographic films.

Outlook:

Neutral to Positive

Housing & Housing Finance

Budgetary Measures

Setting up of a credit guarantee trust fund.

Foreign loans for low-cost housing projects.

To allow external commercial borrowing for power, housing, and road

construction companies.

Sale of residential property exempted from capital gains if invested inequity or equipment of an SME.

Tax deduction at source on transfer of immovable property (other thanagricultural land) above a specified threshold.

Allow ECB for low cost affordable housing projects.

Set up Credit Guarantee Trust Fund to ensure better flow of institutional

credit for housing loans.

Enhance provisions under Rural Housing Fund from Rs.3000 crore to

Rs.4000 crore.

Extend the scheme of interest subvention of 1% on housing loan up toRs.15 lakh where the cost of the house does not exceed Rs.25 lakh foranother year.

Enhance the limit of indirect finance under priority sector fromRs.5 lakh to Rs.10 lakh.

The National Housing Bank (Amendment) Bill, 2012 - To take forwardthe process of financial sector legislative reforms, the Government

proposes to move the following Bills in the Budget Session of theParliament.

To raise Rs.5,000 crore for National Housing Bank

Outlook:

Neutral to Positive

POSITIVE ON:

Eros International Inox

Balaji Telefilms

POSITIVE ON:

DLF

Unitech

DHFL

HDFC

LIC Housing Finance


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Cementry Measures

Budgetary Measures

Excise duty rationalized for packaged cement, whether manufactured

by mini cement plants or others.

Outlook:

Positive

FMCGeasures

Budgetary Measures

Excise duty on all raw food products cut to 6% on merit rate.

Excise duty on processed food products cut to 6%.

A new centrally sponsored scheme titled "National Mission on FoodProcessing" to be started in 2012-13 in co-operation with StateGovernments.

Increase in basic excise duty on cigarettes of more than 65mm lengthby adding an ad valorem component of 10% to the existing specific

rates.

Outlook:

Neutral

Pharmaceutical and Healthcare

Budgetary Measures

Extension of concessional basic customs duty of 5% with full exemptionfrom excise duty/CVD to 6% specified life saving drugs/vaccines.

An increase in allocation for NRHM to Rs.20,822 crore in 2012-13.

Deduction of up to Rs. 5,000 for preventive health check up.

National Urban Health Mission is being launched.

Outlook:

Neutral

POSITIVE ON:

Grasim Unitech

Ambuja Cements

Madras Cenent

POSITIVE ON:

ITC

Godrej Consumer

Marico

Dabur India

POSITIVE ON:

Glenmark Pharma

Dr. Reddy

Cadila Healthcare

Piramal Health


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Metal, Mineral & Mining

Budgetary Measures

Exemption from basic customs duty and a concessional CVD of 1% to

steam coal till 31st March, 2014. Reduction of basic customs duty on plant and machinery imported

for setting up or substantial expansion of iron ore pellet plants or ironore beneficiation plants from 7.5% to 2.5%.

Exemption from basic customs duty to coal mining project imports.

Reduction of basic customs duty on coating material for manufactureof electrical steel from 7.5% to 5%.

Reduction of basic customs duty on nickel ore and concentrate andnickel oxide/ hydroxide from 2.5% or 7.5% to Nil.

Increase of export duty on chromium ore from Rs.3000/ tonne to 30%ad valorem.

Increase of basic customs duty on non-alloy and flat-rolled steel from

5% to 7.5%.

Outlook:

Positive

Oil and Gas

Budgetary Measures Oil & gas sector made eligible sectors for Viability Gap Funding (VGF).

Cess on crude petroleum oil produced in India revised to Rs.4,500/MT.

Fuel subsidy bill pegged at a Rs. 43,580 Cr.

LNG exempt from the customs duty.

Outlook:

Positive

POSITIVE ON:

Coal India

Sesa Goa

Cairn India

GMDC

POSITIVE ON:

ONGC

Indraprastha Gas

Petronet LNG

GAIL


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Name Designation

Alpesh Porwal SVP & Head (Retail)

Rajesh Gupta Research Analyst

Ankit Gor Research Analyst

Kunal Doshi Mutual Fund Analyst

Megha Hemdev Trainee Analyst

Reta i l Research Team


Documents

Union Budget FY12-13