Union Budget Analysis 2014-15

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Auto Components ...........................12-13

Automobiles ....................................14-15
Banking & Financial Serv ................. 16.17
Cement ...........................................18-19
Coal ...................................................... 20
Constructon ...................................21-23
Consumer Durables ........................24-25
Educaton ............................................. 26
Engineering & Cap. Goods ..............27-28
Fertlizers .........................................29-30
FMCG ..............................................31-32
Gems & Jewellery ...........................33-34
Hospitals and Healthcare ................35-36
Hotels ................................................... 37
IT and ITES .......................................38-39
Media ................................................... 40
Mining and Minerals .......................41-42
Non-ferrous Metals .........................43-44
Oil and Gas ......................................45-46
Pipes ...............................................47-48
Ports ..................................................... 49
Power (incl renewables)..................50-51
Real Estate ......................................52-53
Roads and highways ........................54-55
Shipping ............................................... 56
Steel ................................................57-58
Sugar .................................................... 59
Textles ............................................60-61
Warehouse/ Logistcs ........................... 62
TABLE OF CONTENTS
Economic Survery 2013-14 .......................................................... 2-3
Railway Budget 2014-15 .............................................................. 4-5
Union Budget 2014-15 ............................................................... 6-11
Sectors
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The Ministry of Finance today released the Economic Survey
for the year 2013-14.
The Survey based on developments of FY14, draws out
a cautous picture of the year gone by, emphasizing the
contnued need for reforms in the coming months with
an outlook for the next fscal pointng towards gradual
improvements.
Current Marco-economic Scenario
The Survey notes that Indias current economic slowdown is
deeply rooted in domestc weakness. Monetary tghtening had
been inevitable in the face of increased external headwinds
and spiking infaton on account of inadequate supply-side
constraints. The macro-economic scenario in FY14 has hence
been characterized by -
Moderaton in growth
Growth in FY14 setled at 4.7% , growth slowdown was
mainly driven by the industry sector
Elevated price levels
WPI has registered some moderaton at 6%, CPI remains
high at 9.5%; food infaton resurfacing
Improved Balance of Payments
Current account defcit (CAD) declined sharply from a
record high of US $ 88.2 billion (4.7% of gross domestc
product GDP) in 2012-13 to US $ 32.4 billion (1.7% of
GDP) in 2013-14.
Foreign exchange reserves increase to $ 304.2 billion at
end March 2014
Fiscal defcit contained at 4.5% (below target) despite
macroeconomic challenges of growth slowdown, elevated
crude oil prices and low levels of investments
Table 1: Domestc Macro-economic Indicators (%)
FY10 FY11 FY12 FY13 FY14
GDP growth 8.6 8.9 6.7 4.5 4.7
Infaton 3.8 9.6 8.9 7.4 6.0
Savings 33.7 33.7 31.3 30.1 -
Investment 36.5 36.5 35.5 34.8 -
Source: Economic Survey 2013-14
Table 1 above gives a snapshot of the domestc macro-
economic indicators. Table 2 below highlights the performance
in the external sector.
Table 2: External Sector
FY11 FY12 FY13 FY14
Trade
Exports growth (%) 40.5 21.8 -1.8 4.1
Imports growth (%) 28.2 32.3 0.3 -8.3
CAD (% of GDP) 2.8 4.2 4.7 1.7
Net Foreign investment ($ bn)
FDI 11.8 22.1 19.8 21.6
Portolio Invt. (FII) 30.3 17.1 26.9 4.8
Forex Reserves 304.8 294.4 292.0 304.2
Source: Economic Survey 2013 - 14
Government Reacton
The government aims at reforms for growth on three fronts
namely,
Low & stable infaton regime
Tax and expenditure reforms
Regulatory framework
Provisions commensurate with these macro-targets are
likely to refect in Budget 2015, to be announced tomorrow.
Moderaton in infaton would ease the monetary policy
stance and revive the confdence of investors, and with the
global economy expected to recover moderately, partcularly
on account of performance in some advanced economies,
the economy can look forward to beter growth prospects in
2014-15 and beyond.
Proposed Strategy
Priority of fghtng infaton
o work towards a low and stable infaton rate through fscal
consolidaton
o Establishing monetary policy framework and creatng a
conducive environment for a compettve natonal market
for food
Strengthening of fscal balances
o New Fiscal Responsibility and Budget Management
Economic Survey: 2013-14
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(FRBM) Act, beter accountng practces and improved
budgetary management
o Simple, predictable and stable tax regime - a single-rate
goods and services tax (GST), a simple direct tax code
(DTC), and a transformaton of tax administraton
o Prioritzaton of expenditure reforms involving three
elements: shifing subsidy programmes away from price
distortons to income support, a change in the focus of
government spending towards provision of public goods,
and a systems of accountability through a focus on
outcomes
Business Confdence
o Increasing concern about the difcultes faced by frms
o Need to simplify processes including those relatng to tax
policy and administraton.
Well developed corporate market
Various policy reform measures were implemented in
consultaton with all market regulators and the Ministry of
Corporate afairs (MCA) to improve the regulatory regime and
stmulate the growth of the corporate bond market:
o Strengthening of the legal framework for regulaton of
corporate debt by amendments in SARFESI Act and Income
Tax Act.
o Relaxaton of investment guidelines for pension funds,
provident funds, insurance funds, etc.
o Introducton of new products or removal of legal or
regulatory constraints for nascent products such as
covered bonds, municipal bonds, credit default swaps,
credit enhancements, and securitzaton receipts.
o Amendment in defniton of deposit in Companies
(Acceptance of Deposits) Rules 1975.
o Development of securitzed debt market by ensuring
clarity in taxaton policy for securitzed debt.
o Ratonalizaton of withholding tax (WHT) on FIIs for G-Secs
and corporate bonds.
o Relaxaton of investment norms of insurance / pension
funds
o Insurance companies allowed partcipatng in the repo
market to increase liquidity. The RBI also reduced the
minimum haircut requirement in corporate debt repo.
Repo in corporate debt also permited on commercial
papers, certfcates of deposit, and non-convertble
debentures of less than one year of original maturity.
o Insurance companies and mutual funds allowed
partcipatng as market makers in credit default swap
(CDS) market
o Setng up of central counter party (CCP) and creaton of
trade guarantee fund for trading in corporate bonds in
stock exchanges.
o New trading platorm and risk management system for
corporate bonds including a centralized database on
outstanding amount, setlement value, and traded volume
to eliminate fragmentaton of informaton
Outlook for FY15
GDP growth likely to be in the range of 5.4% - 5.9%
o downside risks to the economy arising from a poor
monsoon, the external environment and the poor
investment climate
CAD to be limited to around $ 45 billion, 2.1% of GDP
Easing of supply-side constraints should lead to lower
infaton, such that RBI has room to lower interest rates to
boost investments and growth.
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Financial Performance: 2013-14
Railways carried 1050.18 MT during the year. The
goods earnings fell short of its estmates by Rs.94 crore.
Passengers were also less by 46 million over revised
target and its earnings were short by Rs.968 crore over
the revised target.
Gross trafc receipts grew by 12.8% to reach Rs. 1,39,558
crore while the ordinary working expenses stood at Rs.
97,571 crore which was in excess by Rs.511 crore.
Surplus for the year was Rs.3,783 crore afer fulflling the
dividend commitment of Rs. 8,010 crore.
Internal revenue generaton for FY14 was Rs. 11,170 crore
against the revised target of Rs. 14,496 crore.
Operatng rato deteriorated by 2.7% over the revised
target to touch 93.5%.
The plan expenditure fell short of targets of Rs.59,359
core on account of non- materializaton of PPP projects.
Budget Estmates: 2014-15
Freight trafc growth pegged at 4.9% amountng to
1,101.25 MT while earnings estmated at Rs.1,05,770
crore
Passenger growth pegged at 2% with earning of Rs. 44,645
crore.
Ordinary Working Expenses proposed at Rs.1,12,649
crore.
Pension outgo trend retained at Rs.28,850 crore
Plan outlay under budgetary sources Rs. 47,650 crore
Market borrowings scaled down to Rs. 11,790 crore from
Rs.19,805 crore.
Surplus for FY15 is estmated at Rs.602crore
Operatng rato to come down from 93.5% to 92.5% in
FY15.
Key measures
In an efort to improve railway services the following
announcements have been made-
Will ofer Wi-Fi-services in all A category trains and A1
statons.
Digitzaton of reservaton charts at statons
Working on making railway ofces paperless in fve years.
E-tcketng through mobile phone as well as expanding
the scope of online booking
Provision of escalators, lifs via PPP route at all major
statons
CCTVs will be installed at major statons in order to keep a
check on cleanliness
Recruit 4,000 Women as RPF constables for strengthening
safety and security.
Revamping of the entre reservaton system
Outsource cleaning services in railways
Launch of new train routes
Constructon of 1785 road under bridges and road over
bridges
High speed bullet trains to be launched.
Measures to improve efciency
Proposed to restructure Railway Board
Aims to utlize the staton roofops to harness soar energy
E-procurement compulsory for procurement over Rs.25
lakh
Status of ongoing projects to be made available online.
Proposed to set up project formulaton and management
group
Independent Rail Tarif Authority Set-Up to Advice on
Fares and Freight
Budget Implicatons
Firstly, the increase in freight rates of 6.5% across the
board will afect prices of goods that use railways as a
mode of transport. For the industry as whole the average
increases of over 6.5% in freight rates will push up the
cost of producton which in turn will exert pressure on
prices of fnal products. There could be migraton to road
transport though the higher cost of diesel on account
of the price being calibrated to the market could be a
countervailing factor.
Highlights of Railway Budget: FY15
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The increase in freight rates (6.5%) and the increase in
passenger fares (14.2%)together would result in additonal
revenue mop up of Rs 8,000 crore. This is likely to partly
ofset the increasing cost during the year.
Passenger friendly measures such as e-tcketng system,
e-tcketng through mobile phones, free Wi-Fi facilites in
some trains, escalators and lifs at major statons, CCTVS
to monitor statons, large scale computerizaton,platorm
and unreserved tckets through internet,etc.have been
proposed. These initatves will largely have a positve
impact on various sectors partcularly informaton
technology (IT), telecommunicaton and engineering.
