Budget 2013-14 Analysis by Ventura Securities

Infrastructure Thrust Fiscal Deficit under control
Uncertainty over GAAR
GST roadmap in question
Service tax reforms
CAD a serious concern Hostage to foreign inflows
Check on expenditure
Balancing fiscal consolidation with growth

Thursday, 28th Feb, 2013
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Budget in brief
Balancing fiscal consolidation with growth
The Union Budget 2013-14 promises to return the economy back to a high growth trajectory while at the same time keeping a strict check on fiscal profligacy that the country can ill afford. The fact that the FM was able to contain fiscal deficit to 5.2% of GDP in the current year is a remarkable achievement given the overall slow down and the runaway subsidy bill. Going into the new fiscal FY13-14 the fiscal deficit has been pegged at 4.8% of GDP and this in our opinion is not an unachievable task. P Chidambaram as Finance Minister exudes confidence and he has an admirable track record of delivering on his promises. The Finance Minister has done a great balancing act in a rather difficult year. He has promoted manufacturing industry by proposing an Investment Allowance. Further to prevent revenue leakages and augment revenue resources he has come out with a number of innovative measures which while being ingenious evoke confidence. He has sought to promote investment in infrastructure by issue of tax free bonds, freeing up NELP blocks, referring stalled infra projects to the CCI and increasing tax holiday period for power sector. In addition several measures to boost investments, savings and capital markets should yield handsome dividends as the year rolls by. However the resurfacing of the GAAR issue can be a big negative for the markets. Especially given the fact that the FM has gone on record to state that the CAD (Current Account Deficit) can only be bridged through foreign flows constituting of FDI, FII and ECBs. With the TRC (Tax Residency Certificate) declared insufficient, uncertainty over the implementation of the law could lead to foreign investors turning cautious and the momentum of the flow of funds could slow down.
I have been at pains to state over and over again that India, at the present juncture, does not have the choice between welcoming and spurning foreign investment.
2 Thursday, 28th Feb, 2013
Real GDP growth rate
Seems to have bottomed out
9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 2008-09 2009-10 2010-11 2011-12 2012-13E 2013-14E 5.2% 6.7% 6.2% 6.20% 8.4% 8.5%
Whatever may be the final estimate (of the GDP), it will be below Indias potential growth rate of 8%
Fiscal Deficit
Reigned in to manageable levels
7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
As % of GDP
5.7% 4.8% 5.1% 5.2% 4.8%
2010-11
2011-12
2012-13BE
2012-13RE
2013-14BE
Fiscal consolidation cannot be effected only by cutting expenditure. Wherever possible, revenues must also be augmented
Subsidies
Should be of lesser concern going forward
Rs. in Crore 300000 250000 200000 150000 100000 50000 0 2010-11

Food Fertilizers
3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2011-12

Petroleum
2012-13BE
2012-13RE
2013-14BE
Subsidies as a %of GDP (RHS)
Interest and Others
We must redeem our promise by 2016-17 and bring down the fiscal deficit to 3%, the revenue deficit to 1.5% and effective revenue deficit to 0%
Market Borrowings
Not extraordinarily worrying
550,000 500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000
Rs. in Crore
2010-11
2011-12
2012-13BE
2012-13RE
2013-14BE
(Apart from borrowing) There are only three ways before us: FDI, FII or External Commercial Borrowing (ECB).
Budgetary Measures
Initiatives to kick start growth; control spending
In his budgetary speech, the Finance Minister has outlined several initiatives to kick start growth, boost revenues and target spending.
Rs. in Crore 1400000 1200000 1000000 800000 600000 400000 200000 0 2010-11 Corporation tax Customs Taxes of the Union 2011-12 2012-13BE Income tax Union Excise Duties Direct 2012-13RE 2013-14BE Wealth Tax Service Tax Indirect
The economic space that we have gained has given me the confidence to be more ambitious in 2013-14.
Revenue measures
Pragmatic and achievable
In a bid to curtail revenue losses he has introduced several measures like the 1% TDS on immovable property, withholding tax on royalty payments, voluntary disclosure scheme for Service Tax evaders since 2007 and final witholding tax on share buybacks by unlisted companies Further there has been no revision of the income slabs and the rates which is pragmatic given the pressures on revenue. Further a tax on the super rich introduced has gone down well with the markets. A 15% Investment allowance on plant and machinery over Rs 100 crores should definitely provide a fillip to asset creation and spur investment in the manufacturing sector. This is over and above the depreciation rates prevailing. Surcharge introduced on companies earning a taxable income of Rs 10 crore or more should also help swell the kitty. Pruning of the negative list to only two sectors should help increase the gamut of services liable to service tax But the biggest clincher is the Voluntary Compliance Encouragement Scheme on Service tax which proposes to tax the 10,00,000 non service tax payers out of the 17,00,000 lacs registered assessees. This itself should lead to a healthy collection; although the estimated amount has not been quantified. Further reduction in STT and introduction of CTT (Commodities transaction Tax) should help lower cost of transactions for traders in the equity markets. Non Tax revenue estimates (in the form of divestment, sale of other market securities and enhanced dividends from PSEs) are also pragmatic and achievable
Wherever possible, revenues must also be augmented

