06th July 2009

2nd Floor, Parijat House, Manjrekar Lane, 1076, Off Dr. E. Moses Road,
Acharya Atre Chowk, Near Worli Naka, Worli, Mumbai - 400018
 6th July 2009

PROGRESSIVE AAM ADMI BUDGET

The Union Budget for FY2009-10 announced by Finance Minister Pranab Mukherjee
has turned out to be more of a common mans budget with the core focus being the
continuation of efforts to achieve a 9% GDP growth in future while aiming at all round
inclusive growth as well as social spending. More specifically this Budget like the
earlier ones, has continued to focus on the basic pillars of all round development which
Agriculture sector with the overall
include a strong push being given to the Agriculture sector with the overall outlay being
outlay being increased to Rs
increased to Rs 325,000 crs from Rs 2,87,0000 crs last year, followed by a continued
325,000 crs from Rs 2,87,0000 crs
focus on the social sector by encouraging public spending on programs for increased
last year
capital outlays on Rural Employment, Drinking Water and Mid day meal Schemes,
providing primary education via higher budget allocations and increased thrust on the
Bharat Nirman programme during FY2009-10.

The allocation for Bharat Nirman has been increased by 45 per cent in 2009-10 over
B.E. 2008-09. These include allocations under Pradhan Mantri Gram Sadak Yojana
(PMGSY) which are up by 59 per cent over B.E. 2008-09 to Rs.12,000 crore in B.E. 2009-
10. Under the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), allocation has
increased by 27 per cent to Rs.7,000 crore. Additionally the allocation under the Indira
Awaas Yojana (IAY) increased by 63 per cent to Rs.8,800 crore in B.E. 2009-10. The
government has also allocated Rs.2,000 crore made for Rural Housing Fund (RHF) in
National Housing Bank (NHB) to boost the resource base of NHB for refinance operations
in rural housing sector

Some of the other large flagship programmes which have been given a continued
thrust include the National Rural Employment Guarantee Scheme, Jawaharlal Nehru
National Urban Renewal Mission, Accelerated Irrigation Benefit Proggramme apart from
ensuring Debt relief to farmers by giving an extention of time by a further period of 6
months. The effective implememtaion of the GST from April 2010 pan india is also a
postive step in the right direction clearly spelt out in this budget.

With the governments tax revenues falling short of the budgeted targets for FY09 due to
the continued effects of a global meltdown, Gross tax receipts are budgeted at
The fiscal deficit as a percentage
Rs.6,41,079 crore in BE 2009-10, compared to Rs.6,87,715 crore in BE 2008-09 with
of GDP is projected at 6.8%
non tax revenue receipts likely to be better and are estimated at Rs.1,40,279 crore in BE
compared to 2.5% in BE 2008-09
2009-10 compared to Rs.95,785 crore in BE 2008-09. The government has estimated
and 6.2% as per provisional
that the revenue deficit as a percentage of GDP would be projected at 4.8% compared
accounts 2008-09.
to 1% in BE 2008-09 and 4.6% as per provisional accounts of 2008-09. The fiscal deficit
as a percentage of GDP is projected at 6.8% compared to 2.5% in BE 2008-09 and
6.2% as per provisional accounts 2008-09.

For the fiscal 2009-10, with Centre's net tax revenue estimated at Rs 4742bn and
Revenue expenditure at Rs10208.4bn, revenue deficit is estimated at 4.8per cent of
GDP and fiscal deficit at 6.8% per cent of GDP. To counter the negative impact on
exports due to the global financial crisis interest subvention of 2% on pre and post
shipment credit for certain employment oriented sectors i.e. Textiles (including
handlooms & handicrafts), Carpets, Leather, Gem & Jewellery, Marine products and
SMEs has been extended further.

Union Budget Analysis 2009-10 Please see the disclaimer on the last page Private Circulation only 2