Besides, expansion of railways with faster clearances of
proposed projects in the pipeline will positvely boost the
demand for industries such as steel, aluminum cables,
cement, solar equipment, electrical equipment, etc.
The modernizaton of the railways through inducton of
technology will also help eliminate corrupton and bring
in more efciency into the system.
Share of freight trafc earnings shall increase furtheras
no shif towards substtutes such as road transport is
expected with hike in diesel prices already in place.
The Budget provides signifcant opportunites for Public
investments via PPP mode. It also seeks to bring in
resources through FDI mode. Over Rs 6000 cr is to be
mobilized through this route. To make it more atractve
tax holidays have been proposed.
Borrowings through IRFC would be Rs 11,790 cr, which
presumably would be tax free bonds. This will be useful
for households and complement any efort in the Union
Budget to enhance the savings rate.
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Budget Highlights:
Table 1: Summary Table
Rs Crore FY11 FY12 FY13 FY14 RE FY15 BE
Revenue Receipts 7,88,471 7,51,437 8,77,613 10,29,252 11,89,763
Tax revenue(net to centre) 5,69,869 6,29,765 7,40,256 8,36,026 9,77,258
Non tax revenue 2,18,602 1,21,672 1,37,357 1,93,226 2,12,505
Capital Receipts 4,08,857 5,68,918 5,83,387 5,61,182 6,05,129
Recovery of loans 12,420 18,850 16,268 10,802 10,527
Disinvestment of Equity in PSEs 22,846 18,088 25,890 25,841 63,425
Internal debt (market borrowings) 3,25,414 4,36,211 4,67,356 4,53,902 4,61,205
External borrowings (Net) 23,556 12,448 7,201 5,441 5,734
Total Receipts 11,90,899 13,20,355 14,10,367 15,90,434 17,94,892
Revenue Expenditure 10,40,723 11,45,785 12,43,509 13,99,540 15,68,111
Interest payments 2,34,022 2,73,150 3,13,170 3,80,066 4,27,011
Subsidies 1,73,420 2,17,941 2,57,079 2,55,516 2,60,658
Pensions 57,405 61,166 69,479 74,076 81,983
Capital expenditure 1,56,605 1,58,580 1,66,858 1,90,894 2,26,781
Total Expenditure 11,97,328 13,04,365 14,10,367 15,90,434 17,94,892
Revenue Defcit 2,52,252 3,94,348 3,65,896 3,70,288 3,78,348
Fiscal Defcit 3,73,591 5,15,990 4,90,597 5,24,539 5,31,177
Primary Defcit 1,39,569 2,42,840 1,77,428 1,44,473 1,04,166
Table 2: Borrowing Positon
Rs Crore FY11 FY12 FY13 FY14 RE FY15 BE
Internal borrowings
Net Borrowings 3,25,414 4,36,211 4,67,356 4,53,902 4,61,205
Gross Borrowings 4,37,000 5,09,796 5,58,000 5,63,911 6,00,000
Repayments 1,11,586 73,585 90,644 1,10,009 1,38,795
External Borrowings
Net Borrowings 23,556 12,448 7,201 5,441 5,734
Gross Borrowings 35,330 26,034 23,309 23,565 28,175
Repayments 11,774 13,586 16,108 18,124 22,441
Table 3: Major Subsidies
Rs Crore FY11 FY12 FY13 FY14 (RE) FY15 (BE)
Major Subsidies 1,64,516 2,11,319 2,47,493 2,45,452 2,51,397
Food Subsidy 63,844 72,822 85,000 92,000 115,000
Fertlizer Subsidy 62,301 70,013 65,613 67,972 72,970
Petroleum Subsidy 38,371 68,484 96,880 85,480 63,427
Union Budget 2014-15
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1. Outline and Initatves
Fiscal Outline
The Revenue receipts are budgeted to increase by 15.6%
to Rs 11,89,763 crore in FY15 (BE).
o Tax revenue is expected to rise to Rs 9,77,258 crore,
marking a growth of 16.9%.
o Non-tax revenue is estmated to stand at Rs 2,12,505
crore, a growth of 10% over that in FY14 (RE).
Total expenditure of the Government in FY15 is estmated
to reach Rs 17,94,892 crore, 10.9% higher than that in
FY14 (RE).
o Plan expenditure which accounts for 32% of the total
expenditure is estmated at Rs 5,75,000 crore, a
growth of 20.9% over the last fscal.
o Non-Plan expenditure which accounts for 68% of the
total expenditure is budgeted to increase by 9% to Rs
12,19,892 crore in FY15 (BE).
The Revenue defcit is budgeted to decline to 2.9% of
GDP in FY15 (BE) from 3.3% in FY14 (RE). The revenue
defcit in absolute fgure is estmated to be Rs 3,78,348
for FY15 (BE).
The Fiscal defcit target is maintained (as in interim
budget) at 4.1% of GDP in FY15 (BE), lower than the 4.6%
of FY14 (RE).
Governments net borrowing has been revised upwards
to Rs 4,61,205 crore in FY15 (BE) from Rs 4,53,902 crore
in FY14 (RE).
The disinvestment target in the current fscal is estmated
to rise to Rs 63,425 crore from Rs 25,841 crore in FY14
(RE).
The subsidy bill is expected to rise marginally (2%) from
Rs. 2,45,451 crore to Rs 2,51,397 crore.
o The fertlizer subsidy is to increase to Rs. 72,970
crore in FY15 (BE) from Rs 67,972 crore in FY14 (RE).
o The food subsidy has increased signifcantly from Rs
92,000 crore in FY14 (RE) to Rs 1,15,000 in FY15 (BE).
o Petroleum subsidy has moderated to Rs 63,427 crore
in the ongoing fscal from Rs. 85,480 crore in FY14.
Tax Proposals
Personal Income-tax exempton limit raised by
Rs.50,000- that is, from Rs.2 lakh to Rs.2.5 lakh in the
case of individual taxpayers, below the age of 60 years.
Exempton limit has been raised from Rs.2.5 lakh to Rs.3
lakh in the case of senior citzens.
No change in the rate of surcharge either for the
corporates or the individuals, HUFs, frms etc.
The educaton cess to contnue at 3%.
Investment limit under secton 80C of the Income-tax
Act raised from Rs.1 lakh to Rs.1.5 lakh.
On the indirect tax front, reductons have been
made in customs and excise duty aimed at giving the
manufacturing sector a boost.
Infrastructure Initatves
A sum of Rs.7,060 crore is provided in the current fscal
for the project of developing one hundred Smart Cites.
An insttuton to provide support to mainstreaming
PPPPs called 4PIndia to be set up with a corpus of Rs.500
crore.
Banks to be allowed to raise long term funds for lending
to infrastructure sector with minimum regulatory pre-
empton such as CRR, SLR and priority sector lending.
As an innovaton, a modifed REITs (Real Estate Investment
Trust) type structure for infrastructure projects is also
being announced as Infrastructure Investment Trusts
(InvITs) which would have a similar tax efcient pass
through status, for PPP and other infrastructure projects.
Inland Navigaton: Project on Ganges called Jal Marg
Vikas to be developed between Allahabad and Haldia.
New Airports: Scheme for development of new airports
in Tier I and Tier II Cites to be launched.
Road Sector:
o An investment of an amount of Rs.37,880 crore in
NHAI and State Roads is proposed which includes
Rs.3,000 crore for the North East.
o Target of NH constructon of 8,500 km to be achieved
in current fnancial year
o Work on select expressways in parallel to the
development of the Industrial Corridors will be
initated. For project preparaton NHAI is to be set
aside a sum of Rs.500 crore.
o PMGSY has been provided sum of Rs.14,389 crore in
FY15 budget.
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Railways:
o A sum of Rs. 100 crore to be allocated for metro
projects in Lucknow and Ahmedabad.
Shipping:
o Rs.11,635 crore will be allocated for the development
of Outer Harbour Project in Tutcorin for phase I.
o SEZs will be developed in Kandla and JNPT.
o Comprehensive policy to be announced to promote
Indian ship building industry.
Energy:
o 10 year tax holiday extended to the undertakings
which begin generaton, distributon and
transmission of power by 31.03.2017
o An exercise to ratonalize coal linkages to optmize
transport of coal and reduce cost of power isbeing
considered..
o Rs.400 crores provided for a scheme for solar power
driven agricultural pump sets and water pumping
statons.
o Rs.100 crore is allocated for a new scheme Ultra-
Modern Super Critcal Coal Based Thermal Power
Technology.
o Comprehensive measures for enhancing domestc
coal producton are being put in place.
o The budget also proposes Rs.200 crore for power
reforms along with Rs. 500 cr for rural power plan
for New Delhi.
Social Initatves
New programme Neeranchal to give impetus to
watershed development in the country with an inital
outlay of Rs.2,142 crore.
Allocaton for Natonal Housing Bank increased to
Rs.8,000 crore to support Rural housing.
An amount of Rs.50,548 crore is proposed under the
Schedule Cast Plan and Rs. 32,387 crore under Tribal Sub
Plan (TSP)- Schedule Tribe.
For the welfare of the tribals Van Bandhu Kalyan Yojna
launched with an inital allocaton of Rs.100 crore.
Outlay of Rs.50 crore for pilot testng a scheme on
Safety for Women on Public Road Transport.
Sum of Rs.150 crore on a scheme to increase the safety
of women in large cites
A sum of Rs.100 crore is provided for Bet Bachao,
Bet Padhao Yojana, a focused scheme to generate
awareness and help in improving the efciency of
delivery of welfare services meant for women.
Agriculture Initatves
A sustainable growth of 4% in Agriculture will be
achieved in FY15
An amount of Rs 100 crores set aside for Agri-tech
Infrastructure Fund
To mitgate the risk of Price volatlity in the agriculture
produce, a sum of Rs 500 crore is provided for establishing
a Price Stabilizaton Fund
Central Government to work closely with the State
Governments to re-orient their respectve APMC Acts
A target of Rs 8 lakh crore has been set for agriculture
credit during FY15
Corpus of Rural Infrastructure Development Fund (RIDF)
raised by an additonal Rs 5000 crore
Allocaton of Rs 5,000 crore provided for the Warehouse
Infrastructure Fund
Long Term Rural Credit Fund to set up for the purpose
of providing refnance support to Cooperatve Banks and
Regional Rural Banks with an inital corpus of Rs 5,000
crore.