Indirect Taxes
Contributing to growth
Status quo on the normal rate of excise duty (12%), service tax rates (12%) and peak customs duty (for non agricultura imports) maintained. Relief is from the fact that customs duty on crude oil imports was not hiked (as feared earlier). Customs duty proposals on leather & leather goods lowered to 5% from 7.5% while concessionary period on environmental friendly vehicles extended to FY2015. On pre forms of precious and semi precious stones duty lowered to 2% from 10% Export duty on de-oiled rice bran oil cake withdrawn 10% Duty imposed on export of raw ilmenite & 5% on upgraded ilmenite Significant concessions provided to the aircraft MRO (maintenance, repair and overhaul) industry Raw silk duty increased from 5% to 15% Duty on steam coal and bituminous coal equalized to 2% and CVD of 2% Duty free limit on gold jewellery raised to Rs 50,000 for males and Rs 1,00,000 for female passengers. Duty on imported high end vehicles raised to 100% (75%), +800 cc motorcycles to 75% (60%) and yatchs 25% (10%)
Excise duty proposals

Hand made carpets and textile floor coverings of coir / jute and ships and vessels totally exempted. Consequently no CVD on imported ships
There will also be no change in the normal rate of excise duty of 12% and normal rate of service tax of 12%
Indirect Taxes (contd)

VDIS on service tax to provide a windfall
Excise duty on Cigarettes and cigars to be increased by 18% Excise on SUVs increased to 30% (27%). Not applicable to taxis Duty on marble increased from Rs 30 / sq mt to Rs 60 / sq mt Silver manufactured from smelting zinc / lead taxed at 4% Duty on mobile phones above Rs 2000 raised to 6% (1%) Branded alternate medicines to be taxed on MRP. Abatement of 35% to exist
Service Tax further stream lined to have only two sectors on the negative list Vocational Training to institutes affiliated to the State Council of Vocational training testing activities in relation to agricultural produce VDIS scheme for service tax to provide a windfall to the exchequer; although not quantified in the budget document
I hope to entice a large number of assesses to return to the tax fold. I also hope to collect a reasonable sum of money
Direct Taxes
Additional tax on the super rich
Status quo maintained on income slabs and rates as per last year. However a Rs 2,000 tax credit is provided to every assessee with an income upto Rs 5,00,000 10% surcharge imposed on assessees with income of Rs 1 crore and above Surcharge raised to 10% (5%) on domestic companies with taxable income above Rs 10 crore. For foreign companies surcharge increased to 5% (2%) 1st home buyers who take a loan not exceeding Rs 25 lacs to be provided an additional deduction of interest of Rs 1 lac . This limit is over and above the current Rs 1.5 lacs. This is to be claimed in AY FY1415. If limit not exhausted, can be carried over to the next assessment year. For persons with disability or suffering from certain ailments permissible premium rates of insurance have been increased to 15% from 10% on the sum assured Donations to the National Childrens Fund eligible for 100% deduction. Investment allowance of 15% on investment in Plant & Machinery of over Rs 100 crore provided. Section 80-IA benefits to power sector eligible date extended to March 2014. Timeline on concession rate of tax of 15% on repatriation of dividends from a foreign subsidiary to a domestic parent company extend to FY2013. Further Dividend Distribution Tax set to 0% on that portion of the dividend distributed by the Indian parent.
When I need to raise resources, who can I go to except those who are relatively well placed in society?
Direct Taxes (contd)
Revenue leakage loop holes plugged effectively
Withholding tax on Interest paid on investments made through Rupee denominated long term infrastructure bonds to NRIs reduced to 5% from 20% Securitization Trusts to be exempt from Income Tax. Tax on income distributed by the Securitization trusts to be at the rate of 30% for companies and 25% for individuals / HUF. Investor Protection Fund set up by a depository exempt from Income Tax Pass through status provided to Category I Alternate Investment Funds (AIF) and Angel Investors recognized as Category I AIFs. This is on par with Venture Funds RGESS timeline extended 3 consecutive years and income limit augmented to Rs 12 lacs from Rs 10 lacs. MF also made an eligible investment. 1% TDS to be imposed on immovable property transactions above value of Rs 50 lacs. Agricultural land is however exempt To plug loop holes a withholding tax of 20% is top be imposed on unlisted companies who distribute profits through buy back of shares. Tax rates on payment of royalties and fees for technical services to non resident Indians hiked to 25% from 10%. However applicable rates to be as stipulated in the DTAA.
With a view to improve the reporting of such (immovanle properties) transactions and the taxation of capital gains, I propose to apply TDS at the rate of 1% .
Direct Taxes (contd)
Lowering of STT to benefit equity traders
STT (Securities Transaction Tax) reductions are as follows Equities 0.01% (0.017%) MF / ETF redemptions at fund counters 0.001% (0.25%) MF / ETF purchase / sale on exchanges 0.001% (0.01%) CTT (Commodities Transaction Tax) on non agricultural commodities of 0.01% to be introduced. However it will be allowed as a deduction.
It is time to introduce Commodities Transaction Tax (CTT) in a limited way