NIFTY scaled a HIGH of 4693.20
on 12th JUNE 2009. Since then till
the presentation of the Uniion
Budget markets exhibited
CAUTIOUS approach, without any
significant directional move.
Union Budget Analysis 2009-10
6th July 2009
The government has outlined targets of 6.5% growth for the GDP during FY10 and is
targeting agriculture growth at 4% annually in the next few years with investment in
infrastructure to account for more than 9% of GDP by 2014. We believe that the GDP
growth of between 6-6.5% looks very much possible notwithstanding the positive pick
up in export related sectors from the second half of this financial year but any further
slippage on the fiscal deficit front from the targeted level of 6.8% this year, could be seen
as a negative trigger for the markets ahead.
MARKET EXPECTATIONS HOWEVER REMAINED
UNFULFILLED
The market which was keen awaiting wide ranging announcements ranging from a
expected cut in the STT, a cut in Capital gains taxes, and also some big bang
announcements on PSU divestments was disappointed that nothing of these actually
materialized in the budget. In fact on the negative side MAT rate has been increased to
15% from 10% with some minor benefits like FBT being taken off and individual tax
payers also given the benefits of surcharge of 10% being taken away in this budget.
a Nevertheless corporate tax rates have remained unchanged which is a sliver lining
considering the tight financial resource crunch with the government.
TECHNICAL VIEW POST 'BUDGET 2009-10
NIFTY scaled a HIGH of 4693.20 on 12th JUNE 2009. Since then till the presentation of
the Uniion Budget markets exhibited a CAUTIOUS approach, without any significant
directional move. Markets went into today's Budget with High hopes on Disinvestment
programme, aggressive Reforms and Market friendly announcements. But 'build-up' of
positions was clearly absent in pre-budget action. The expectations of markets were
not met in today's 'socially oriented' budget. Absence of big ticket announcements sent
a wave of 'disappointment' among players. The result was a sharp knee-jerk reaction
from marketmen. FIIs were seen off-loading aggressively, showing concerns on rising
'fiscal deficit'.
Technically speaking 'Support' around 4150 levels of NIFTY is crucial and the 'Risk' in
markets will go up substantially if NIFTY slips below the mentioned levels (on closing
basis) during the week. Next significant support for NIFTY exists far lower around levels
of 3800. We however believe that despite the market disappointment over the budget,
the probability of emergence of 'value Buying' at lower levels from domestic Institutions
is very High.
CONCLUSION
Net Net we believe the Union Budget for 2009-10 has been on expected lines
notwithstanding the fact that several big bang announcements related to FDI, Pension
Reforms, Education Reforms, Insurance and PSU divestment were eagerly awaited
but failed to prominently come up in this budget.
As mentioned earlier the primary focus of the government has been to accelerate growth
in Infrastructure, ensure all inclusive growth by increasing social spending on several
employment generation schemes and ensuring that export oriented sectors are given
a helping hand by way of some fiscal concessions until the global economy picks up.
While the markets seem to have given a thumbs down to this budget we believe that the
Union Budget is not the only the conclusive document which is a means to the end and
many more pro market policy announcements from the government on specific business
areas is expected to materialize over the next 12-18 months. We hence believe that long
term investors should utilize this market opportunity optimally by selectively investing in
blue chips for a medium to long term horizon.
Please see the disclaimer on the last page Private Circulation only 3
 6th July 2009

CENTRAL GOVERNMENT FINANCES (Rs bn)

FY09BE FY09RE YOY (%) FY10BE YOY (%)
Tax Revenue
Union Excise Duties 1,378.7 1,083.6 (21.4) 1,064.8 (22.8)
Customs 1,189.3 1,080.0 (9.2) 980.0 (17.6)
Corporation Tax 2,263.6 2,220.0 (1.9) 2,567.3 13.4
Income Tax 1,383.1 1,226.0 (11.4) 1,128.5 (18.4)
Service Tax 644.6 650.0 0.8 650.0 0.8
Taxes of Union Territories 14.5 15.9 9.6 16.0 10.4
Other taxes & duties 3.3 4.0 23.1 4.3 30.8
Gross Tax Revenue 6,877.1 6,279.5 (8.7) 6,410.8 (6.8)
Less: NCCD for financing
National Calamity Contigency Fund 18.0 18.0 - 25.0 38.9
Less: States' share 1,787.7 1,601.8 (10.4) 1,643.6 (8.1)
Centre's Net Tax Revenue [A] 5,071.5 4,659.7 (8.1) 4,742.2 (6.5)
Non-Tax Revenue
Interest Receipts 191.4 190.4 (0.5) 191.7 0.2
Dividends & Profits 432.0 397.4 (8.0) 497.5 15.2
Other Non-Tax Revenue 326.3 366.8 12.4 706.0 116.4
Non-Tax Revenue of Union Territories 8.1 7.5 (8.0) 7.5 (7.4)
Total - Non Tax Revenue [B] 957.8 962.0 0.4 1,402.8 46.5
Total Revenue Receipts [C=A+B] 6,029.3 5,621.7 (6.8) 6,145.0 1.9

CAPITAL RECEIPTS
Recoveries of Loans 45.0 97.0 115.7 42.3 (6.0)
Misc Capital Receipts 101.7 25.7 (74.8) 11.2 (89.0)
Debt receipts to finance fiscal deficits 1,332.9 3,265.2 145.0 4,010.0 200.9
Total Capital Receipts [D] 1,479.5 3,387.8 129.0 4,063.4 174.7
Total Receipts [C+D] 7,508.8 9,009.5 20.0 10,208.4 36.0