Rs. 1,000 crore provided for Pradhan Mantri Krishi
Sinchayee Yojna for assured irrigaton.
Restructuring FCI, reducing transportaton and
distributon losses and efcacy of PDS to be taken up on
priority.
New Urea Policy to be formulated
Industry Initatves
Rs. 100 crore provided for setng up a Natonal Industrial
Corridor Authority.
Proposed to establish an Export promoton Mission to
bring all stakeholders under one umbrella.
Apprentceship Act to be suitably amended to make it
more responsive to industry and youth
Sum of Rs 500 crore for developing a Textle mega-
cluster at Varanasi and six more at Bareilly, Lucknow,
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Surat, Kutch, Bhagalpur and Mysore
Rs 10,000 crore provided through equity venture capital
funds, quasi equity, sof loans and other risk capital
specially to encourage new startups by youth to be set
up in MSME sector
Introducton of GST to be given thrust
Banking Initatves
Requirement to infuse Rs 2,40,000 crore as equity by
2018 in our banks to be in line with Basel-III norm
Banks to be encouraged to extend long term loans
to infrastructure sector with fexible structuring, to
be permited to raise long term funds for lending to
infrastructure sector with minimum regulatory pre-
empton such as CRR, SLR and Priority Sector Lending
(PSL)
Financial Sector
Introducton of uniform KYC norms and inter-usability of
the KYC records across the entre fnancial sector.
Introduce one single operatng demat account.
Uniform tax treatment for pension fund and mutual
fund linked retrement plan.
2. Impact Analysis on various components of GDP
(i) Agriculture
The government aims at a 4% growth in agriculture in this
fscal and to achieve this growth it plans to undertake various
measures. The government has stated its aim for a second
green revoluton and has laid out measures to improve
technology & investment to make the sector compettve.
It has made allocaton for the short & long term investment
in the sector and for an agri infrastructure fund. Higher
provision of credit at Rs 8 lakh crore to agriculture marking a
20% increase over the agricultural credit last year while also
being higher than the increase in overall credit disbursed by
banks. This will help to improve the producton and logistcs
for various crops. Also, the contnuaton of interest rate
subventon is tmely, as it will help provide the much needed
funds to farmers and help ease their fnancial burden to an
extent at a tme when they are pressured by sub-normal
monsoons. Other initatves such as making allocatons for
warehousing and intent on reorientng the long overdue
APMC Act would beneft both the producers and the
consumers.
NREGA Programme
NREGA in the past has not been too successful in producing
meaningful public assets. The government aims at redesigning
the programme by providing employment for more
productve, asset creaton which has linkages to agriculture
& allied actvites. The allocaton towards this programme has
been retained at around Rs 33,000 crore.
(ii) Infrastructure
Transport
The government has emphasized the need to accelerate
infrastructure development. Government strategy to boost
investments in infrastructure segment via PPP mode indicates
an increased thrust on the sector. Budgetary allocatons to the
Ministry of Road Transport and highway for building Natonal
Highways and Ministry of Railways for high speed trains such
as metros are expected to encourage the transportaton and
overall logistcs segment in India. Increase in allocatons
to schemes such as PMGSY is expected to improve access
for rural populaton. In additon, the proposed projects to
be undertaken to develop roads, airports and railways will
also aid in generatng employment opportunites. Thus,
improvement in overall connectvity across the states in turn
shall aid partcularly the manufacturing segment actvites
and drive the overall economic growth.
Energy
The energy sector has been afected partcularly due to
shortage in coal thereby severely impactng thermal power
generaton. The governments proposal to ratonalize coal
linkages will have a positve impact on the thermal power
plants. Various incentves have been provided such as 10
year tax holiday extended to the undertakings which begin
generaton, distributon and transmission of power by
31.03.2017. This will further encourage new players to enter
the power sector. In additon, the budget also proposes
Rs.200 crore for power reforms along with Rs. 500 cr for rural
power plan in order to make New Delhi a world class city. It
also focuses on undertaking modern power projects. These
measures are expected to have a positve impact on the power
sector.
In order to boost infrastructure fnancing, the budget
provides various fnancing measures. Firstly, it lays emphasis
on the PPP mode to funds sources for infrastructure projects.
Besides, the government has also proposed to allow banks
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to raise long term funds for lending to infrastructure sector
with minimum regulatory pre-empton such as CRR, SLR and
priority sector lending.
Given the increased planned outlay for infrastructure sector,
the budget is expected to positve for the infrastructure
segment.
(iii) Defcit
The government retained the fscal defcit target of 4.1% from
the interim budget. The atainment of the targeted 4.1% of
GFD (as a percentage of GDP in FY15), would be contngent
on the overall growth of the economy and the consequent
increases in revenue. With no major changes on the taxaton
and revenue front, growth in the same would have to be
robust enough to help meet this target.
(iv) Disinvestment
The government has set a disinvestment target of Rs 63,425
crore for the current fscal, mainly driven by the current
market conditons. There is a disconnecton in the current
economic conditons and the equity market movements.
The movement in the market has been driven mainly by
sentment. With the stock market on an upturn, this could
be the right tme to ofoad equity into the market. However,
the fnal decision taken on disinvestment would be company
specifc. Also it remain to be seen whether disinvestment of
this magnitude would be one that involves the entre market
or whether it would be done through cross holding of PSUs as
has been the case in the past.
(v) Interest rate and liquidity
The long term gross market borrowing plan of the government
for FY15 is in line with the envisaged plan in the interim
budget at Rs 6,00,000 crore growing by 6.4% compared to last
year. However since this amount is not very diferent from the
earlier estmate in the interim budget, there is no pressure
expected on the liquidity in the system. Gross borrowings
in the form of external assistance are estmated to grow by
19.6% to Rs 28,175 crore from Rs 23,565 crore in FY14.
The net borrowing from the internal debt market is likely to
increase slightly to Rs 4,61,205 crore in FY15 from 4,53,902
crore last year. The net borrowing under external assistance
will grow by 5.4% to Rs 5,734 crore in FY15.
The implicit interest rate for FY15 appears to have fallen
to 6.9% in FY15 from 7.13% in FY14 suggestng that the
Government antcipates a decline in interest rate in the
ongoing fscal. However, this is highly unlikely given the failed
monsoon so far, uncertainty in oil prices. Moreover, it appears
as though interest rates will contnue to be infaton driven
and hence are out of the budgetary context.
(vi) Debt
Public debt of the GoI is stated to rise by 11.9% in FY15 to Rs.
49,60,065 crore. Internal debt which accounts for 96% of the
public debt is estmated to grow by 12.3% to Rs 47,71,602
crore and external debt will increase by a small 3.1% to Rs
1,88,463 crore. The other liabilites of the Government are
estmated to rise by 11% to stand at Rs 62,22,658 crore in
Fiscal 15 from Rs 55,87,149 crore last year.
Table 3: Debt Profle (Rs Cr)
Rs crore FY13 (A) FY14 (RE) FY15 (BE)
Public Debt 39,41,855 44,33,026 49,60,065
Internal Debt 37,64,566 42,50,297 47,71,602
External Debt 1,77,289 1,82,729 1,88,463
Other liabilites 11,28,747 11,54,423 12,62,592
Total debt 50,70,601 55,87,449 62,22,658
(vi) Financial Services: Impact
Capital Markets
The extension of the 5% withholding tax on all corporate
debt issued by Indian corporates abroad would bring about
the much needed uniformity in tax treatment of investors.
This move could help atract foreign investors towards Indian
corporate bonds thereby deepening the bond market. It
would also aid corporates in tapping the bond markets to
raise funds.
The Government reiterated the importance of deepening
the bond market and the currency derivatve markets in the
country and regulators were urged to lower restrictons on
the same.
Single KYC norms and demat account to apply across the
entre fnancial system. This would help households dealing
in these markets.
(vii) Infaton: Macro impact
While the budget announcements are not likely to have any
immediate impact on infaton, there are certain steps in the
right directon when viewed from the long term perspectve.
The following conjectures can be drawn based on the
announcements and estmates in the budget.
11
The reducton in the dutes of manufactured items could
ease infatonary pressures in these items.
The reducton in petroleum subsidy would result in
an increase in the prices of petroleum products to be
borne by consumers. Petroleum prices could be further
pressed by the unrest in Iraq.
The Government is to increase the warehousing capacity
for increasing the shelf life of agriculture produce.
Additonal scientfc warehousing infrastructure in the
country will also be set up. This will preserve the earning
capacity of farmers and ease the price volatlity of
agriculture produce.
12
Auto Components
Industry Snapshot:
During the last decade strong growth scenario in automobile sales has fuelled growth in the auto
component industry. Apart from rising demand from local OEMs, the industry also got boost by the
entry of global automobile OEMs to seize low-cost advantage of manufacturing in India.
Growing income levels during last one decade translated into strong automobile sales which in turn
resulted in high demand for OEM segment. However, last couple of years were challenging for OEM segment due to strained
demand for new vehicles from domestc as well as exports market.
The replacement segment had hardly any impact of the economic slowdown on account of the huge existng vehicle
populaton. Moreover, the relatvely faster increase in the density of roads has led to greater passenger & cargo movement
by roads vis--vis rail which too has added to replacement demand.
CARE Ratngs believes auto component manufacturers have to derive new strategies like expanding product ofering to cater
larger end user industry base, focusing on exports markets, improving technology, etc. to negate the impact of demand
slowdown. Moreover, the industry would also be benefted on the back of increasing localisaton drive by global OEMs
in order to cut down cost combined with rising exports. However, complete revival of auto component industry largely
depends on recovery of OEM segment which forms around 62 per cent of the industry turnover.
Duty Structure
Customs Duty (%) Before Afer Impact Excise Duty (%) Before Afer Impact
Engine & engine parts,
except the below-
mentoned
7.5 7.5
=
Engine & engine parts 12 12
=
Silencer, exhaust pipes &
radiators
10 10
=
Drive transmission,
steering, suspension &
braking parts
12 12
=
Drive transmission,
steering, suspension &
braking parts, except the
below-mentoned
10 10
=
Spark plug, distributors,
igniton coils & starter
motors
12 12
=
Couplings & seals 7.5 7.5
=
Spark plug, distributors,
igniton coils & starter
motors
7.5 7.5
=
Proposal and Impact
Budget proposals Impact on the Industry
Pre-budget announcement of extension of excise duty
rebate tll December 31, 2014, was reiterated by the
Finance Minister.