GAAR still unresolved
FII and FDI flows likely to be affected
The FM has again raked up the controversy of GAAR by suggesting that the TRC (Tax Residency Certificate) merely itself would not be sufficient for foreign investors & non-resident Indians to avail tax treaty benefits. Further tax authorities have been provided with additional powers to decide on tax issues at their discretion. This change has impact on all non-resident investors and FIIs using these routes for channeling investments into India and seeking to claim tax treaty benefits. Moreover the change is proposed with retrospective effect from FY12-13 which will bring any investor, availing treaty benefits under scrutiny. More conditions would need to be fulfilled and ambiguity on these additional conditions has spooked foreign investors We expect markets to sell off and FII buying to be restrained until further clarifications are not provided to investors
Impermissible tax avoidance arrangements will be subjected to tax after a determination is made through a well laid out procedure involving an assessing officer.
Expenditure
Government expenditure boosts aggregate demand and it has both good and bad consequences.
Non Plan Expenditure

(Rs. in Crore) Non-Discretionary Expenditure Interest Payments and Debt Servicing Defence Pension Police Subsidies Discretionary Expenditure Assistance to States from NCCF/NDRF General Elections Payment against Debt Waiver and Debt Relief Scheme for Farmers Postal Deficit Reimbursement of losses to Railways Subsidy to Railways towards dividend reliefs and concessions General Services Social Services Economic Services Other Non-Plan Exp Amt met from Famers Debt relief fund and NCCF/NDRF Total
Subsidies to be a lesser worry going forward

2011-12 273149.9 170913.3 61166.05 33106.46 217941.1 2458.9 79.1 1176.4 5716.3 652.0 2034.4 19145.6 19444.2 19043.3 69598.1 -3635.3 891989.8 2012-13BE 319759.0 193407.3 63183.41 35611.28 190015.1 4620.0 91.5 0.0 5727.1 600.0 3003.9 21291.4 20784.1 20479.2 95946.5 -4620.0 969899.9 2012-13RE 316674.0 178503.5 63836.41 37130.97 257654.4 4375.0 72.5 0.0 5838.1 637.0 2384.2 21022.5 21303.7 18643.6 77937.2 -4375.0 1001638.0 2013-14BE Chg BE FY14/FY13 370684.0 203672.1 70726.00 40895.49 231083.5 4800.0 230.2 0.0 6717.1 660.0 2746.0 22673.0 23114.0 20905.2 115868.4 -4800.0 1109975.0 16% 5% 12% 15% 22% 4% 152% -100% 17% 10% -9% 6% 11% 2% 21% 4% 14%
Faced with a huge fiscal deficit, I had no choice but to rationalise expenditure.
Non Plan Expenditure (contd)

