T 2 008- 09

N B UD GE
UNIO
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 ensuring
that the growth engine does not slow down. At the least case, Indian economy is
expected to grow at 8.7% as per estimates.

The growth story that got started in 2003-04 is very much in place and was largely
driven by the domestic consumption. India is one of the few countries that is
domestic led economy save and except may be Software. This budget has given the
financial stimulus by cutting duties, increasing IT limit thereby not only getting goods
to be cheaper but leaving more money in the hands on the consumer and both
these acts would push consumption.

Contd….
….Contd

Dream Budget for farmers

Debt waiver has been the highlight of this budget not only for its impact on farmers
but also on the financial health of the banking system. It needs to be understood
that the entire write off of Rs 60,000 crore is about 2.75% of the total assets in the
banking system. Of these some must have already been provided as per the
prudential norms prescribed by RBI that is followed by all banks. Whilst the total
figure is known, it is not known as to how much will each and every bank will have to
provide and this will play out over a period of time. There might be some trepidation
in so far as investments in banks are concerned as the amount has not been
provided in the budget though the government is confident of finding ways to
compensate and are yet to spell it out.
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 10th five year plan

† The gross tax to GDP budgeted at 11.8% in 2007-08 as compared to 11.4% in

2006-07

† Inflation projected to decline from 5.6% in 2006-07 to 4.1% in 2007-08

† RBI’s policy initiatives have reduced credit growth sharply to 21.5% in Jan’08 as
compared to 30.8% in Jan’07

† 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%)
Key Highlights
† Increased government spending proposed in health, education & infrastructure

† Complete waiver of all overdue loans as on on 31st Dec’07 for marginal & small
farmers 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%

Sector Summary
Sector Budget Impact Key Highlights

Reduction in excise duty on two, three wheelers & small

Automobiles Positive
cars

Pharmaceuticals Positive Additional Govt. focus & reduction in excise duty

Not Rated /
Banking / Financial Services Agricultural loan waiver & increase in STCG tax
Negative

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 UMPP’s

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

Customs duty on naphtha imposed at 5% & specific duties
Refineries / Petrochemicals Positive / Negative
proposed on unbranded diesel & petrol
FMCG Positive Increased consumer spending to generate volumes
Automobiles Positive

Item Budget Measures Budget Impact Companies Impacted

Excise Duty on small Reduction from 16% to Positive for Tata Motors,
Positive
cars 12% Bajaj Auto & Maruti Udyog

Reduction from 16% to Positive for Tata Motors &

Excise Duty on buses Positive
12% Ashok Leyland

Excise Duty on three Reduction from 16% to Positive for Bajaj Auto &
Positive
wheelers 12% M&M

Back to Sector Summary

Pharmaceuticals Positive

Item Budget Measures Budget Impact Companies Impacted

Increased Allocation of
Government Focus Positive All Pharma companies
15% to Rs 16,534 crore

Excise Duty on all

Reduced from 16% to 8% Positive All Pharma companies
Pharma products

Outsourced R&D Weighted deduction Positive All Pharma companies

National Aids Control

Ranbaxy & Panacea
HIV / AIDS Programme to provide Rs Positive
Biotech
993 crore

Allocation of Rs 1,042
Polio Eradication Positive Cipla & Panacea Biotech
crore

Back to Sector Summary

Banking / Financial Services Not Rated / Negative

Companies
Item Budget Measures Budget Impact
Impacted

Full Waiver to small &

Not Clear – Further Clarity
Agricultural Loans marginal farmers while 25% All PSU Banks
awaited
rebate to other farmers

To be treated as deductible
expenditure against business Negative for brokers - Few ‘arbitrage’ business
STT Rationalization
income instead of setting off Additional tax burden model brokers
against the tax liability

Short Term Capital Increase of tax from 10% to Volumes to get impacted
All broking companies
Gain Tax 15% negatively

Back to Sector Summary

IT / Training Neutral

Companies
Item Budget Measures Budget Impact
Impacted

Navneet Publications,
NIIT, Educomp
Education services Increased Allocation of 20% Positive
Solutions, Everron
Systems & Aptech

Launch of smart cards for TCS & HCL

Smart Cards Positive
Public Distribution System Infosystems

Applicable only to domestic

Excise Duty on I-Flex, 3i Infotech &
Increase from 8% to 12% sales, hence negligible
packaged software Subex Azure
impact

Back to Sector Summary

Infrastructure Positive

Item Budget Measures Budget Impact Companies Impacted

Increased allocation of 16%

Bharat Nirman Positive All Infrastructure players
by Rs 31,280 crore

IVRCL, HCC, Gammon,

Accelerated Irrigation
Increased outlay to Rs KSB Pumps & pipe making
Benefit Programme Positive
20,000 crore companies like Jindal Saw,
(AIBP)
Welspun Gujarat etc

Irrigation & Water

Funding of major &
Resources Finance Positive Same as above
medium irrigation projects
Corporation (IWRFC)

National Highway Simplex Infra, Gayatri

Increased Allocation to Rs
Development Positive Projects, HCC among
12,966 crore
Programme (NHDP) others