Lower excise duty would translate into lower vehicle prices;
consequently, induce growth in demand which would in turn lead
to higher demand for auto components.
13
Impact on Companies
Company Impact Comments
Bharat Forge Ltd.
+
Pre-budget extension of excise duty cut for automobile industry would boost
vehicle demand which would translate into higher demand for auto ancillaries.
Bosch Ltd.
+
Exide Industries Ltd.
+
Motherson Sumi Ltd
+
Sona Koyo Steering
Systems Ltd.
+
WABCO India Ltd.
+
14
Automobiles
Industry Snapshot:
The automobile industry is sensitve to economic cycles. Factors like interest rates, fuel prices,
disposable income, infaton, consumer confdence etc. have strong infuence on the industry demand.
However, the extent of cyclicality difers across passenger vehicles (PV), commercial vehicles (CV)
and two-wheeler (TW) industry. For instance, medium and heavy commercial vehicle (M&HCV) along
with PV industry is highly sensitve to factors like interest rates, fuel prices and consumer spending whereas TW and light
commercial vehicles (LCV) are comparatvely less sensitve to the aforesaid factors.
The PV industry bore the brunt of economic slowdown during FY14 on account of high interest rates coupled with high
infaton and spiralling fuel prices. The CV industry was worst hit in FY14 witnessing sharp drop in growth levels as low
freight demand disallowed feet expansion by transport operators. The TW industry witnessed a moderate growth due to
low dependence on fnancing and support from rural demand as the rural economy thrived on account of good monsoon
last fscal.
In a year when vehicle sales were trembling across segment in automotve sector, scooters segment contnued to fourish
owing to the improved mileage and unisex appeal of newer breed of scooters. UVs and LCVs which were the other star
performers during past couple of years failed to contnue growth momentum against economic headwinds.
While the fundamentals for the sector remain intact, growth is currently constrained by the general economic slowdown.
Interest rates, fuel pricing, infrastructure and agriculture spending would be decisive factors for automobile sector to
emerge out of the current slump in the short term.
Duty Structure
Passenger Cars Small Cars* 8 8*
=
Old 105 105
=
Mid-size Cars@ 20 20*
=
New 100 100
=
Large Cars# 24 24*
=
Two Wheelers SUV 24 24*
=
Old 105 105
=
Buses 8 8*
=
New 60 (75^) 60 (75^)
=
Trucks 8 8*
=
Two Wheeler Two Wheeler 8 8*
=
Old 10 10
=
Three Wheeler 8 8*
=
New 10 10
=
Hybrid Vehicles 5 5*
=
N o t e :
*Indicates cars which have engine capacity less than 1,500cc in case of diesel and 1,200cc in case of petrol and length less than 4 meters.
@ Indicates cars which have engine capacity less than 1,500cc in case of diesel and 1,200cc in case of petrol and length more than 4 meters.
#indicates cars having engine capacity more than 1,500cc in case of diesel cars and 1,200cc in case of petrol and length exceeding 4 meters.
Defniton of SUV as per central excise department is a vehicle with engine capacity greater than 1,500cc, length exceeding 4000mm and
ground clearance 170 mm and above
^ Indicates motorcycle with engine capacity > 800 cc
* Excise duty rebate provided during Interim budget 2014-15 is extended in the Union Budget 2014-15 untl 31st December, 2014.
15
Proposal and Impact
Pre-budget announcement of extension of
excise duty rebate tll December 31, 2014,
was reiterated by the Finance Minister.
Automobile demand has been constrained on account of higher ownership
cost of vehicles on account of high fuel and fnancing costs coupled with lower
propensity to spend owing to lower job prospects, low growth in income levels
and high infaton level. However, lower excise duty would translate into lower
vehicle prices, consequently, induce growth in demand.
Hike in agriculture credit from Rs.700,000
crore to Rs.800,000 crore
Improved rural liquidity, thereby push demand for Tractors and TWs.
Extension of interest rate subventon
scheme for crop loans
Improved rural liquidity, thereby push demand for Tractors and TWs.
Impact on Companies
Marut Suzuki India Ltd
+
Pre-budget extension of excise duty cut coupled with improved rural liquidity goes
in favor of Marut as rural sales form a sizable porton of total sales of the company.
Ashok Lyeland Ltd.
+
Pre-budget extension of excise duty cut coupled with higher allocatons towards
both rural and urban infrastructure would push demand for M&HCV.
Hero Motocorp Ltd
+
Pre-budget extension of excise duty cut coupled with improved rural liquidity goes
in favor of Hero as rural sales form a sizable porton of total sales of the company.
Bajaj Auto Ltd.
+
Pre-budget extension of excise duty cut would help company keep vehicle prices
low which would in turn result in higher demand.
16
Banking & Financial Services
Industry Snapshot:
Banks
The banking sector has a very high correlaton with the overall economic growth in the country. During
FY14, the overall economy contnued to witness moderaton in growth with GDP growth at 4.7%. The
manufacturing sector saw negatve growth at -0.7% during the year while sectors like constructon and
services sector witnessed low growth. As a result, the credit growth during FY14 was also muted at around 14% supported
by growth in sectors like services, agriculture and personal loans. The muted economic scenario impacted the overall
performance of banks as indicated in deterioraton in asset quality leading to higher provisioning costs and moderaton in
income impactng proftability besides moderated credit growth. The Gross NPA rato for the banks increased from 3.31%
as on March 31, 2013 to 3.91% as on March 31, 2014. Although both the proftability and asset quality of the banks was
impacted, currently the Indian banks remained adequately capitalised with median Capital Adequacy Rato (CAR) of around
11.5% (under Basel III). During FY14, interest rates contnued to be at an elevated level, given the Reserve Bank of Indias
(RBI) focus on controlling infaton.
During FY15, RBI is likely to keep its focus on infaton in view of uncertain monsoon, due to which the interest rates are
likely to remain more or less stable during the year. CAREs GDP growth forecast for FY15 is expected to improve gradually to
5.2% to 5.5% considering the new governments plan to focus more on investment in the infrastructure sector, tme bound
acton and improved co-ordinaton between the Central and State Governments to ensure smooth implementaton of new
Government policies. The improvement in overall economic growth and governmental clearances in projects would help
recovery in sectors like infrastructure and manufacturing which may result in stabilisaton of the asset quality of banks and
propel credit growth in the range of 16% to 18% during FY15.
In additon to fund the uptck in credit growth, the banks would be required to raise substantal equity capital in the next 4-5
years to comply with the Basel III guidelines. With public sector banks having over 70% market share, the government would
be required to infuse equity capital in the banks. As per CAREs estmates, the total equity capital requirement for Indian
banks tll March 2019 (when Basel III would be fully implemented) is likely to be in the range of Rs.1.5-1.8 trillion assuming
that the economic growth picks up (estmated average GDP at 6%) and the average credit growth is in the range of 15% to
16% over the next fve years.
Housing Finance Companies
Strong demand due to low penetraton of housing fnance especially from Tier II and III cites, increasing urbanizaton, tax
incentves and stable asset quality have helped the Housing Finance Companies (HFCs) witnessed a growth of around 16%
- 17% in their loan portolio during FY14. The Gross NPA rato for HFCs was in the range of 0.75% to 0.80% as on March 31,
2014 as compared to 0.65% to 0.70% as on March 31, 2013. Most of the HFCs remained adequately capitalized. The credit
growth for HFCs is projected in the range of 18% to 20% (CAGR) during FY14-FY16 mainly led by demand in Tier-II and Tier-III
cites.
In the budget for FY14, the Congress led government had introduced Secton 80EE in the Income Tax Act which provided
additonal deducton to frst tme home buyers in respect of interest on loan taken for residental house property for loans
sanctoned during the period April 1, 2013 to March 31, 2014. The value of the house should not be more than Rs.40 lakh
and the amount of loan availed should not be more than Rs.25 lakh. The scheme had helped home buyers in Tier II and Tier
III cites wherein the housing tcket size are under Rs.25 lakh. However, there was no amendment/extension in the interim
budget for FY15. HFCs are expectng an extension of the scheme in the budget for FY15 to help increase their business.
17
Proposal and Impact
Capitalisaton of banks by way of increasing public
shareholding in banks. Government to maintain
majority shareholding in public sector banks.
Government maintaining the majority shareholding in the public
sector banks is a credit positve while greater autonomy and making
banks accountable should improve the performance of banks in the
medium term.
The interim budget had an allocaton of Rs.11,200 crore for
capitalisaton of public sector banks, however, large part of
capitalizaton of the banks now would be through capital markets.
Establishment of six new Debt Recovery Tribunals Likely to help early resoluton of troubled assets.
Banks will be permited to raise long term funds
for lending to infrastructure sector with minimum
regulatory preempton such as CRR, SLR and Priority
Sector Lending (PSL).
Raising long term funds will help banks to manage their asset
liability mix beter to allow them to lend to the infrastructure sector.
Additonal incentve of 3% for tmely payment of
concessional agriculture loan given at 7% under the
Interest Subventon Scheme for short term crop loans.
Additonal incentve will help improve credit culture among the
farmers and have positve impact on the asset quality of banks.
Sum of Rs.7,060 crore to develop Smart Cites, as
satellite towns of larger cites and by modernizing the
existng mid-sized cites.
This growth in urbanizaton will provide growth opportunites for
banks and HFCs.
The increased allocaton to Rs.8,000 crore for Natonal
Housing Bank (NHB) for Rural Housing Fund
The Governments contnued thrust on providing low cost afordable
housing is a positve for HFCs.
Sum of Rs.4,000 crore from the priority sector lending
shortall to support afordable housing to economically
weaker segments (EWS) and low income group
segment (LIG)
The Governments contnued thrust on providing low cost afordable
housing is a positve for HFCs and banks.
Increase the deducton limit on account of interest on
loan in respect of self-occupied house property from
Rs.1.5 lakh to Rs.2 lakh
Help banks and HFCs business growth.
