Budget 2012-13 - Living beyond the means

March 2012

Living beyond the means

Fiscal deficit at 5.9% for FY12 driven by Disinvestment at Rs14Kcr vs Rs40Kcr tgt Subsidies higher by Rs75K Budgeted at 5.1% for FY13E Revenues up 13.1% despite Excise duty and Service tax raised by 20% from 10% to 12% Disinvestment of Rs30K cr targeted Telecom proceeds of Rs40K cr from spectrum sale Expenditure up 13.1% but Subsidy budget = more hardships for people / extra-budgetary demands Food subsidy flat at Rs75K Fertilizer subsidy down 9% at Rs61K Petroleum subsidy down 36% at Rs44K ????? WITH CRUDE AT $125 Scope for positive surprises Telecom 4G auction PSU dividends assumed flat at Rs50K Inflationary budget given higher government borrowings & higher taxes

Sectoral Impact
No specific duty on diesel cars Hike in excuse duty by 20% from 10% to 12% Excise duty on large cars<1500cc raised from 22% to 24% Excise duty on cars>1500cc raised from 22% to 27% Import duty on largeluxury cars raised from 60% to 75% Customs duty on steel raised from 5% to 7.5% Increase in farm credit by 1Lcr to 5.575Lcr Higher interest subsidy for farmers +ve for M&M, Tata Motors Will be passed onto consumers through price hikes, demand could get impacted. Could impact margins +ve for tractors +ve for tractors

Rs15.9K cr for PSU bank recapitalization Higher & front-ended government borrowings (Net Rs 4.79Lcr vs Rs. 4.36Lcr LY) Interest subsidy for farmers 1% interest subsidy on home loans upto Rs25L vs Rs15L Increase in farm credit by 1Lcr to 5.575Lcr Rs10K deduction on savings bank interest Rs60K cr of tax free bonds

+ve for SBI & other PSU banks Yields could remain firm for another quarter +ve as farmers incentivised to pay-back loans +ve for HDFC, GRUH, LIC Hsg, Dewan Hsg, Banks -ve for banks as farm loan rise above credit growth +ve for banks with higher CASA - SBI, HDFC Bank +ve for REC, PFC, PowerGrid

Sectoral Impact
Import duties on specific capital goods reduced 19% import duty on power equipment not imposed Fuel import at lower duties VGF for telecom towers, power, fertilizers & O&G Excise duty hiked from 10% to 12% Hike in customs duty on steel from 5% to 7.5% Reduction in withholding tax on ECBs from 20% to 5% Defence JVs allowed through framework disclosed earlier, 15% higher defence capex at 80K -ve -ve for BHEL Cheaper fuel for customers, better project viability Additional funding for companies, +ve for L&T Can be passed on to customers, NEUTRAL Can be passed on to customers, NEUTRAL Lower financial cost for customers +ve for L&T, Pipapav Shipyard

10% advalorem duty on cigarettes above 65mm on 50% of MRP over current duties Customs duty on Titanium dioxide at 7.5% vs 10% Import duty on CFL inputs reduced Hike in excise duty free limit to above Rs. 500

Lower than market expectation at 5%, will be passed onto consumers +ve for paint companies such as Asian Paints +ve for Havells +ve for BATA and Relaxo

Sectoral Impact
Reduction in withholding tax on ECBs from 20% to 5% Lower financial cost for companies +ve for construction and operating companies as Rs60K cr of tax free bonds this is a source to cheap funding 14% increase in NHDP spend at Rs25Kcr, 8800kms of roads vs 7300kms LY +ve for L&T, IVRCL, Jaiprakash Associates +ve for Jaiprakash Associates, IVRCL VGF for irrigation and dams

Hike in excise duty from 10% to 12% Hike in customs duty on steel from 5% to 7.5% Higher rail capex Zero import duty on thermal coal + 1% CVD vs 5% earlier

-ve, will be passed onto consumers +ve for Tata Steel, SAIL, JSW Steel and JSPL +ve for Tata Steel, SAIL, JSW Steel and JSPL +ve for Hindalco, Nalco and JSW steel on power generation component only

Sectoral Impact
Cess on crude raised from Rs2500 to Rs4500 Lower fuel subsidy - down 36% VGF for O&G storage facilties and pipelines -ve for ONGC, Cairn, Oil India -ve for ONGC, Oil India & OMCs, if there is political resistance to raising prices +ve for GAIL

Cheaper financing Cheaper fuel for coast based power plants, +ve for Tata Power, Adani Power, Rpower Extention of date for availing 100% tax benefits for 10 +ve for Tata power, Adani Power, R.Power, NTPC years to 31-Mar-2013 Cheaper financing Rs10Kcr of tax free bonds Reduction in withholding tax on ECBs from 20% to 5% Lower financial cost for companies

VGF for power projects Zero import duties on coal and natural gas

Impact on Investors
Tax slabs raised Rs2000 savings upto 8Lakh of income Rs22000 savings beyond 10Lakhs of income Rs5000 deduction for health check-ups Rs10000 of savings deposit interest becomes tax-free Rs50000 of first time investment in equities gets 50% deduction subject to 3-Yr lockin i.e. government provides Rs25000 subsidy to first time investor Rs60000cr of tax-free bonds No advance tax payment for senior citizens STT reduced on delivery\cash transactions from 0.125% to 0.1% Higher tax on jewelry imports and cash purchases above Rs2Lakhs Service tax raises transaction cost

Thank You !