NON-PLAN EXPENDITURE
Revenue Expenditure
Interest Payments 1,908.1 1,926.9 1.0 2,255.1 18.2
Defense 575.9 736.0 27.8 868.8 50.8
Subsidies 714.3 1,292.4 80.9 1,112.8 55.8
Grants to State and U.T. Governments 432.9 384.2 (11.3) 485.7 12.2
Admin & Social Responsibility 814.6 1,232.9 51.3 1,350.4 65.8
Total Revenue Non-Plan Expenditure [E] 4,445.9 5,572.5 25.3 6,072.7 36.6
Capital Expenditure
Defense 480.1 410.0 (14.6) 548.2 14.2
Other Non-Plan Capital Outlay 105.7 136.9 29.6 210.6 99.3
Loans to Public Enterprises 6.8 7.7 13.1 6.4 (7.0)
Others 36.5 52.8 44.6 119.0 225.9
Total Capital Non-Plan Expenditure [F] 629.1 607.5 (3.4) 884.2 40.5
Total Non Plan Expenditure [G=E+F] 5,075.0 6,180.0 21.8 6,956.9 37.1

PLAN EXPENDITURE
Revenue Plan Expenditure
Central Plan 1,514.2 1,716.3 13.4 2,002.9 32.3
Central Assistance for State & UT Plans 583.5 700.2 20.0 781.1 33.9
Total Revenue Plan Expenditure [H] 2,097.7 2,416.6 15.2 2,784.0 32.7
Capital Plan Expenditure
Central Plan 285.4 325.0 13.9 395.5 38.6
Central Assistance for State & UT Plans 50.8 88.1 73.3 72.0 41.7
Total Capital Plan Expenditure [I] 336.2 413.0 22.9 467.5 39.1
Total Plan Expenditure [J=H+I] 2,433.9 2,829.6 16.3 3,251.5 33.6
Total Expenditure [G+J] 7,508.8 9,009.5 20.0 10,208.4 36.0

Revenue Deficit 551.8 2,412.7 337.2 2,827.4 412.3

% of GDP 1.0 (4.4) (540.0) (4.8) (580.0)
Fiscal Deficit 1,332.9 3,265.2 145.0 4,010.0 200.9
% of GDP (2.5) (6.0) 140.0 (6.8) 172.0
Primary Deficit (575.2) 1,338.2 (332.7) 1,754.9 (405.1)
% of GDP (1.1) (2.5) (3.0)
Source: Ministry of Finance, Annual Budget FY2009-10

Union Budget Analysis 2009-10 Please see the disclaimer on the last page Private Circulation only 4
 6th July 2009

ECONOMIC DATA CHARTS

Where the Rupee comes from Where the Rupee goes

Fiscal deficit (Rs bn) Revenue deficit (Rs bn)

GDP Growth by constituents (%) Grossdomestic

Gross domestic savings
savings & capital
& capital formation
formation (%) (%)

Source: Government of India, Annual Budget FY2009-10

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 6th July 2009

TAX PROPOSALS
PROPOSALS
„ Centre’s Tax-GDP ratio has increased to 11.5 per cent in 2008-09 from a low of 9.2 per cent in 2003-04. Share of direct
taxes in the Centre’s tax revenues has increased to 56 percent in 2008-09 from 41 percent in 2003-04, reflecting sharp
improvement in equity of our tax system.
„ Setting up of a Centralized Processing Centre (CPC) at Bengaluru where all electronically filed returns, and paper returns
filed in entire Karnataka, will be processed.

Dir ect Tax

Direct es
axes
„ No changes made in the Corporate Tax rates.
„ Exemption limit in personal income tax raised by Rs.15,000 from Rs.2.25 lakh to Rs.2.40 lakh for senior citizens; by
Rs.10,000 from Rs.1.80 lakh to Rs.1.90 lakh for women tax payers; and by Rs.10,000 from Rs.1.50 lakh to Rs.1.60 lakh
for all other categories of individual taxpayers.
„ Deduction under section 80-DD in respect of maintenance, including medical treatment, of a dependent who is a person
with severe disability being raised from the present limit of Rs.75,000 to Rs.1 lakh.
„ Eliminate the surcharge of 10 percent on personal income-tax.
„ Sun-set clauses for exporters under sections 10A and 10B of the Income-tax Act extended for the financial year 2010-11.
„ Fringe Benefit Tax to be abolished.
„ Provisions relating to weighted deduction of 150% on expenditure incurred on in-house R&D to all manufacturing
businesses being extended
„ Investment linked tax incentives to be provided. Under this method, all capital expenditure, other than expenditure on land,
goodwill and financial instruments will be fully allowable as deduction.
„ Minimum alternate tax increased to 15% from 10% of book profit. The period allowed to carry forward the tax credit under
MAT to be extended from 7 years to 10 years.
„ New Pension System (NPS) to continue to be subjected to the Exempt-Exempt- Taxed (EET) method of tax treatment of
savings. All purchase and sale of equity shares and derivatives by the NPS Trust will also be exempt from the Securities
Transaction Tax. Self employed persons to be enabled to participate in the NPS and to avail of the tax benefits available
thereto.
„ Alternative dispute resolution mechanism will be created within the Income Tax Department for the resolution of transfer
pricing disputes.
„ Commodity Transaction Tax (CTT) to be abolished.
„ Donations to electoral trusts to be allowed as a 100 percent deduction in the computation of the income of the donor.
„ Deduction under section 80E of the Income-tax Act allowed in respect of interest on loans taken for pursuing higher
education in specified fields of study to be extended to cover all fields of study, including vocational studies, pursued after
completion of schooling.
„ Anonymous donations received by charitable organisations to the extent of 5 percent of their total income or a sum of Rs.1
lakh, whichever is higher, not to be taxed.
„ Scope of presumptive taxation to be extended to all small businesses with a turnover upto Rs. 40 lakh. All such taxpayers
to have option to declare their income from business at the rate of 8 percent of their turnover and simultaneously enjoy
exemption from the compliance burden of maintaining books of accounts. As a procedural simplification, they are also to
be exempted from advance tax and allowed to pay their entire tax liability from business at the time of filing their return. This
new scheme will come into effect from the financial year 2010-11.
„ Tax holiday under section 80-IB(9) of the Income Tax Act to be extended to natural gas. This tax benefit to be available to
undertakings in respect of profits derived from the commercial production of mineral oil and natural gas from oil and gas
blocks which are awarded under the NELP-VIII round of bidding.