Proposed Long Term Rural Credit Fund in NABARD
for the purpose of providing refnance support to
Cooperatve Banks and Regional Rural Banks with an
inital corpus of Rs.5,000 crore.
Improve the long term investment in credit in the agriculture sector
and provide funding to Regional Rural Banks (RRB) and Co-operatve
Banks.
Allocaton of Rs.50,000 crore to Short Term Cooperatve
Rural Credit (STCRC) Refnance Fund.
Provide lower cost fund to NABARD and in turn help increased and
tmely credit to farmers.
The composite cap in the Insurance sector proposed
to be increased from 26% to 49%, with full Indian
management and control, through the FIPB route.
Positve impact on the insurance sector as it will bring in more
foreign investment in the sector which will help the growth in the
sector.
Increase in capital gains arising on transfer of units of
non-equity mutual funds, held for more than a year
from 10% to 20%. The holding period for such units is
increased from 12 months to 36 months
Likely to shif investments from debt funds to bank deposits and
other instruments.
18
Cement
Industry Snapshot:
The Indian cement industry witnessed a dismal demand growth in the past few years. In FY14, the
consumpton of cement showed a tepid growth of 3.5 per cent on a YoY basis, the lowest growth over
the last one decade.
The slowdown in the real estate sector and delay in takeof of various infrastructural projects in the
period FY11-14 took a toll on the cement demand. Spiralling cost of capital, delays in executon of infrastructure as well as
industrial projects on account of land acquisiton & environmental clearance hurdles and the overall economic slowdown
adversely afected the ofake of cement.
Though the demand for cement in the long term remains intact, the demand for cement is expected to show a gradual
recovery in the short to medium term. The newly elected government is expected to focus on strengthening the infrastructure
in the country. Also, focus on low-cost afordable housing and revival in overall economic growth is expected to provide
some respite to the cement demand.
The cement industry has been grappling with cost pressure in the past few months due to raise in the railway freight cost
and diesel prices. However, the industry has managed to pass on the higher input cost through a series of price hikes in the
same period.
Duty Structure
Cement Cement
OPC/PPC/PSC#
- Basic
- CVD
- Special CVD
Nil
12
4
Nil
12
4
=
- Retail 12*+
Rs.120/t
12*+
Rs.120/t
=
Clinker
- Basic
- CVD
- Special CVD
10
12
4
10
12
4
=
- Bulk 12# 12
=
- Clinker 12 12
=
*An abatement of 30% on Retail Sale price and is on adveloram, # on adveloram, # OPC- Ordinary Portland cement, PPC- Portland pozzalana
cement and PSC- Portland slag cement.
19
Proposal and Impact
Key schemes announced
1) Concession on requirement (Built up area and capital) for FDI for development of
smart cites.
2) Enhancement of allocatons for the year 2014-15 to Rs.8,000 crore for Rural
Housing via Natonal Housing Bank (NHB).
3) Allocate of Rs.4,000 crore for NHB with a view to increase the fow of cheaper
credit for afordable housing to the urban poor/EWS/LIG segment.
4) Inclusion of slum development in the list of Corporate Social Responsibility (CSR)
5) Porposal to award 16 new port projects worth Rs.11,635 crore in this year
6) Investment in Natonal Highways Authority of India and State Roads of an amount
of Rs.37,880 crore, including Rs.3,000 crore for the North East.
7) Setng aside Rs.14,389 crore for PMSGY
The said schemes/ measures to
boost infrastructure and housing
segments. This is expected to spur
cement demand.
Increase of custom duty on coal
This would result in marginal increase
in cost of producton of cement by
about Rs.0.15 per bag.
Impact on Companies
Ultratech Cement
+
Various schemes announced to have a positve impact on the demand. However,
increase in custom duty on steam coal to result in marginal increase in cost of
producton.
ACC
+
Ambuja
+
Indian Cement
+
20
Coal
Industry Snapshot:
Indian coal industrys domestc producton/of-take stood at 567/582MT in FY14 (refers to the period
April 01 to March 31). Against this the demand for coal stood at 722MT in FY14 resultng in defcit
of 19.3%, which was met through import. CARE expects Indian coal producton to reach 690MT for
the base case scenario implying a 5.5% CAGR from FY14-FY17. The growth in coal producton would
be contributed by Coal India Limited (CIL) (expected to reach 564MT implying 5.7% CAGR during FY14-FY17E) and 7%
producton CAGR from the captve mines (68.7MT in FY17E). The demand of coal is expected to grow at 5.4% for the same
period translatng into higher reliance on imported coal which is expected to reach to 148.8MT by FY17E.
Over the past one year, various policy measures like coal price pooling, coal banking, etc, have been proposed in order to
tde over the coal defcit in the country. While there have been several policy announcements the implementaton remains
tardy due to lack on consensus among various stakeholders.
Duty Structure
Customs Duty (%) Before Afer Impact
Non-Coking Coal 2% 2.5%
=
Coking Coal Nil 2.5%
=
Non-coking & coking
Coal (Counter Veiling Duty)
2% 2%
=
Met coke Nil 2.5%
=
Clean Energy Cess Rs50/tonne Rs100/tonne
=
Impact on Companies
Coal India Limited
=
Since, energy cess is pass-through, Coal India Limited would not be impacted.
21
Constructon
Industry Snapshot:
Constructon is integral to support India growing need for infrastructure and industrial development.
In the last 10 years, constructon as a percentage of gross domestc product (GDP) has been in the
range of 7.43% to 8.10%. The industry witnessed a slowdown in the last couple of years mainly on
account of slowdown in the economy, delay in project awarding and executon due to environmental
clearance hurdles, aggressive bidding by players, land acquisiton issues and politcal instability in some states.
As on March 31, 2014, the multple of order backlog to the net sales of the major constructon companies stood at around
2.9 tmes.
Raw material cost accounts for about 40% of the total cost of a constructon company of which cement and steel are the
major inputs. Rising input costs alongwith other factors like high interest on increased debt burden resulted into a declining
trend in proftability margins in the last couple of years. With the revenue of the industry growing at a snails pace; coupled
with the rising cost pressure, the PBDIT margin of the industry is expected to remain under pressure in the short term.
Duty Structure
Excise Duty (%) Before Afer Impact
Cement Retail 12% ad-valorem* + Rs. 120 per tonne 12% ad-valorem* + Rs. 120 per tonne
=
Cement Bulk 12% ad-valorem* 12% ad-valorem*
=
Steel 12% 12%
=
*An abatement of 30% on the Retail Sale Price.
22
Proposal and Impact
Roads:
A huge investment of Rs.37,880 crore (including Rs.3,000 crore for North East) is proposed in
NHAI and state roads along with measures to reduce maze of clearances as the government
intends to construct natonal highways of 8,500 km during FY15.
Government intends to set up Natonal Industrial Corridor Authority; with a view to give
impetus to transport connectvity which will lead to Indias growth in manufacturing and
urbanizaton.
Improving supply chain for faster transport of goods to various cites would be done by
working on select expressways along with development of industrial corridor. NHAI shall be
required to set aside Rs.500 crore for project preparaton of the same.
The contnual increased
focus of the government on
infrastructure development
especially roads, smart
cites, ports, watershed
development, airway, and
waterway would be benefcial
for the constructon sector in
terms of providing increased
orders.
Airports
To improve air connectvity and make air travel an accessible opton for large number of
Indians, a scheme for development of new airports in ter-I and ter-II is expected to be
launched through Airport Authority of India or PPPs.
Railways
The Railway Budget for FY15 proposed constructon of 1785 road under bridges and road
over bridges and provision of escalators, lifs via PPP route at all major statons. It also
focused on expansion of rail infrastructure with faster implementaton of projects planned.
The Union Budged 2014 proposes constructon of urban metros including light rail systems
through PPP mode to be supported by the central government through Viability Gap Funding
(VGF). During FY15 government intends to set aside Rs. 100 crore for metro projects in
Lucknow and Gujrat.
Further, a sum of Rs. 1,000 crore is provided towards rail connectvity in border areas and an
additonal Rs. 1,000 crore is provided for rail connectvity in North Eastern states.
Ports
To boost trade, 16 new port projects are expected to be awarded with a focus on port
connectvity. Rs.11,635 crore is expected to be allocated for the development of Outer
Harbour Project in Tutcorin for phase-I. SEZs are also expected to be developed in Kandla,
Gujarat and JNPT, Maharashtra.
Inland waterways
Development of inland waterways through constructon of Jal Marg Vikas (Natonal
Waterways I) between Allahabad and Haldia covering a distance of 1,620 Kms. It would
enable commercial navigaton of vessels with atleast 1,500 tonne capacity at an estmated
cost of Rs. 4,200 crore.
Smart cites:
The PMs vision of developing 100 smart cites as satellite towns of larger cites and
modernizing the existng mid-sized cites would be done through allocaton of Rs.7,060 crore
Requirement of built-up area and capital conditons for FDI is reduced from 50,000 sq mtrs
to 20,000 sq mtrs and from USD 10 million to USD 5 million with a 3 year post completon
lock-in period.
To increase impetus to watershed development in the country, a new programme called
Neeranchal has been introduced with an inital outlay of Rs.2,142 crore in FY15.
23
Financing
Banks would be encouraged to extend long term loans to infrastructure sector with fexible
structure to absorb potental adverse contngencies. For the same, banks could raise long-
term funds for lending to infrastructure sector with minimum regulatory preempton such as
CRR, SLR and priority sector lending.
Corpus towards the Pooled Municipal Debt Obligaton is increased from Rs. 5,000 crore to Rs.
50,000 crore and also extended upto March 31, 2019.
Ensuring funding support
from banks through relaxaton
of norms for lending to
infrastructure sector will be
an impetus to constructon
industry. The increased corpus
towards Pooled Municipal
Debt Obligaton is expected to
fnance public transport, solid
waste disposal, sewerage
treatment and drinking water
projects in urban areas.
Impact on Companies
Hindustan Constructon Company Limited
+
Increased allocaton towards various infrastructure projects is
expected to result in increased order infow to the constructon
companies along with improved funding avenue from banks.
NCC Limited
+
Gammon India Limited
+
IVRCL Infrastructures and Projects Limited
+
Sadbhav Engineering Limited
+
Simplex Infrastructures Limited
+
Patel Engineering Limited
+
24
Consumer Durables
Industry Snapshot:
The Consumer Goods industry is broadly classifed into consumer appliances and consumer electronics.
