Union Budget 2008-09 - Ventura Budget Special
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Transcript of Union Budget 2008-09 - Ventura Budget Special
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UNIONBUDGET2008-
09
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Overview
The budget, coming on the backdrop of global slowdown and uncertain international
stock markets, has tried to be both prudent and progressive. The farm loan waiver,increasing in IT limit, cut in excise duty all point to an effort that is aimed in ensuringthat the growth engine does not slow down. At the least case, Indian economy isexpected to grow at 8.7% as per estimates.
The growth story that got started in 2003-04 is very much in place and was largelydriven by the domestic consumption. India is one of the few countries that isdomestic led economy save and except may be Software. This budget has given thefinancial stimulus by cutting duties, increasing IT limit thereby not only getting goodsto be cheaper but leaving more money in the hands on the consumer and both
these acts would push consumption.
Contd.
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Report Card GDP at factor cost at constant 1999-2000 prices to grow at 8.7% in 2007-08, a
deceleration from the high growth of 9.4% & 9.6% in the previous two years
Per Capita income & consumption at constant 1999-2000 prices up 7.2% &5.3% at Rs 29,786 & Rs 17,145 respectively
GDS as a proportion of GDP expected to improve to 35.8% in 2007-08 as
compared to an average of 31.4% in 10
th
five year plan
The gross tax to GDP budgeted at 11.8% in 2007-08 as compared to 11.4% in2006-07
Inflation projected to decline from 5.6% in 2006-07 to 4.1% in 2007-08
RBIs policy initiatives have reduced credit growth sharply to 21.5% in Jan08 ascompared to 30.8% in Jan07
Revenue deficit for 2007-08 to be at 1.4% (budgeted at 1.5%) and the fiscal
deficit at 3.1% (budgeted at 3.3%)
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Key Highlights Increased government spending proposed in health, education & infrastructure
Complete waiver of all overdue loans as on on 31st Dec07 for marginal & smallfarmers while rebate of 25% under one time settlement scheme for other farmers
General CENVAT rate on all goods reduced from 16% to 14%
No changes in peak rate of customs duty
Income tax threshold raised to Rs 1,50,000
Short term capital gains to increase from 10% to 15%
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Sector SummarySector Budget Impact Key Highlights
Automobiles PositiveReduction in excise duty on two, three wheelers & smallcars
Pharmaceuticals Positive Additional Govt. focus & reduction in excise duty
Banking / Financial ServicesNot Rated /
NegativeAgricultural loan waiver & increase in STCG tax
IT / Training Neutral Increased Allocation of funds by govt.
Infrastructure Positive Increased fund Allocation to Bharat Nirman, NHDP & AIBP
Power Positive Increase outlay for T&D sector & Urge for 5 more UMPPs
Hotels Positive Five year Tax holiday for specified Hotels
Cement Neutral Rationalization of Excise duty structure
Metals & Mining Neutral Reduction in customs duty on scrap
Refineries / Petrochemicals Positive / NegativeCustoms duty on naphtha imposed at 5% & specific dutiesproposed on unbranded diesel & petrol
FMCG Positive Increased consumer spending to generate volumes
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Automobiles Positive
Item Budget Measures Budget Impact Companies Impacted
Excise Duty on smallcars
Reduction from 16% to12%
PositivePositive for Tata Motors,Bajaj Auto & Maruti Udyog
Excise Duty on busesReduction from 16% to12%
PositivePositive for Tata Motors &Ashok Leyland
Excise Duty on threewheelers
Reduction from 16% to12%
PositivePositive for Bajaj Auto &M&M
Back to Sector Summary
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Pharmaceuticals Positive
Item Budget Measures Budget Impact Companies Impacted
Government FocusIncreased Allocation of15% to Rs 16,534 crore
Positive All Pharma companies
Excise Duty on all
Pharma products
Reduced from 16% to 8% Positive All Pharma companies
Outsourced R&D Weighted deduction Positive All Pharma companies
HIV / AIDSNational Aids ControlProgramme to provide Rs993 crore