Indir ect Tax

Indirect es
axes
„ Proposals on indirect taxes to seek to achieve stable framework by maintaining the overall rate structure for customs and
central excise duties as well as service tax.

CUSTOMS DUTIES
CUSTOMS
„ Customs duty of 5% to be imposed on Set Top Box for television broadcasting.
„ Customs duty on LCD Panels for manufacture of LCD televisions to be reduced from 10% to 5%.
„ Full exemption from 4% special CVD on parts for manufacture of mobile phones and accessories to be reintroduced for
one year.
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 6th July 2009

„ List of specified raw materials/inputs imported by manufacturer-exporters of sports goods which are exempt from customs
duty, subject to specified conditions, to be expanded by including five additional items.
„ List of specified raw materials and equipment imported by manufacturer-exporters of leather goods, textile products and
footwear industry which are fully exempt from customs duty, subject to specified conditions, to be expanded.
„ Customs duty on unworked corals to be reduced from 5% to Nil.
„ Customs duty on 10 specified life saving drugs/vaccine and their bulk drugs to be reduced from 10% to 5% with Nil CVD
(by way of excise duty exemption).
„ Customs duty on specified heart devices to be reduced from 7.5% to 5% with Nil CVD (by way of excise duty exemption).
„ Customs duty on permanent magnets for PM synchronous generator above 500 KW to be reduced from 7.5% to 5%.
„ Customs duty on bio-diesel to be reduced from 7.5% to 2.5%.
„ Concessional customs duty of 5% on specified machinery for tea, coffee and rubber plantations to be reintroduced for one
year, upto 06.07.2010.
„ Customs duty on 'mechanical harvester' for coffee plantation to be reduced from 7.5% to 5%. CVD on such harvesters has
also been reduced from 8% to nil, by way of excise duty exemption.
„ Customs duty on serially numbered gold bars (other than tola bars) and gold coins to be increased from Rs.100 per 10
gram to Rs.200 per 10 gram. Customs duty on other forms of gold to be increased from Rs.250 per 10 gram to Rs.500 per
10 gram. Customs duty on silver to be increased from Rs.500 per Kg. to Rs.1000 per Kg.
„ Customs duty on cotton waste to be reduced from 15% to 10%.
„ Customs duty on wool waste to be reduced from 15% to 10%.
„ Customs duty on rock phosphate to be reduced from 5% to 2%.
„ CVD exemption on Aerial Passenger Ropeway Projects to be withdrawn and will now attract applicable CVD.
„ Customs duty exemption on concrete batching plants of capacity 50 cum per hour or more to be withdrawn. Such plants
will now attract customs duty of 7.5%.
„ Customs duty on inflatable rafts, snow-skis, water skis, surf-boats, sail-boards and other water sports equipment to be
fully exempted.

Excise duty
Excise duty rate on items currently attracting 4% to be raised to 8% with following major exceptions:
„ Specified food items including biscuits, sharbats, cakes and pastries

„ Drugs and pharmaceutical products falling under Chapter 30

„ Medical equipment

„ Certain varieties of paper, paperboard and articles thereof

„ Paraxylene

„ Power driven pumps for handling water

„ Footwear of RSP exceeding Rs.250 but not exceeding Rs.750 per pair

„ Pressure cookers

„ Vacuum and gas filled bulbs of RSP not exceeding Rs.20 per bulb

„ Compact Fluorescent Lamps

„ Cars for physically handicapped

„ Specific component of excise duty applicable to large cars/utility vehicles of engine capacity 2000 cc and above to be

reduced from Rs. 20,000/- per vehicle to Rs.15,000 per vehicle.

„ Excise duty on petrol driven trucks/lorries to be reduced from 20% to 8%. Excise duty on chassis of such trucks/lorries to

be reduced from '20% + Rs.10000' to '8% + Rs.10000'.