Consumer appliances, also popularly known as White Goods include refrigerators, sewing machines,
washing machines, air conditoners, microwave ovens, fans etc. Consumer electronics, widely referred
to as Brown Goods include Televisions, Mobile phones, CD and DVD players, kitchen appliances etc.
These goods include various kinds of domestc appliances used on a regular basis to facilitate our day to day living.
The Indian Consumer Goods industry, one of the largest growing electronics market in the world is characterised by
presence of large domestc producers (Videocon, MIRC electronics, Bajaj Electricals, Godrej, Blue Star, Voltas, TTK Prestge,
etc) and strong MNCs (Multnatonal Companies) like Sony, Samsung, LG, Whirlpool etc. have healthy presence in most of
the product categories they are present. The size of the industry is estmated at around Rs 400 billion during FY13. Global
players dominate this space and have around 65% market share of the Indian Consumer Goods Industry.
The urban market forms a major chunk (i.e. 65%) of revenues of the industry. The key growth drivers are rising income
levels, easy availability of consumer credit, various policy support from the government like relaxaton in customs dutes and
excise duty, encouragement to FDI policies in the sector, awareness of brands and products, change in lifestyle, new model
launches with technological improvements and ease of shopping through various online formats. Further, large domestc
market with growing youth populaton, lower penetraton levels in rural areas and lower per capita daily consumpton
indicates opportunites for further growth of thisindustry.
The key challenges faced by the players in the industry are volatle input prices, slowdown in GDP growth, adverse monsoon,
high infaton, high interest rates, intense competton, high advertsement costs and currency depreciaton.In a view to
boost the consumerdemand, the Interim Union Budget for 2014-15, has slashed excise duty across the consumer durable
categories. This excise duty cut is applicable tll 30th June, 2014. CARE Ratngs expects these challenges to remain in the
short term and growth in domestc demand for the sector would be impacted to some extent. However, the long-term
prospects for the industry would remain healthy on the back of growth expected from rural demand as a result of higher
disposable rural income, low penetraton in rural markets, improvement in GDP growth rate and various measures expected
to be undertaken by GOI (Government of India) like simplifcaton of tax structure through introducton of GST etc. CARE
Ratngs estmates the Consumer Goods Industry to grow by around 10% on CAGR basis during FY13-FY18.\
Duty Structure
Cathode ray TVs 10 0
+
Electrical manufacturing
and equipments (chapter
85)*
10 10
=
LCD/LED TV panels of
below 19 inches
10 0
+
E-Book Reader 7.5 0
+
*The Union Budget 2014-15 has proposed to extend duty concessions beyond June 30, 2014 for a period of 6 months up to December 31, 2014
25
Proposal and Impact
Basic customs duty on cathode ray TVs, LCD/LED TV
panels of below 19 inches reduced from 10% to Nil
The reducton in customs duty will be positve for the industry as it
will increase the demand for the products due to decrease in cost
and will discourage sales in the grey market.
Basic customs duty on E-Book Reader reduced from
7.5% to Nil
Excise duty on electrical manufacturing and equipments
(chapter 85) is to be maintained at 10% for a further
period of 6 months upto December 31, 2014
The extension of concession in excise duty tll December 31, 2014
will provide much needed relief needed to revive the industry.
Impact on Companies
Mirc Electronics Ltd
+
The proposed reducton in customs duty would positvely impact
the demand for LCD/LED TV panels of below 19 inches which would
consequently increase the revenues.
26
Educaton
Industry Snapshot:
Educaton sector in India is a mix of government-operated & privately operated educatonal insttutons
and allied educaton products & services providers. Educatonal sector is highly infuenced by the
various government schemes and policies launched primarily to improve the quality of educaton and
the planned expenditure by government to improve the literacy level in the country. The government
has been laying a lot of emphasis on increasing the reach and quality of the educaton system in the country and this has
also provided increasing opportunites for private sector players engaged in providing educaton and also related allied
products / services. In the past, the government had initated several schemes including the Sarva Shiksha Abhiyan and
Rashtriya Madhymik Shiksha Abhiyan to improve the quality of educaton and eventually the literacy level in the country.
In the interim budget presented in February 2014, the central governments yearly allocaton towards the educaton increased
by 21% to Rs.79,451 crore for 2014-2015 as against Rs.65,867 crore allocated in the budget for 2013-2014 . Additonally
there was budget allocaton of Rs.2,600 crore for taking over partal interest burden on educaton loans outstanding as on
December 31, 2013 and availed by students prior to 31/03/2009 as an extension of similar scheme extended in the previous
budget. This was expected to beneft over 9 lakh student borrowers.
The budget for 2013-14 also had allocatons of Rs.27,258 crore for Sarva Shiksha Abhiyan and Rs.3,983 crore for Rashtriya
Madhymik Shiksha Abhiyan in additon to Rs.5,284 crore provided to various ministries for giving scholarships to students
belonging to Scheduled Castes, Scheduled Tribes, Other Backward Classes and Minorites, and girl children and Rs.13,215
crore towards mid day meal scheme.
The growth in the Indian Educaton sector would be driven by growing personal disposable incomes, increasing government
spend and also eforts of government to improve the regulatory framework for the educaton sector.
Proposal and Impact
Budgetary allocaton to SSA at Rs.28,635 crore The government reemphasized its focus on school educaton with
y-o-y increase in government expenditure on various schemes. This
contnued focus on school educaton with an objectve of increasing
gross enrollment rato is expected to result in increase in enrollment
in the higher educaton segment. Given its signifcant presence in
higher educaton, private sector educatonal insttutons are likely to
beneft.
Budgetary allocaton to RMSA at Rs.4,966 crore
School assessment programme being initated at a cost
of Rs.30 crore
In the last decade, the government has spent signifcant amount
in increasing school educaton infrastructure. In a move towards
assessment and improvement of quality in educaton, these
programmes have been proposed in the current budget. This is likely
to improve the quality of educaton in the long term.
To infuse new training tools and motvate teachers,
Pandit Madan Mohan Malviya New Teachers Training
Programme being launched. Inital sum of Rs.500 crore
is set aside for the same.
Impact on Companies
Educomp Solutons
+
The increased budgetary allocaton to the educaton sector opens new sources of
revenues along-with increasing demand of up-gradaton of existng infrastructure.
The increase in budgetary allocaton to the educaton sector is expected to result in
higher infow of orders to the private sector players especially for companies engaged in
informaton and communicaton technology segment of educaton.
Everonn Educaton
+
Aptech
+
NIIT
+
27
Engineering & Capital Goods
Industry Snapshot:
Performance of the domestc engineering & capital goods sector refects the current state of the
investment cycle in the economy and is generally considered a leading indicator for the industrial
producton cycle.
The demand in the sector is driven largely by private and public sector capex, mainly in the base
industries like oil & gas, power, chemicals, constructon & infrastructure, metals, etc. During the last two-three years,
various factors like sub-5% growth in GDP, issues in land acquisiton, delays in statutory and other clearances, elongated
cash conversion cycle and weak growth in demand for end products has led to curtailment/deferment of capex by most of
the players, dampening of the order infows and deterioraton in the fnancial profle of the players in the sector.
Nevertheless, with the long-term fundamentals of the economy remaining in-tact despite large external shocks and with a
strong domestc-demand led economy, major players in the sector are expected to do well in the medium-term, despite the
recent turbulences in the economy.
CARE expects the capex cycle to show improvement in the medium-term, with growing business confdence, expectatons
from a stable and decisive government and likely improvement in investment policy environment.
Duty Structure
Stainless Steel
(Flat Products)
5 7.5
-
Stainless Steel 12 12
=
Electrical Steel 5 5
=
Aluminium 12 12
=
Copper 5 5
=
Aluminium 5 5
=
Proposal and Impact
Increase in ceiling of FDI from 26% to 49% under the
approval route in defence manufacturing
This will provide some incentve for foreign manufacturers to set up
factories in India, given that India is one of the largest importers of
defence equipments. Management control that should rest with the
Indian partner could be crucial for some investors, especially in the
technologically intensive industry
PSU capex of Rs.247,000 crore in FY15
This is in line with the capex incurred in FY14. However, any thrust
over increasing the pace of executon of projects would be crucial to
percolate its efect down the value chain.
Setng up Infrastructure Investment Trusts (InvITs)
with tax efcient pass through status, modeled on the
Real Estate Investment Trust (REITs) structure
This could provide much needed risk capital to the infrastructure
sector, which in turn could boost compettveness of domestc
manufacturers and could also contribute to the local demand
growth
Feeder separaton under Deen Dayal Upadhyay Gram
Jyot Yojana
Would give boost to distributon infrastructure products. However,
a large number of the distributon infrastructure projects depend
upon the initatves of the respectve state enttes
28
New investments proposed in all types of infrastructure
projects including roads, seaports, airports, gas
pipelines, inland waterways, power transmission lines,
etc.
This will, in turn, trigger a higher demand for constructon
equipments used for these projects
Additonal 15,000 KMs of gas pipeline to be constructed
under PPP model
Once rolled out, it would boost the demand of gas compressors and
other associated capital goods.
Investment allowance on investments of Rs.25 crore
and above (earlier on Rs.100 crore and above)
This would provide additonal incentve to SMEs to undertake capex,
but the impact is likely to be contngent upon revival for demand of
end products
Extension of 10 year tax holiday to enttes which
commence power generaton, transmission and
distributon of power tll March 31, 2017
This could act as a catalyst for speeding up of projects under
implementaton and pre-pone the demand for related capital goods
Customs Duty and Excise Duty benefts for domestc
manufacture of solar power panels, wind turbine parts
as well as Bio-CNG plants
This would incentvize procurement of the domestcally produced
plants
Impact on Companies
ABB India Ltd.
=
Stable
Acton Constructon Equipment Ltd.
+
Large investment in roads network envisaged in FY15 through NHAI
would improve the demand for constructon equipments
Alstom India Ltd.
+
Extension of tax beneft to power plants to be commissioned tll
31-March-2017 is likely to speed up implementaton of power plants
Bharat Heavy Electricals Ltd.
+
Extension of tax benefts for power plants
C.R.I. Pumps Pvt. Ltd.