Rs. in Crore 1200000 1000000 800000 600000 400000 200000 0 2010-11
Defense expenditure kept at last years level
2011-12
2012-13BE
2012-13RE RE- Defence RE Others CE- Defence Capital Expenditure (CE)
2013-14BE
RE - Int Payment & Debt Servicing RE- Subsidies CE- Loan and Advances to State, UT CE- Others Revenue Expenditure (RE)
...I assure him (Defense Minister) and the house that constraints will not come in the way of providing any additional requirement for the security of the nation
Interest Payments
Creeping up beyond 3% of GDP; worrisome
400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000
Rs. in Crore
3.3% 3.3% 3.2% 3.2% 3.1% 3.1% 3.0% 3.0% 2.9% 2.9%
2010-11
2011-12
2012-13BE
2012-13RE
2013-14BE
Int. Payment and Debt Servicing (LHS)
Interest Payment as a %of GDP (RHS)
In the budget for 2012-13, the estimate of Plan Expenditure was too ambitious and the estimate of non-Plan Expenditure was too conservative.
Plan Expenditure
Positively growth oriented
600000 500000 400000 300000 200000 100000 0
Rs. in Crore
2010-11 RE- State Plan CE- Central Plan
2011-12
2012-13BE RE- Central Plan Capital Expenditure (CE)
2012-13RE
2013-14BE CE- State Plan Revenue Expenditure (RE)
As a proportion of total expenditure, it (Plan Expenditure) will be 33.3 percent

Savings, Investments & Capital Markets
Conducive to put India on 7% growth path
Without savings and investments it would be difficult to kick start growth. Recognizing this urgent need the FM has undertaken several initiatives The time limit on the RGESS (Rajiv Gandhi Equity Savings Scheme) has been increased to three years from one year and the income limit has been expanded to Rs 12, lacs from Rs 10 lacs. Further investment in mutual funds along with equity shares is also allowed to improve the attractiveness of the scheme. Inflation indexed bonds and certificates are expected to be introduced after consultation with The RBI Additional deduction of Rs 1 lac on interest is allowed over and above the existing Rs 1.5 lacs where the loan amount does not exceed Rs 25 lacs. Further if the amount of loan is not exhausted in year 1, the limit can be extended to the next year also. In order to widen the insurance sector reach Insurance companies are permitted to open offices in Tier II cities and lower without prior permission of the RBI. Further Banks are also permitted to operate as insurance brokers For capital markets, SEBI has been directed to simplify procedures for FIIs. Ambiguity between FII and FDI is to be resolved by classifying any stake in a company more than 10% as FDI FIIs allowed to hedge their Re exposure in the currency segment of the Indian derivative markets. Permitting FIIs to use their bond investments as collateral for margin requirements Angel investor funds to be recognised as Category I AIF venture capital funds
Increasing savings and their optimal allocation for productive uses lead to higher economic growth
Savings, Investments & Capital Markets (contd)

Reduction in STT to benefit traders
SMEs along with startups to be permitted to list on the SME exchange without making an IPO. However with certain restrictions Stock Exchanges allowed to introduce a dedicated debt segment Mutual Funds distributors allowed to participate in the Mutual Fund segment of stock exchanges Asset backed securities, ETFS and debt mutual funds to be included in the eligible list of securities in which Pension & Provident Funds can invest. STT on equity futures and ETF and MF products reduced to improve attractiveness.
With the object of developing the debt market, stock exchanges will be allowed to introduce a dedicated debt segment on the exchange
Budget Summary
(Rs. in Crore) Revenue Receipts Net Tax Revenue Non tax Revenue Capital Receipts Recoveries of receipts Other Reciepts (Disinvestments) Debt Reciepts Total Receipts Non Plan Expenditure Non Plan Revenue Interest Payments Non Plan Capital Plan Expenditure Plan Revenue Plan Capital Total Expenditure GDP Nominal Gross Fiscal Deficit Fiscal deficit as a % of GDP Revenue Deficit Revenue deficit as a % of GDP Primary Deficit Primary deficit as a % of GDP
Nominal GDP to grow at 12%