„ Excise duty on Special Boiling Point spirits to be reduced to 14%.

„ Excise duty on naphtha to be reduced to 14%.

„ Duty paid High Speed Diesel blended with upto 20% bio-diesel to be fully exempted from excise duties.

„ Excise duty of 6% on petrol intended for sale with a brand name to be converted into a specific rate would now attract total

excise duty of Rs.14.50 per litre instead of '6% + Rs.13 per litre'.
„ The ad valorem component of excise duty of 6% on diesel intended for sale with a brand name to be converted into a

specific rate would now attract total excise duty of Rs.4.75 per litre instead of '6% + Rs.3.25 per litre'.
„ Excise duty on manmade fibre and yarn to be increased from 4% to 8%.

„ Excise duty on PTA and DMT to be increased from 4% to 8%.

„ Excise duty on polyester chips to be increased from 4% to 8%.

„ Excise duty on acrylonitrile to be increased from 4% to 8%.

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 6th July 2009

„ The scheme of optional excise duty of 4% for pure cotton to be restored.

„ Excise duty for man-made and natural fibres other than pure cotton, to be increased from 4% to 8% under the existing
optional scheme.
„ Excise duty exemption to be provided to tops of manmade fibre manufactured from duty paid tow at par with tops manufactured
from duty paid staple fibre.
„ Suitable adjustments to be made in the rates of duty applicable to DTA clearances of textile goods.
„ Full exemption from excise duty to be provided on goods of Chapter 68 of Central Excise Tariff manufactured at the site of
construction.
„ Excise duty exemption on 'recorded smart cards' and 'recorded proximity cards and tags' to be made optional.
„ EVA compound manufactured on job work for further use in manufacture of footwear to be exempted from excise duty.
„ Benefit of SSI exemption scheme to be extended to printed laminated rolls bearing the brand name of others by excluding
this item from the purview of the brand name restriction.
„ On packaged or canned software, excise duty exemption to be provided on the portion of the value which represents the
consideration for transfer of the right to use such software.
„ Excise duty on branded articles of jewellery to be reduced from 2% to Nil.

Ser vice tax

Service
„ Service Tax to be imposed on the following services:
„ Service provided in relation to transport of goods by rail
„ Service provided in relation to transport of coastal cargo; and goods through inland water including National Water
ways
„ Advice, consultancy or technical assistance provided in the field of law,
„ Cosmetic and plastic surgery service
„ Exemption from service tax being provided to inter-State or intra-State transportation of passengers in a vehicle bearing
'Contract Carriage Permit' with specified conditions.
„ Exemption from service tax being provided to inter-bank purchase and sale of foreign currency between scheduled banks.
„ Two taxable services, namely, 'Transport of goods through road' and 'Commission paid to foreign agents' to be exempted
from the levy of service tax, if the exporter is liable to pay service tax on reverse charge basis. However, present cap of 10%
on commission agency charges is retained.
„ For other services received by exporters, service tax exemption to be operated through the existing refund mechanism
based on self-certification of the documents
„ Export Promotion Councils and the Federation of Indian Export Organizations (FIEO) to be exempt from service tax on the
membership and other fees collected by them till 31st March 2010.

Tax proposals on direct taxes to be revenue neutral. On indirect taxes, estimated net gain to be Rs.2,000 crore for a full year.

Union Budget Analysis 2009-10 Please see the disclaimer on the last page Private Circulation only 8
 6th July 2009

SECTOR IMPACT
ANALYSIS

Union Budget Analysis 2009-10 Please see the disclaimer on the last page Private Circulation only 9

BUDGET IMPACT : POSITIVE
Allocation under Jawaharlal Nehru
National Urban Renewal Mission
(JNNURM) stepped up by 87 per cent
to Rs.12,887 crore in B.E. 2009-10 over
B.E. 2008-09...
We expect stocks like Mahindra &
Mahindra, Maruti Suzuki, Ashok
Leyland and Tata Motors to benefit
moderately from these measures over
the medium term announced in the
Union Budget. ..
Union Budget Analysis 2009-10
6th July 2009
AUTOMOBILES
BUDGET HIGHLIGHTS
„ Excise Duty continues to remain the same.
„ Increase in agriculture credit target by 13% to Rs.3,25,000 cr from Rs.2,87,000cr in
2008-09
„ Increase in the provision for the National Highway Development Programme (NHDP)
increased by 23 per cent over B.E. 2008-09 in B.E. 2009-10 and allocation for
Railways increased from Rs.10,800 crore in Interim B.E. 2009-10 to Rs.15,800
crore in B.E. 2009-10.
„ IIFCL to refinance 60 per cent of commercial bank loans for PPP projects in critical
sectors over the next fifteen to eighteen months involving a total investment of
Rs.1,00,000 crore
„ Allocation under Jawaharlal Nehru National Urban Renewal Mission (JNNURM)
stepped up by 87 per cent to Rs.12,887 crore in B.E. 2009-10 over B.E. 2008-09.
„ Specific components of excise duty applicable to large cars/Utility Vehicles of engine
capacity of 2000 cc and above has been reduced from Rs 20000 per vehicle to Rs
15000 per vehicle.
IMPACT ON THE SECTOR
„ This is a welcome move and will ensure the continuation of healthy volume growth
seen in the Automobile market during the last couple of months. Earlier there were
expectations that due to revenue constraints, there was a possibility of excise duty
being rolled back, which could have impacted the sales momentum recorded till
date. We expect both the cars and CV segments to pickup and show gradual
improvement in volumes on higher volume offtake seen from large infrastructure
investments planned in a big way by the government.
„ We believe that Increase in farm credit target by 13% to Rs.325000cr would continue
to drive demand for tractors and is a positive for companies like M&M. Also increase
in provision for the NHDP will increase the highway network in India andis positive
for demand growth for commercial vehicles in the long term.
„ We expect stocks like Mahindra & Mahindra, Maruti Suzuki, Ashok Leyland and Tata
Motors to benefit moderately from these measures over the medium term announced
in the Union Budget.
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 6th July 2009