Back to Sector Summary

Power Positive

Item Budget Measures Budget Impact Companies Impacted

Custom Duty on Positive for L&T & Reliance

Reduction from 10% to 5% Positive
Project Imports Power; Negative for BHEL

Urge to open bidding for Power generation

UMPP Positive
five more UMPP’s companies in focus

Additional Provisional of Rs Power ancillary equipment

APDRP Project Positive
800 crore companies in focus

Power T&D companies in

National Fund for T&D Increased Outlay Positive
focus

Back to Sector Summary

Hotels Positive

Item Budget Measures Budget Impact Companies Impacted

Two, three & four star

hotels established at
Five Year tax holiday Positive All Hotel Companies
22 World Heritage
Sites

Back to Sector Summary

Cement Neutral

Item Budget Measures Budget Impact Companies Impacted

Mildly negative for companies Madras Cement, Shree

Rs 400/- per tonne or 14%
Excise Duty selling cement below Rs 190/- Cement Gujarat Siddhee
Ad valorem
per bag Cement

Increased allocation of 16%

Bharat Nirman Increase in domestic demand All Cement companies
by Rs 31,280 crore

Back to Sector Summary

Metals & Mining Neutral

Item Budget Measures Budget Impact Companies Impacted

Increase in production of Nava Bharat Ferro Alloys,

Export Duty on Increase from Rs 2,000/ton
ferro alloys & consequently Ferro Alloys Corp, Jindal
Chrome Ore to Rs 3,000 / ton
stainless steel Stainless & Tata Steel

Reduction in cost of
Customs Duty on Steel Jindal Stainless, Tata Steel
Reduction from 5% to NIL production for stainless steel
melting scrap & JSPL
companies – Positive

Customs Duty on Marginally negative for Nalco, Hindalco & Sterlite

Reduction from 5% to NIL
Aluminium scrap aluminium companies Industries

Back to Sector Summary

Refineries / Petrochemicals Negative / Positive

Item Budget Measures Budget Impact Companies Impacted

No cascading effect in the

Specific Duty proposed Convert from ad valorem + event of future price rise for
on unbranded petrol & specific rate to pure OMCs dealing in unbranded HPCL, BPCL & IOC
diesel specific rate petrol & diesel – Positive for
select OMCs

Customs Duty on Exemption withdrawn & Negative – Increases cost of Petrochemical companies
Naphtha imposition of 5% Duty production of polymers like Reliance Industries

Back to Sector Summary

FMCG Positive

Item Budget Measures Budget Impact Companies Impacted

Excise Duty on tea &

Reduced to NIL Positive All tea & coffee companies
coffee mixes

Tea & Coffee Fund for All tea & coffee growing
Allocation of Rs 40 crore Positive
re-plantation companies

To be introduced next year Tea companies, Bombay

Crop Insurance
for Tea, rubber, pepper, Positive Burmah & Harrisons
Scheme
cardamom etc Malayalam

Threshold limit of Rs Positive – Increase in HUL, Dabur, Godrej

Direct Tax structure
150,000 consumer spending Consumer, etc

Back to Sector Summary

Miscellaneous

Sectors & Companies

Item / Sector Budget Measures Budget Impact
Impacted

Reduction in excise duty from 16%

Wireless Data Cards Positive Tata Tele, RCom & Bharti
to NIL

Higher TUF Outlay & schemes for

Textiles Positive All textile companies
Integrated textile parks

Excise Duty reduction from 12% to All paper manufacturing

Paper Neutral
8% companies

BEL, BEML, M&M & Astra

Defence Increase in fund allocation by 10% Positive
Micro

Water Purification Excise Duty reduction from 16% to Ion Exchange, HUL &
Positive
Devices 8% Forbes & Co.

Refrigeration Hitachi Home, Voltas &

Exemption of excise duty Positive
equipment Blue Star
Policies - Capital Markets
† Short Term Capital Gain Tax increased from 10% to 15% - Negative

† DDT Rationalization: Parent company to set off dividend received from its
subsidiary company against dividend distributed by the parent company –
Positive for holding companies

† STT Rationalization: To be treated as deductible expenditure against business

income instead of setting off against the tax liability - Negative on account of
additional tax burden

† Introduction of Commodity Transaction Tax - Negative

† PAN to be made mandatory for all transactions in financial market subject to

threshold exemption market

† Initiated steps for setting up of Currency & Futures exchange - Positive for
Financial Technologies
Policies – Direct Tax
† Threshold limit of exemption from personal income tax increased
¾ Male Assesses – Rs 150,000
¾ Female Assesses – Rs 180,000
¾ Senior Citizens – Rs 225,000

† Additional deduction of Rs 15,000 under Section 80D for making medical

insurance 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

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 for
introduction by April 01, 2010
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:

¾ Asset Management Service (AMS) provided under ULIP to bring it on par with
AMS provided under Mutual Fund
¾ Services provided by stock / commodity exchanges and clearing houses
¾ Right to use goods, in cases where VAT is not payable
¾ Customized software to bring it on par with packaged software & other IT
services
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 and
the benefits of this budget will percolate over a period of time as policies take time to
get enunciated as tangible results. The negative impact of increase in Short Term
Capital 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 more
fundamental and value investing. That journey has clearly started…..
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