+
Likely to receive boost in demand due to its large and established
presence in agricultural pumps
Emico Elecon (India) Ltd.
=
Stable
Elecon Engineering Company Ltd.
=
Stable
Engineers India Ltd.
=
Stable
Kalpataru Power Transmission Ltd.
+
Extension of tax beneft to power transmission and distributon projects
to be commissioned tll 31-March-2017 is likely to boost demand from
customers
KEC Internatonal Ltd.
+
Larsen & Toubro Ltd.
=
Stable
Shant Gears Ltd.
=
Stable
Siemens Ltd.
=
Stable
Sterlite Technologies Ltd.
+
Extension of tax beneft to power transmission and distributon
projects to and thrust on broadband connectvity be commissioned tll
31-March-2017 is likely to boost demand from customers
Texmaco Rail & Engineering Ltd.
=
Stable
Thermax Ltd.
+
Extension of tax benefts to power plants
TRF Ltd.
=
Stable
Voltamp Transformers Ltd.
+
Extension of tax beneft to power transmission and distributon projects
29
Fertlizers
Industry Snapshot:
Domestc fertlizer consumpton reduced by 4% year on year (y-o-y) in FY14 to 51 million metric
tonnes (MMT) with urea consumpton remaining stable at 30 MMT while the demand for non urea
(decontrolled) fertlizers reduced by 10% y-o-y in FY14. The fertlizer subsidy budget of Rs.67,971 crore
for FY14 fell short by around Rs.35,000 crore of subsidy payments which carried over to FY15.
The fertlizer industry is facing the challenges and uncertaintes such as delays in subsidy payments, unavailability of domestc
gas for urea units which were required to change their feedstock base to gas under new pricing schemeIII (NPS-III), high
cost of regasifed liquefed natural gas (R-LNG), likely upward revision in domestc gas price and removal of guaranteed
buyback provision in new urea investment policy (NIP) for fresh urea capacity additon. Further, the producton of urea
above the cut-of quantty would become unviable due to subsidy linkage to internatonal parity price (IPP) with rise in
domestc gas and R-LNG price. Some of the concerns are expected to be addressed in forthcoming budget.
The demand for fertlizers under the present scenario is likely to increase marginally in FY15 with stable urea consumpton
and likely increase in demand of non urea fertlizers due to reduced IPP of raw material and fnished fertlizers, which might
be afected by delayed monsoon. The sales data of fertlizers in Q1FY15 exhibit a growth rate of 7% y-o-y mainly due to low
inventory level carried over from previous year due to liquidity pressure created by delayed subsidy payment.
CARE expects the fertlizer subsidy budget for FY15 to remain around the level declared during interim budget for FY15
(Rs.68,000 crore) mainly due to Government of Indias (GoI) target to contain the fscal defcit and reluctance to increase
the price of urea and other fertlizers. However, the estmated requirements are likely to be around Rs.1,10,000 crore which
includes rollover of subsidy from FY14, likely increase in subsidy due to higher gas cost and increase in fxed cost for urea.
GoI is expected to boost the domestc urea producton by revival of sick units of Fertlizer Corporaton of India Ltd and
Hindustan Fertlizers Corporaton Ltd, however, it would be capitalized over the period of 3-4 years and would require
substantal capital outlay. GoI is also expected to encourage setng up of joint venture (JV) fertlizer plants abroad in
countries with availability of gas at reasonable price to reduce the subsidy burden.
Duty Structure
Urea 5% 5%
=
Urea 12% 12%
=
DAP 5% 5%
=
DAP 12% 12%
=
MOP 5% 5%
=
MOP 12% 12%
=
Ammonia 5% 5%
=
Ammonia 12% 12%
=
Phosphoric Acid 5% 5%
=
=
Sulphur 2.5% 2.5%
=
Sulphur 12% 12%
=
Rock Phosphate 2.5% 2.5%
=
Rock Phosphate 12% 12%
=
30
Proposal and Impact
Formulaton of new urea policy
New urea policy is likely to aim at boostng domestc producton of
urea which is short of domestc demand. The exact contours of the
policy are not yet known, however, the way the new policy deals
with issues like guaranteed buy back and allocaton of cost efectve
gas would be crucial.
Increase in subsidy for urea
Urea comprises 59% of the total fertlizer consumpton in India
based on volume. The increase in subsidy for urea would certainly
aid all the stakeholders of urea.
However, the overall subsidy budget over the past few years have
fallen short of the actual fgures. This is expected to contnue for
FY15 also.
Enhanced credit to the farm sector through agriculture
credit outlay of Rs.8 lakh crore, extension of interest
subventon scheme, creaton of long term rural credit
fund of Rs.5,000 crore, increased allocaton to short
term cooperatve rural credit by Rs.5,000 crore and
credit to landless joint farming groups
Fertlizer demand would to get a fllip on account of easier credit
availability and may also infuence farmers to use complex fertlizers
suitng their soil needs rather than optng for the low cost urea. This
may lead to improved yield especially in the scenario of delayed
monsoon.
Improve access to irrigaton through Pradhan Mantri
Krishi Sinchayee Yojana with an outlay of Rs.1,000
crore
The move is expected to reduce dependence on monsoon and
provide assured irrigaton. Assured irrigaton would also entail
stable demand for fertlizers.
Impact on Companies
Indian Farmers Fertliser
Cooperatve Ltd
=
The increase in subsidy allocaton to urea would certainly reduce the gap
between budgeted and actual subsidy witnessed during past few years.
The new urea policy is expected to address the shortall in domestc
producton. The exact contours of the policy are not yet known, however,
the way the new policy deals with issues like guaranteed buy back
provision and allocaton of cost efectve gas would be crucial.
The easier farm credit would infuence farmers for balanced use of
fertlizers.
Natonal Fertlizers Ltd
=
Rasthriya Chemicals & Fertlizers Ltd
=
Chambal Fertlizers & Chemicals Ltd
=
Gujarat Narmada Valley Fertlizers &
Chemicals Ltd
=
Gujarat State Fertlizers & Chemicals
Ltd
=
31
FMCG
Industry Snapshot:
Fast Moving Consumer Goods (FMCG) are also commonly known as consumer packaged goods. These
goods have a swif turnover with relatvely low cost as compared to other products and are consumed
on a regular basis to form as a daily part and parcel of our life. FMCG is mainly classifed into various
segments such as household care, personal care, packaged foods and beverages, spirits and tobacco
etc. Various examples of FMCG under diferent segments (as classifed above) include a wide range of repeatedly purchased
consumer products such as detergents, oral/hair/skin care products, deodorants, perfumes, feminine hygiene, paper
products, packaged food products, cigaretes etc.
The Indian FMCG industry is the fourth largest sector in the economy exhibitng double digit growth rate for the past
few years. The Industry is characterised by presence of large domestc producers (for e.g. Nirma, Godrej Consumer, Amul,
etc) and strong MNCs (Multnatonal Companies) like Hindustan Unilever Limited, Procter & Gamble, Nestle etc); well
established distributon network, prevailing intense competton between the organised and unorganised sector players and
low operatonal cost. The urban market forms a major chunk (i.e. 66%) of revenues of the Indian FMCG Industry. According
to Confederaton of Indian Industries (CII), the size of the Indian FMCG industry was more thanUS$ 33.4 billion in CY12.
Various factors such as growing trend in urbanisaton, rise in income levels driving purchase, evolving consumer lifestyle,
ease of shopping through various online stores, growth in modern trade, increase in FDI infows over the past few years,
awareness of brands, low operatonal costs, new product launches etc. have been key growth drivers for this sector. Further,
large domestc market with growing youth populaton, lower penetraton levels in rural areas and lower per capita daily
consumptonindicates opportunites for further growth of thisindustry.
The key challenges faced by the industry are slowdown in GDP growth, high infaton, high interest rates and cumbersome
tax and regulatory structure. CARE Ratngs expects these tough headwinds are likely to persist in the short term and growth
in domestc demand for the sector would be impacted to some extent. However, the long-term prospects for the industry
would remain healthy on the back of growth expected from rural demand, improvement in GDP growth rate and various
measures expected to be undertaken by GOI (Government of India) like simplifcaton of tax structure through introducton
of GST etc. CARE Ratngs estmates the FMCG sector to grow by around 11 -12% during the next 4-5 years.
Duty Structure
Faty acids/crude palm
stearin and specifed
industrial grade crude oil
used for manufacturing of
soaps
7.5 0
+
Pan Masala 12 16
-
Crude glycerine for
manufacturing of soaps
12.5 0
+
Unmanufactured
tobacco
50 55
-
MOP 5% 5%
=
Jarda scented
tobacco, gutkha and
chewing tobacco
60 70
-
Ammonia 5% 5%
=
Aerated waters
containing added
sugar
0 5
-
32
=
Non-flter cigaretes
(not exceeding
65mm-70mm)
669
(Rs./
1000
stcks)
1150
(Rs./
1000
stcks)
-
Rock Phosphate 2.5% 2.5%
=
Non-flter
cigaretes(exceeding
65mm-70mm)
2027
(Rs./
1000
stcks)
2250
(Rs./
1000
stcks)
-
Filter
cigaretes(exceeding
65mm)
669
(Rs./
1000
stcks)
1150
(Rs./
1000
stcks)
-
Filter cigaretes
(exceeding 70mm-
75mm)
2027
(Rs./
1000
stcks)
2250
(Rs./
1000
stcks)
-
Filter cigaretes
(exceeding 75mm-
85mm)
2725
(Rs./
1000
stcks)
Tarif item
omited
-
The Union Budget 2014-15 has proposed increase in excise duty on cigars, cheroots and cigarillos
Proposal and Impact
Reducton in basic customs duty for Faty acids/crude
palm stearin and specifed industrial grade crude oil,
crude glycerine used for manufacturing of soaps
The reducton in custom duty is expected to have a positve impact
on the soap industry as it would relieve the manufacturers from
high input costs and if passed, it would lower the prices marginally
to end-consumers.
Increase in excise duty on cigaretes, tobacco items
such as cigars, cheroots and cigarillos.
The hike in excise duty if passed on the end-consumers that could
impact demand for cigaretes and other tobacco products.
Increase in excise duty on aerated water containing
added sugar
The impositon of additonal duty of excise is expected to increase
the prices of such products marginally resultng into negligible
impact on the demand of such products.