BUDGET IMPACT : NEUTRAL EDUCATION

BUDGET HIGHLIGHTS
„ No increase in Sarva Shiksha Abhiyan (SSA): In the interim budget in February 2009
government has proposed an allocation of Rs 13000 crore for SSA for 2009-10,
there has been no fresh increase in the allocation to SSA.

„ Allocation in ICT increased to Rs.900 crore

„ The overall Plan budget for higher education is to be increased by Rs 2,000 crore
over Interim B.E. 2009-10.

„ MAT increased to 15% from 10%: Minimum Alternative Tax (MAT) on book profits is
proposed to increase from 10% to 15%, whereas tax credit is allowed to carried
forward and set off upto 10th assessments year from earlier 7th assessments
year.

„ Abolitions of FBT: Fringe Benefits Tax (FBT) is proposed to abolish with effect from
April 2010.

IMPACT ON THE SECTOR

„ There not been any big increase in allocation to Education sector for 2009-10 over
interim budget presented in February 2009, nevertheless sector continues to be
No big bang announced for the sector. government thrust area for spending and would benefits players' operating in the
Already got substantial allocation in sectors as a whole.
interim budget 2009...
„ Increase in MAT to 15% from 10% is likely to increase tax outgo for companies like
NIIT, however increase in the number of years for carried forward of tax credit from
7 years to 10 years would offset some impact. No major impact for other players
like Educomp and Everonn.

„ Abolition of FBT is a relief sector, would reduce the operational and compliance
issues associated with FBT. Companies having higher ESOPs issues are likely to
benefits more.

„ Union Budget 2009-10, does not bring any big bang announcements for the
education sector as market participants are expecting. Nevertheless, education
sector has already got a substantial allocation in the interim budget earlier during
the year, coupled with more reforms are outlined in the HRD ministry 100 days
Positive on Everonn Systems, plans , which gives more thrust on public private partnerships. We believe as most
Educomp Solutions... of the stocks in the education space has already run up sharply in the last three
months, which leaves little room for appreciation in the medium term. Nevertheless,
we continue to remain positive on the sector for a longer term perspective and
recommend investors to enter at lower levels for two years perspective. We remain
positive on Everonn Systems, Educomp Solutions.

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 6th July 2009

BUDGET IMPACT : NEUTRAL FMCG

BUDGET HIGHLIGHTS
„ The Central Plan expenditure has increased for Rural Development. The NREGA
allocation has gone up by Rs.39,100 crore almost 144% up.

„ Minimum alternate tax increased to 15% from 10% of book profit and carry forward
tax credit on minimum alternate tax (MAT) to 10 years vs 7 years.

„ The Fringe benefit tax (FBT) has been abolished.

IMPACT ON THE SECTOR

„ Rural sector contributes to a significant portion of FMCG companies spends.
Almost all companies within the FMCG Governments continued focus on rural sector will improve the rural income which in
space are expected to benefit from the turn will provide a great boost to the demand in rural areas and thereby increase
focus on rural sector especially sales. Almost all companies within the FMCG space are expected to benefit from
companies like Dabur and HUL which this move especially companies like Dabur and HUL which derive more than 45%
derive more than 45% of their revenues of their revenues from rural areas.
from rural areas.....
„ On the flipside, FMCG companies falling under MAT will see their bottom-line being
hit as the MAT rate has increased by 50% to 15%. To be specific Dabur India and
Godrej Consumer Products are currently under MAT that may see an adverse earning
impact. However, we believe, FMCG (likely to be benefited from indirect demand
coming from rural growth and FBT abolishment ) would remain neutral to the Budget
developments.