2010-11 788,472 569,869 218,603 402,428 12,420 22,846 367,162 1,190,900 818,299 726,491 234,022 91,808 379,029 314,232 64,797 1,197,328 7,795,313 373,590 4.8% 252,251 3.2% 139,568 1.8% 2011-12 751,436 629,764 121,671 568,918 18,850 18,088 531,980 1,320,354 891,991 812,049 273,150 79,941 412,375 333,737 78,638 1,304,366 2012-13BE 935,684 771,070 164,614 555,240 11,650 30,000 513,590 1,490,924 969,900 865,596 319,759 104,304 521,025 420,513 100,512 1,490,925 2012-13RE 871,828 742,115 129,713 564,148 14,073 24,000 526,075 1,435,976 1,001,638 919,699 316,674 81,939 429,187 343,373 85,814 1,430,825 2013-14BE 1,056,331 884,078 172,253 608,967 10,654 55,814 542,499 1,665,298 1,109,976 992,909 370,684 117,067 555,322 443,260 112,062 1,665,298 Chg FY13 BE/RE -7% -4% -21% 2% 21% -20% 2% -4% 3% 6% -1% -21% -18% -18% -15% 10% -1% 1% 3% 12% 13% 5% 7% Chg BE FY14/FY13 13% 15% 5% 10% -9% 86% 6% 12% 14% 15% 16% 12% 7% 5% 11% 12% 12% 6% -6% 8% -3% -11% -21%
8,974,947 10,159,884 515,992 513,591 5.7% 5.1% 394,351 350,425 4.4% 3.4% 242,842 193,832 2.7% 1.9%
10,028,118 11,371,886 520,925 542,499 5.2% 4.8% 391,244 379,838 3.9% 3.3% 204,251 171,815 2.0% 1.5%
We are the 10th largest economy in the world. We can become the 8th or perhaps the 7th, largest by 2017
Sector Summary
Sector Auto & Auto Ancillaries Aviation Banking / Financial Services
Favouring infrastructure sector

Budget Impact Neutral Neutral Marginally Positive Key Highlights Excise duty on non-taxi SUVs hiked Concessions announced only for MRO industry Additional interest deduction beneficial for HFCs; Interest subvention scheme extended to private sector banks Investment allowance of 15% on investment of Rs 100 crore or more during 1/4/2013 to 31/3/2015 in plant and machinery and Infrastructure push No hike in excise duty; Infrastructure push in the areas of road, irrigation and low cost housing Increase in the specific excise duty on cigarettes (not exceeding 65 mm) by 18%
Capital Goods
Positive
Cement FMCG / Consumer Durables
Positive
Negative
While every sector can absorb new investment, it is the infrastructure sector that needs large volumes of investment
Sector Summary (contd)

Sector Healthcare / Pharma Infrastructure IT / BPOs Media Metals & Mining Oil & Gas Power
Healthcare and education clear cut beneficiaries

Budget Impact Neutral Positive Neutral Negative Neutral Positive Positive Key Highlights Rs 37,330 crore allocated to the Ministry of Health & Family Welfare Clearance of stalled road projects; setting up of regulatory authority for road sectors 0% customs duty on plant & machinery for semi conductor industry Duty on STB increased from 5% to 10% A PPP policy framework with Coal India Ltd as in order to increase the production of coal NELP blocks that were awarded but are stalled to be be cleared 80 IA benefit for power plants extended by another year
The 12th Plan projects an investment of USD 1 trillion or Rs 55,00,000 crore in infrastructure
Sectoral Measures and Impact
The key to restart the growth engine is to attract more investment, both from domestic investors and foreign investors
Auto & Auto Ancillaries
Increase in duties accentuating slowdown
Budget Expectations N.A N.A
Budget Declaration Excise duty raised to 30% from 27% for non-taxi SUVs Duty on luxury motor vehicles hiked from 75% to 100%; on motorcycles (engine capacity > 800 cc) to 75% from 60% Higher allocation of Rs 2,03,672.1 crore to defence (+14.1% over FY13 RE) More than doubled the allocation to Rs 14,873 crore for JNNURM (v/s Rs 7383 RE) Exemption on specified parts of electric and hybrid vehicles
Impact Negative
Negative
N.A N.A
Positive Positive Positive
N.A.
Impact Gainers Losers
Companies Ashok Leyland, KPIT, Bharat Forge Tata Motors, Mahindra & Mahindra, MarutiSuzuki India Ltd
SUVs occupy greater road and parking space and ought to bear a higher tax
Aviation
MRO industry given a boost
Budget Expectations Tax incentives Maintenance, Repair overhaul (MRO) service to &
Budget Declaration Time period for consumption/installation of parts and testing equipments imported for MRO of aircrafts by units engaged in such activities extended from 3 months to 1 year Basic customs duty exemption extended to parts and testing equipments for MRO of aircrafts parts
Impact
Positive
N.A
Positive
Companies GMR Infra
Encouraging the MRO sector will generate employment besides other benefits
Banking / Financial Services