Positive Ranbaxy & PanaceaBiotech
Polio EradicationAllocation of Rs 1,042crore
Positive Cipla & Panacea Biotech
Back to Sector Summary
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Banking / Financial Services Not Rated / Negative
Item Budget Measures Budget ImpactCompaniesImpacted
Agricultural LoansFull Waiver to small &marginal farmers while 25%rebate to other farmers
Not Clear Further Clarityawaited
All PSU Banks
STT Rationalization
To be treated as deductibleexpenditure against businessincome instead of setting offagainst the tax liability
Negative for brokers -Additional tax burden
Few arbitrage businessmodel brokers
Short Term CapitalGain Tax
Increase of tax from 10% to15%
Volumes to get impactednegatively
All broking companies
Back to Sector Summary
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IT / Training Neutral
Item Budget Measures Budget ImpactCompaniesImpacted
Education services Increased Allocation of 20% Positive
Navneet Publications,NIIT, EducompSolutions, EverronSystems & Aptech
Smart CardsLaunch of smart cards forPublic Distribution System
PositiveTCS & HCLInfosystems
Excise Duty onpackaged software
Increase from 8% to 12%Applicable only to domesticsales, hence negligibleimpact
I-Flex, 3i Infotech &Subex Azure
Back to Sector Summary
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Infrastructure Positive
Item Budget Measures Budget Impact Companies Impacted
Bharat NirmanIncreased allocation of 16%by Rs 31,280 crore
Positive All Infrastructure players
Accelerated IrrigationBenefit Programme(AIBP)
Increased outlay to Rs20,000 crore
Positive
IVRCL, HCC, Gammon,
KSB Pumps & pipe makingcompanies like Jindal Saw,Welspun Gujarat etc
Irrigation & Water
Resources FinanceCorporation (IWRFC)
Funding of major &medium irrigation projects Positive Same as above
National HighwayDevelopmentProgramme (NHDP)
Increased Allocation to Rs12,966 crore
PositiveSimplex Infra, GayatriProjects, HCC amongothers
Back to Sector Summary
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Power Positive
Item Budget Measures Budget Impact Companies Impacted
Custom Duty onProject Imports
Reduction from 10% to 5% PositivePositive for L&T & ReliancePower; Negative for BHEL
UMPP Urge to open bidding forfive more UMPPs
Positive Power generationcompanies in focus
National Fund for T&D Increased Outlay PositivePower T&D companies infocus
APDRP ProjectAdditional Provisional of Rs800 crore
PositivePower ancillary equipmentcompanies in focus
Back to Sector Summary
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Hotels Positive
Item Budget Measures Budget Impact Companies Impacted
Two, three & four starhotels established at22 World Heritage
Sites
Five Year tax holiday Positive All Hotel Companies
Back to Sector Summary
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Cement Neutral
Item Budget Measures Budget Impact Companies Impacted
Excise DutyRs 400/- per tonne or 14%Ad valorem
Mildly negative for companiesselling cement below Rs 190/-per bag
Madras Cement, ShreeCement Gujarat SiddheeCement
Bharat NirmanIncreased allocation of 16%
by Rs 31,280 crore
Increase in domestic demand All Cement companies
Back to Sector Summary
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Metals & Mining Neutral
Item Budget Measures Budget Impact Companies Impacted
Export Duty onChrome Ore
Increase from Rs 2,000/tonto Rs 3,000 / ton
Increase in production offerro alloys & consequentlystainless steel
Nava Bharat Ferro Alloys,Ferro Alloys Corp, JindalStainless & Tata Steel
Customs Duty on Steelmelting scrap
Reduction from 5% to NILReduction in cost ofproduction for stainless steelcompanies Positive
Jindal Stainless, Tata Steel& JSPL
Customs Duty onAluminium scrap
Reduction from 5% to NILMarginally negative foraluminium companies
Nalco, Hindalco & SterliteIndustries
Back to Sector Summary
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FMCG Positive
Item Budget Measures Budget Impact Companies Impacted
Excise Duty on tea &coffee mixes
Reduced to NIL Positive All tea & coffee companies
Tea & Coffee Fund for
re-plantation Allocation of Rs 40 crore Positive
All tea & coffee growing
companies
Crop InsuranceScheme
To be introduced next yearfor Tea, rubber, pepper,cardamom etc