Union Budget Analysis 2009-10 Please see the disclaimer on the last page Private Circulation only 12

BUDGET IMPACT : POSITIVE
Allocation to National Highways
Authority of India (NHAI) for the National
Highway Development Programme
(NHDP) increased by 23 % over 2008-
09 in 2009-10...
Union Budget Analysis 2009-10
6th July 2009
INFRASTRUCTURE
BUDGET HIGHLIGHTS
„ IIFCL to refinance 60 % of commercial bank loans for PPP projects in critical sectors
over the next 15 to 18 months.
„ Allocation to National Highways Authority of India (NHAI) for the National Highway
Development Programme (NHDP) increased by 23 % over 2008-09 in 2009-10
(BE) and allocation for Railways increased from Rs.10,800crore (Interim 2009-10)
to Rs.15,800cr in 2009-10 (BE).
„ Allocation under Jawaharlal Nehru National Urban Renewal Mission (JNNURM)
stepped up by 87 % to Rs.12887cr in 2009-10 (BE) over 2008-09 (BE). Allocation for
housing and provision of basic amenities to urban poor enhanced to Rs.3973cr in
2009-10 (BE). This includes provision for Rajiv Awas Yojana (RAY), a new scheme
announced.
„ Provision for the project BRIMSTOWA initiated in 2007 and funded through Central
Assistance to address the problem of flooding in Mumbai, enhanced from
Rs.200crore (Interim 2009-10) to Rs.500crore in (2009-10 BE).
„ Allocation for Bharat Nirman increased by 45 per cent in 2009-10 over B.E. 2008-09.
„ Allocation under Indira Awaas Yojana (IAY) increased by 63 per cent to Rs.8,800
crore in B.E. 2009-10.
„ Allocation of Rs.2,000 crore made for Rural Housing Fund (RHF) in National Housing
Bank (NHB) to boost the resource base of NHB for refinance operations in rural
housing sector.
IMPACT ON THE SECTOR
„ Higher allocation to Infrastructure sector will benefit Infrastructure players in the
long run and the government measures will help these infrastructure companies to
finance their projects with ease. Cost of funds to be reduced due to availability of
funds made through IIFCL.
„ Increased order book expected from NHAI and Railways which would benefit
companies like Reliance Infra, Gammon India, Nagarjuna Constructions, IVRCL,etc.
Please see the disclaimer on the last page Private Circulation only 13
 6th July 2009

BUDGET IMPACT :POSITIVE INFORMATION TECHNOLOGY

BUDGET HIGHLIGHTS
„ One year Extension in Sunset clause till FY11: Government has proposed one
more year extension in the tax benefits U/S 10A and 10B for STPI till FY 2010-11
(earlier it was till FY10).

Removal of FBT a big positive for the „ MAT increased to 15% from 10%: Minimum Alternative Tax (MAT) on book profits is
sector... proposed to increase from 10% to 15%, whereas tax credit is allowed to carried
forward and set off upto 10th assessments year from earlier 7th assessments
year.

„ Amendment in SEZ policy U/S 10AA: SEZ turnover is proposed to compute with
reference to turnover of particular undertaking, as opposed to earlier provision of
computation of profits as a total turnover of the assessee.

„ Abolitions of FBT: Fringe Benefits Tax (FBT) is proposed to abolish with effect from
April 2010.

IMPACT ON THE SECTOR

„ One year extension U/S 10(A)/(B) is a welcome relief for the IT industry, however its
comes short of industry expectations of 2 year extension. Nevertheless, it would
likely to benefits more to companies in mid-tier than the larger companies like
Infosys, HCL Technologies.

„ Increase in MAT to 15% from 10% is likely to increase tax outgo for smaller and Mid-
tier IT companies , however increase in the number of years for carried forward of
tax credit from 7 years to 10 years would offset some impact. Marginal impact for
larger IT companies.

„ Would benefit large IT companies, having substantial exposure in SEZs.

„ Abolition of FBT is a huge relief for the IT sector, would reduce the operational and
compliance issues associated with FBT. Companies having higher ESOPs issues
are likely to benefits more.

We expect with extension of STPI „ We believe most of the good news is already discounted in the stock prices. We
benefits would impact the earning for continue to remain cautious on the sector and expect a correction in the medium
FY11 by 1%-5%, remain positive on term. We expect with extension of STPI benefits would impact the earning for FY11
Infosys , TCS and Glodyne ... by 1%-5%. We continue to remain positive on Infosys , TCS and Glodyne .

Union Budget Analysis 2009-10 Please see the disclaimer on the last page Private Circulation only 14
 6th July 2009

BUDGET IMPACT : NEUTRAL MEDIA AND ENTERTAINMENT

BUDGET HIGHLIGHTS
„ Stimulus package extended: Stimulus package for print media companies
comprising waiver of 15% agency commission on DAVP advertisements and 10%
increase in DAVP rates to be paid as a special relief on loss of revenue in non
governmental advertisements has extended from 30th June 2009 to 31st December
2009.

„ Abolitions of FBT: Fringe Benefits Tax (FBT) is proposed to abolish with effect from
April 2010.