Budget Expectations Allocation of equity capital for infusion in PSU banks Rs15000cr- Rs20000cr Commercial banks to be allowed to issue tax-free infrastructure bonds N.A N.A Infrastructure status affordable housing N.A. to
HFCs to benefit from interest deductions
Budget Declaration In order to comply with Basel III norms, allocated Rs14,000cr for capital infusion (Rs 12,517cr RE)
Impact Positive for PSUs
N.A. Farm loan interest subvention scheme @4% continued and extended to private sector banks To set up Indias first Womens bank via public sector; provided for Rs 1000cr as initial capital N.A.
Negative
Negative Positive Neutral Positive for AMCs (L&T Finance, Bajaj Finserv and Bajaj Holdings)
RGESS investees can invest in MFs
I propose to set up Indias first Womens Bank as a public sector bank and I shall provide Rs 1,000 crore as initial capital.
Banking / Financial Services (cntd)

Budget Expectations
Interest subvention scheme extended to private banks

Budget Declaration Reduced STT in a. Equity futures 0.017% to 0.01% b. MF/ETF redemptions at fund counters 0.25% to 0.001% c. MF/ETF purchase/sale on exchange 0.1% to 0.001% Introduction of CTT at 0.01% on non-agricultural commodities (gold, silver, base metals) futures contracts; to be allowed as deduction Additional deduction of interest upto Rs 1,00,000 on loan upto Rs 25 lacs for first home Impact
N.A.
Positive for IIFL, MOSL and Religare
N.A.
Negative for MCX Positive for HFCs like LIC Housing Finance, HDFC, Dewan Housing and Gruh Finance
Companies HFCs, IIFL, MOSL and Religare Private sector banks, MCX, FT
I propose to provide a further amount of Rs14,000 crore for capital infusion.

Capital Goods
Indirect beneficiary
Budget Expectations
Budget Declaration Basic customs duty reduced from 7.5% to 5% on 20 specified machinery for use in leather and footwear industry
Impact Positive
Budgetary provision towards restructuring of state power distribution companies
State Governments to prepare the financial restructuring plans. No specifications about any allocation Rs 1,400 cr provided for setting up of water purification plants
Neutral
Positive
Accelerated depreciation on plant & machinery from current 15%-20% to 25%-30% for the next 3-5 years Impact Gainers Losers Companies
Investment allowance of 15% on investment of Rs 100 crore or more during 1/4/2013 to 31/3/2015 in plant and machinery (additional)
Positive
Sadbhav Engineering, Jindal Saw, BHEL, Praj Industries, Thermax
To attract new investment and to quicken the implementation of projects, I propose to introduce an investment allowance for new high value investments.
Cement
Boost from infra & housing push
Budget Expectations Increase in excise duty on cement by changing the existing slab Announcements of infra projects related to highways, freight corridor and irrigation Government could review import duty on coal, pet coke and gypsum, which are used in the cement manufacturing process
Budget Declaration N.A.
Impact Positive
A boost to infrastructure in the areas of road, irrigation and low cost housing
Positive
Duties on Steam Coal and Bituminous Coal equalised with 2% custom duty and 2% CVD levied on both
Neutral
Companies All
Bottlenecks stalling road projects have been addressed and 3,000 kms of road projects in Gujarat, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh.
FMCG / Consumer Durables