PositiveTea companies, BombayBurmah & HarrisonsMalayalam
Direct Tax structureThreshold limit of Rs150,000
Positive Increase inconsumer spending
HUL, Dabur, GodrejConsumer, etc
Back to Sector Summary
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Miscellaneous
Item / Sector Budget Measures Budget ImpactSectors & Companies
Impacted
Wireless Data CardsReduction in excise duty from 16%to NIL
Positive Tata Tele, RCom & Bharti
TextilesHigher TUF Outlay & schemes for
Integrated textile parks
Positive All textile companies
PaperExcise Duty reduction from 12% to8%
NeutralAll paper manufacturingcompanies
Defence Increase in fund allocation by 10% PositiveBEL, BEML, M&M & AstraMicro
Water PurificationDevices
Excise Duty reduction from 16% to8%
PositiveIon Exchange, HUL &Forbes & Co.
Refrigeration
equipment
Exemption of excise duty PositiveHitachi Home, Voltas &
Blue Star
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Policies - Capital Markets Short Term Capital Gain Tax increased from 10% to 15% - Negative
DDT Rationalization: Parent company to set off dividend received from itssubsidiary company against dividend distributed by the parent company Positive for holding companies
STT Rationalization: To be treated as deductible expenditure against businessincome instead of setting off against the tax liability - Negative on account ofadditional tax burden
Introduction of Commodity Transaction Tax - Negative
PAN to be made mandatory for all transactions in financial market subject tothreshold exemption market
Initiated steps for setting up of Currency & Futures exchange - Positive forFinancial Technologies
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Policies Direct Tax Threshold limit of exemption from personal income tax increased
Male Assesses Rs 150,000
Female Assesses Rs 180,000 Senior Citizens Rs 225,000
Additional deduction of Rs 15,000 under Section 80D for making medicalinsurance premium for his / her parents
No change in the corporate income tax rates
No change in the rate of surcharge
Banking Cash Transaction Tax to be withdrawn w.e.f. April 01, 2008
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Policies Indirect Tax General CENVAT rate on all goods reduced from 16% to 14%
No changes in peak rate of customs duty
Central Sales Tax to be reduced from 3% to 2% from April 01, 2008
Roadmap for Goods & Service Tax (GST) being prepared to be ready forintroduction by April 01, 2010
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Policies Service Tax Threshold limit of exemption increased from Rs 8 lakhs p.a. to Rs 10 lakhs p.a.
about 65,000 small service providers to go out of the tax net
Four additional services to be brought under the Service Tax net:
Asset Management Service (AMS) provided under ULIP to bring it on par withAMS provided under Mutual Fund
Services provided by stock / commodity exchanges and clearing houses
Right to use goods, in cases where VAT is not payable
Customized software to bring it on par with packaged software & other ITservices
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Conclusion
Increased consumption & ample liquidity may fuel growth but the flip side of all this is
that it can fuel inflation hence we do not expect any interest rate cut in the near future.Prudent and progressive in all aspects, the budget has tried to cater to all sections andthe benefits of this budget will percolate over a period of time as policies take time toget enunciated as tangible results. The negative impact of increase in Short TermCapital Gains Tax will impact trading volumes in the short run but will get evened out
over a period of time as markets moves from momentum / speculation to morefundamental and value investing. That journey has clearly started..
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Disclaimer
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. Theinformation and views expressed herein are believed to be reliable, but noresponsibility (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 theirarticles. Neither Ventura Securities Limited nor any of the contributors accepts anyliability arising out of the above information/articles. Reproduction in whole or in partwithout written permission is prohibited. This report is for private circulation.