A non event for the Media Sector.... „ Customs duty of 5% to be imposed on Set Top Box

IMPACT ON THE SECTOR

„ Extension on stimulus package for six months would have marginal positive impact
for Print media companies like HT media and Jagran Prakashan.

„ Abolition of FBT would reduce the operational and compliance issues associated
with FBT. Companies having higher ESOPs issues are likely to benefits more.

„ Introduction of 5% custom duty on Set Top boxes would have marginal negative
impact on the WWIL and Dish TV, as the price of Set Top box will increase, however
it is likely to pass over to the end customers.

„ There is no mention of FDI policy for Media sectors in the union budget, which is a
big disappointment for sector. On the other hand, there is no stimulus package for
Media sector apart from Print media. Nevertheless, we believe print media and
broadcasting will likely see revival in next 12 months. We continue to remain positive
on ZEEL and ZEE News.

Union Budget Analysis 2009-10 Please see the disclaimer on the last page Private Circulation only 15

BUDGET IMPACT : NEUTRAL
Enhanced funds for Rural housing will
help the companies having deeper
penetration in rural market, viz. JSW
Steel which has exposure to flat
products used in rural markets...
Union Budget Analysis 2009-10
6th July 2009
METALS
BUDGET HIGHLIGHTS
„ Increased allocation for Highways & Railways: A 23% increase in allocations
for National Highway development programme and about 50% increase for
Railways is a positive for Steel Industry as a whole.
„ Enhanced allocations for Urban Infrastructure: 87% increase in the
allocations under JNNURM will be partially beneficial to Steel industry as a whole.
„ Escalation of allocation for Bharat Nirman: 45% escalation in the allocations
for Bharat Nirman omens good for Steel Industry.
„ Special Allocation of Rs.2000 Cr for Rural Housing Fund: Efforts to boost
the resource base of National Housing Bank for refinancing operations in rural
housing sector by allocating Rs 2000 Cr is good for Steel sector esp. the ones in
that have good penetration in rural sector.
IMPACT ON THE SECTOR
„ Finance Minister has maintained a status-quo on the duty structure for Steel and
Iron ore. Hence, no effect would be seen on the companies' bottom line in the Steel
& mining sector for the current financial year.
„ Enhanced funds for Rural housing will help the companies having deeper
penetration in rural market, viz. JSW Steel which has exposure to flat products used
in rural markets.
Please see the disclaimer on the last page Private Circulation only 16

BUDGET IMPACT :NEGATIVE
FBT has been abolished but the
Minimum Alternate Tax (MAT) rate is
raised from 10% of book profit to 15%
of book profit...
Overall we believe the rising MAT would
play a lead role and have adverse
impact on Indian Pharma in near term...
Union Budget Analysis 2009-10
6th July 2009
PHARMACEUTICALS
BUDGET HIGHLIGHTS
„ Increased allocation towards National Rural Health Mission by Rs.2,057 crore over
and above Rs.12,070 crore provided in the Interim Budget.
„ Custom duty on influenza vaccine and nine specified life saving drugs used for the
treatment of breast cancer, hepatitis-B, rheumatic arthritis etc. and on bulk drugs
used for the manufacture of such drugs has been reduced from 10% to 5% and they
„ Also, Customs duty on two specified life saving devices used in treatment of heart
conditions like - artificial heart reduced from 7.5% to 5% and these devices will be
fully exempt from excise duty and CVD.
„ The Fringe benefit tax (FBT) has been abolished but the Minimum Alternate Tax
(MAT) rate is raised from 10% of book profit to 15% of book profit.
„ With the amendment in IT section - 10AA(7), the entire profit of business units
operating from SEZs would be exempted from taxes, whereas earlier the business
units' profits were exempted proportionately to their export turnover.
IMPACT ON THE SECTOR
„ Though the increased allocation of funds towards Healthcare sector and
abolishment of FBT is positive for Indian Pharma, the 50% increase in FBT from
10% of book profit to 15% comes as a big blow for most of Indian Pharma companies
operating under MAT in the near term. It would be negative for companies including
- Sun Pharma, Dishman, Cadila and Biocon.
„ However, the amendment in IT section - 10AA(7) that provides 100% profit exemption
effective from FY2011 for business units operating from SEZs could prove to be a
positive development for Indian Pharma in longer term. Divis Laboratories and
Biocon are visible beneficiaries of the said development, as they currently operates
from their SEZs. Also, few more domestic pharma peers like - Dishman, Cipla,
Jubilant Organosys, Cadila Healthcare etc are setting their SEZs
„ The reduction in custom duty on discussed life saving drugs and devices may
impact MNCs (like Aventis, GlaxoSmithkline etc) positively. Overall we believe the
rising MAT would play a lead role and have a adverse impact on Indian Pharma in
near term.
Please see the disclaimer on the last page Private Circulation only 17
 6th July 2009

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Union Budget Analysis 2009-10 Please see the disclaimer on the last page Private Circulation only 18