Budget Expectations Direct tax relief for the middle class 10%-12% increase in excise duty on cigarettes N.A. NREGA had an allocation of Rs 33,000 cr in 2012-13
Cigarette manufacturers impacted sharply
Budget Declaration Relief of Rs 2,000 for tax payers with total income upto Rs 5 lacs Increase in the specific excise duty on cigarettes (not exceeding 65 mm) by 18 percent Increase in the rate of tax on payments by way of royalty and fees for technical services to nonresidents (foreign company) from 10% to 25% Allocation at Rs 33,000 cr
Impact Neutral Negative
Negative
Neutral
Companies
ITC, Godfrey Phillip, VST Industries
What does a Finance Minister turn to when he requires resources? The answer is cigarettes
Healthcare / Pharma
Healthy dose of allocations
Budget Expectations Increase in MAT rate from 18% to 20% Weighted deduction on Inhouse Research to increase from 200% to 225% Increase in allocation to NRHM (National Rural health Mission)
Budget Declaration N.A.
Impact Positive
N.A. Rs 37,330 crore allocated to the Ministry of Health & Family Welfare out of which New National Health Mission to get an allocation of Rs 21,239 crore (+24.3% from FY13 RE)
Negative
Positive
Companies
Health for all and education for all remain our priorities
Infrastructure
Major beneficiary of the budget
Budget Expectations Creation of long term dedicated debt funds for infrastructure
Budget Declaration With 4 Infrastructure Debt Funds (IDF) registered and 2 launched, they are to be encouraged to provide long-term low-cost debt for infrastructure projects 3,000 kms of road projects in Gujarat, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh to be awarded in the first six months of 2013-14 To set up regulatory authority for road sector Investment allowance of 15% on investment of Rs 100 crore or more during 1/4/2013 to 31/3/2015 in plant and machinery (additional)
Impact
Negative
N.A.
Positive
N.A.
Positive Positive
Doing business in India must be seen as easy, friendly and mutually beneficial
Infrastructure
Budget Expectations N.A. N.A.
Budget Declaration Generation-based incentive for wind energy projects with allocation of Rs 800 cr Upto Rs 50000 cr Tax Free Infra Bonds issuance
Impact Positive Positive
Companies IRB Infra, L&T, Suzlon, Adani Ports
Five inland waterways have been declared as national waterways

IT / BPOs
Greater focus to education through IT
Budget Expectations N.A. Removal of MAT on SEZ units Increased allocation under schemes such as RAPDRP, UIDAI and N-eGP egovernance
Budget Declaration 0% customs duty on plant & machinery for semi conductor industry N.A. Allocated Rs 65,867 cr to the MHRD (+17% of RE) Allocated Rs 27,258 cr for Sarva Siksha Abhyaan
Impact Positive Negative
Positive
Companies CMC, Redington, HCL Info, Educomp, Everonn
Investment in the Rashtriya Madhyamik Shiksha Abhiyan (RMSA) cannot be postponed any longer.
Media
Radio broadcasters to benefit from impending auction

Budget Declaration Duty on STB increased from 5% to 10% About 839 new FM radio channels to be auctioned in 2013-14 Impact Negative
Budget Expectations Custom duty on set-top box (STB) likely to be reduced from existing 5% N.A.
Positive
Companies ENIL Den Networks, Hathway Cable, Dish TV
To encourage domestic production of set top boxes as well as value addition, I propose to increase the duty from 5 percent to 10 percent.
Metals & Mining
No surprise for the steel sector
Budget Expectations Likely increase in import duty on steel N.A.
Budget Declaration N.A. Levy of 4% excise duty on silver manufactured from smelting zinc or lead A PPP policy framework with Coal India Ltd as in order to increase the production of coal
Impact Negative Negative
Companies CIL Steel sector, Hindustan Zinc
In the medium to long term, we must reduce our dependence on imported coal
Oil & Gas
Impending NELP clearances a big positive
Budget Expectations N.A.
Budget Declaration The oil and gas policy regime is set to move from profit sharing to revenue sharing (or productionlinked) contracts Exploration and production of shale gas to be announced Natural gas pricing policy to be reviewed and uncertainties regarding pricing to be removed NELP blocks that were awarded but are stalled to be cleared
Impact Positive
Positive Positive Positive Negative
Exemption of 5% import duty on LNG
N.A.
Companies ONGC, RIL, IOC, BPCL
The 5 MMTPA LNG terminal in Dabhol, Maharashtra will be fully operational in 201314
Power / Utilities
Hints at power sector revamp
Budget Expectations Extensions of sunset clause for power generating cos beyond 2013 Relief from import duty on Thermal coal N.A.
Budget Declaration 80 IA benefit for power plants extended by another year Duties on Steam Coal and Bituminous Coal equalised with 2% custom duty and 2% CVD levied on both Generation-based incentive for wind energy projects with allocation of Rs 800 cr
Impact Positive
Neutral
Positive
Companies NTPC, Power Grid Corp, NHPC, Suzlon
I would urge State Governments to prepare the financial restructuring plans quickly, sign the MOU, and take advantage of the scheme
Miscellaneous
Govt. looks to revive textile sector
Budget Expectations N.A.
Budget Declaration Excise duty exempted on ships & vessels Zero excise duty route restored on readymade garments; TUFS to be allocated Rs 2,400 crore Excise duty on marble slabs increased from Rs 30 per sq mtr to Rs 60 per sq mtr Additional deduction of interest upto Rs 1,00,000 on loan upto Rs 25 lacs for first home
Impact Positive for GE Shipping, Gujarat Pipavav, Pipavav Defence Positive for textile sector Negative for real estate sector Positive for real estate sector
N.A. N.A. N.A.
The major focus would be on modernisation of the powerloom sector. I propose to provide Rs 2,400 crore in 2013-14 for the purpose.
Ventura Securities Limited Corporate Office: C-112/116, Bldg No. 1, Kailash Industrial Complex, Park Site, Vikhroli (W), Mumbai 400079 This report is neither an offer nor a solicitation to purchase or sell securities. The information and views expressed herein are believed to be reliable, but no responsibility (or liability) is accepted for errors of fact or opinion. Writers and contributors may be trading in or have positions in the securities mentioned in their articles. Neither Ventura Securities Limited nor any of the contributors accepts any liability arising out of the above information/articles. Reproduction in whole or in part without written permission is prohibited. This report is for private circulation.
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Budget 2013-14 Analysis by Ventura Securities

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Budget 2013-14 Analysis by Ventura Securities

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Infrastructure Thrust Fiscal Deficit under control

Uncertainty over GAAR

GST roadmap in question

Service tax reforms

CAD a serious concern Hostage to foreign inflows

Balancing fiscal consolidation with growth

Balancing fiscal consolidation with growth

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Real GDP growth rate

Seems to have bottomed out

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Reigned in to manageable levels

7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

5.7% 4.8% 5.1% 5.2% 4.8%

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Should be of lesser concern going forward

Rs. in Crore 300000 250000 200000 150000 100000 50000 0 2010-11

3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2011-12

Interest and Others

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Not extraordinarily worrying

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Initiatives to kick start growth; control spending

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Pragmatic and achievable

Wherever possible, revenues must also be augmented

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Excise duty proposals

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Indirect Taxes (contd)

VDIS on service tax to provide a windfall

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Additional tax on the super rich

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Direct Taxes (contd)

Revenue leakage loop holes plugged effectively

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Direct Taxes (contd)

Lowering of STT to benefit equity traders

It is time to introduce Commodities Transaction Tax (CTT) in a limited way

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GAAR still unresolved

FII and FDI flows likely to be affected

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Non Plan Expenditure

Subsidies to be a lesser worry going forward

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Non Plan Expenditure (contd)

Defense expenditure kept at last years level

2012-13RE RE- Defence RE Others CE- Defence Capital Expenditure (CE)

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Creeping up beyond 3% of GDP; worrisome

400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000

Int. Payment and Debt Servicing (LHS)

Interest Payment as a %of GDP (RHS)

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Positively growth oriented

600000 500000 400000 300000 200000 100000 0

2010-11 RE- State Plan CE- Central Plan

2012-13BE RE- Central Plan Capital Expenditure (CE)

2013-14BE CE- State Plan Revenue Expenditure (RE)

As a proportion of total expenditure, it (Plan Expenditure) will be 33.3 percent

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