Impact on Companies
ITC, Godfrey, VST Industries
-
Hike in excise duty would have a negatve impact on the revenues due to decline
in demand for these products as well as negatvely impact margins as the hike may
not be fully passed on to end-users instantly.
HUL, GCPL, Nirma Ltd
+
Decline in customs duty would have a positve impact on the margins of the
company as this would result in lower cost for manufacturing soaps and if such
beneft is passed to the end-consumers, it would result in increase in revenues of
the company.
33
Gems & Jewellery
Industry Snapshot:
India is the second largest consumer of gold, as well as leader in diamond processing. Indias
unquenchable afnity towards gold has transcended the ages. Gold is considered as the primary saving
instrument in rural areas of India. The estmated gold holdings in India would be about 20,000 tonnes
valued more than USD 1 trillion. The Indian Gems and Jewellery (G&J) industry is crucial to the Indian
economy in terms of exports earnings and employment generaton. The Government of India (GoI) has always incentvized
the industry in the past, with measures such as interest rebates, extension of credit periods (for pre-shipment and post-
shipment credit) and export duty benefts in order to endure the efects of slowdown.
During FY14, G&J industry was closely monitored and was highly regulated in order to ease current account defcit (CAD)
and to curb infaton. In July 2013, the government had enforced an 80:20 rule by linking import of gold to exports. All
nominated banks and agencies had to set aside 20 per cent of the total imported quantty for exports. Under that, only
six nominated banks and three state-run trading agencies that had facilitated export of gold or jewellery were allowed to
import. In additon to this, the import (custom) duty on gold was gradually raised to 10 per cent. Following this, there was a
stark slowdown in the quantty of gold imported in India.
Indias exports of gold jewellery as well as gold medallions & coins fell by 39-40 per cent in 2013-14, mainly due to
insufcient availability of raw materials and subdued gold prices. However, exports of cut & polished (CPD) diamonds surged
by approximately 25 percent during the same period, primarily on account of a lower base efect (sales had declined sharply
by 25 percent during 2012-13 on y-o-y basis), increased trading actvity and increase in demand. As a result, the fall in Indias
gems & jewellery exports got restricted to 11 per cent. The country exported gems & jewellery worth USD 34.7 billion as
compared to USD 39 billion in fscal 2012-13.
Duty Structure
Semi-processed, half cut or broken diamonds Nil 2.50
-
Cut and polished diamonds and coloured gemstones 10 2.50
-
Pre-forms of precious and semi-precious stones 2.00 Nil
+
Proposal and Impact
The custom duty exempton on Pre-forms of precious
and semi-precious stones
A pre-formed stone is rough gem shaped closer to that of a fnished
stone to be further processed into a cut and polished stone. The
total export for precious and semi-precious gemstones (including
colored gemstones, pearls and synthetc stones) accounted for
1.75% of total exports of Gems & Jewellery for the period April
2013 to March 2014. The duty exempton therefore is likely to have
a minimal impact for exports of G&J industry as a whole.
Increase in Basic Custom Duty on Cut and polished
diamonds and colored gemstones by 0.5%
The imports of C&P Diamonds are comparatvely lower vis--vis
rough diamonds, and with marginal increase in basic custom duty,
the impact is likely to be minimal.
34
Impositon of duty on semi-processed, half-cut or
broken diamonds
The impact of impositon of duty on semi-processed, half-cut or
broken diamonds is minimal as negligible proporton of semi-
processed, half-cut or broken diamonds are imported in India.
Overall the budget impact is neutral from Gems and Jewellery industry perspectve.
Impact on Companies
C. Mahendra Exports
=
The Union Budget 2014-15 will have a neutral impact on G&J industry
as duty structure of key segments in the industry remains unchanged.
Rajesh Exports
=
Tribhonvandas Bhimji Zaveri
=
Tara Jewels
=
35
Hospitals & Healthcare
Industry Snapshot:
The healthcare industry in India can be broadly classifed into hospitals, pharmaceutcals, diagnostc
centres and others (medical equipment, pharmacies, etc.). The hospital segment account for
approximately 70% of the industry, which can be divided into three sub-segments - primary, secondary
and tertary, based on the nature of services rendered.
The evolving demographics and changing disease profle are key factors leading to increasing demand of health services
in India. On the other hand, rising per capita income and greater penetraton of health insurance are leading to higher
spending on health care. In additon, the medical tourism market is growing at a rapid pace. All these drivers are leading to
fast expansion of the hospital and healthcare industry.
Industry players have opted for asset-light business models to combat increasing real estate prices and rising interest debt
burden. Shortage of skilled workforce (qualifed specialists & skilled paramedics) is another major challenge for the industry.
However, due to the dilapidated state of public health care system in India and limited scope for increase in public health
expenditure (amidst fscal constraints), private insttutons are likely to be the major benefciary of the growing healthcare
market.
Duty Structure
Healthcare Equipment 7.5 7.5
=
Healthcare Equipment 12 12
=
Proposal and Impact
Announcement of Free Drug Service and Free
Diagnosis Service
These are frst steps towards ensuring availability of Universal Health
Care facilites, a long-term objectve of the government.
26% increase in budgeted outlay for 2014-15 over
revised estmates of 2013-14
Actual spending was only 89% and 81% of the budgeted amounts for FY12
and FY13. It would be challenging for the government to spend the entre
amount allocated, if any fscal issues crop up during the year.
4 new AIIMS-like centres (Andhra Pradesh, West
Bengal, Maharashtra, Utar Pradesh), 12 new
government medical colleges and 15 Model Rural
Health Research Centres
Setng up AIIMS-like centres and medical colleges may help improve
penetraton of health services. Rural Health Research centres are
expected to lead research eforts in analyzing rural health scenario and
provide insights in making afordable healthcare available in rural areas.
Central assistance to States Drug Regulatory
Authorites
This may help in strengthening capabilites in 31 existng drug testng
laboratories, and provide for setng up new such centres.
Raising composite FDI cap in insurance space
It would make raising fresh capital easier for health insurance players,
leading to expansion of actvites and spread of health insurance.
Facility of Electronic Travel Authorizaton (e-Visa)
at select airports
The government recently approved the extension of visa-on-arrival
scheme to 180 countries (as against 11 earlier). In additon, the E-Visa
facility announced in the Budget would enable medical tourists to plan
visits swifly to the selected urban centres in India for their treatment.
36
Outlays for Healthcare Sector
The outlays for the various departments which fall under the domain of the Ministry of Health and Family Welfare are detailed
below:
(INR Crores) 2012-13 2013-14 2014-15
Actuals Revised Budgeted
Min. of Health and Family Welfare 27,884 30,848 38,738
Dept. of Health and Family Welfare 25,133 27,531 34,663
Department of AYUSH* 715 936 1,272
Department of Health Research 720 881 1,018
Department of AIDS Control 1,316 1,500 1,785
37
Hotels
Industry Snapshot:
Signifcant additon of inventory coupled with slower economic growth, rising infaton, etc contnue to
drag both occupancy rate as well as average room revenue of the hotel industry over the last couple of
years. However, going forward supply is expected to grow at a moderate CAGR of 10% up to FY18E. Of
this, the upscale category rooms will be around 40% of the total supply.
Revenues from rentng out of rooms, the primary business of the hoteliers contnue to remain the highest contributor to the
hotel companies. However with growing number of conferences and conventons, the banquetng services are expected to
grow at a fast rate. Also, Food and Beverage, the second-largest revenue earner for the industry is also expected to show a
robust growth.
Domestc Tourist Arrivals has grown at a healthy CAGR of 15% during 2009-13 and has become a major revenue contributor
to the hotel industry, thereby reducing dependence of the industry on foreign tourist arrivals for its growth. Consequently,
the domestc tourists, both business and leisure will contnue to remain the largest customer segment for the hotel industry
in India.
Duty Structure
Hotels NA NA Hotels
- Room service
- Foods and Beverages
7.42
4.94
7.42
4.94
=
=
Proposal and Impact
Introducton of Electronic Travel Authorizaton (e-Visa)
facilites at nine airports in the next six months.
Allocaton of Rs.500 crores for creaton of tourist
circuits around specifc themes.
Both these aforesaid measures are expected to boost the tourism
industry and concomitantly provide a positve impetus to the
hospitality sector.
Impact on Companies
Hotel Leela
+
The aforesaid measures to have a positve impact on the demand for hotel rooms
going ahead.
EIH Ltd.
+
Indian Hotels
+
38
IT & ITeS
Industry Snapshot:
U.S. economy contnues its modest recovery whereas Euro Area is stll under pressure. CARE believes
that IT Services exports will grow at a moderate pace of 12% in FY2015 driven by a good mix of
discretonary spending primarily from the US and traditonal outsourcing deals. Growth will be led by
services like sofware testng and Informaton Systems (IS) Outsourcing driven by newer opportunites
around social media, mobility, analytcs and cloud (SMAC) and emerging vertcals like healthcare, retail and utlites.
The domestc IT services is expected to grow at around 13.7% in FY2015. Under penetrated market in SMEs, governments
spending in e-governance projects, growing e-commerce, mobile apps in consumer market will be the key drivers of
domestc IT services growth.
According to NASSCOM, the Indian IT-BPM industry has grown to the size of USD 108 billion at a Compounded Annual
Growth Rate (CAGR) of 11.4% during FY08-13. Exports are expected to grow by 13-15 per cent, domestc sales by 9-12
percent and industry to add revenues of USD 13-14 billion to cross USD 130 billion in FY2015.
IT Services can be classifed into Project based services, Outsourcing and Support & Training services. CARE expects both
Project based and Outsourcing services to grow at similar rates of 12% in FY2015. Project based services are expected to
catch up in FY2015 once the discretonary spending rebounds.
CARE expects the annual contract value (ACV) of IT outsourcing contracts to recover in FY2015 as the world economy
recovers but will shy of achieving the average ACV of last few years. There is expected to be some tracton in the short term
contracts as the deals are sweetened for short term to pass on some of the exchange rate benefts.
Globally, BFSI and manufacturing remain the two largest vertcals accountng for nearly 40% of total IT spending. Newer
vertcals like government, healthcare, retail and utlites add next 30% of the total IT spend. For Indian IT-BPM exports, BFSI
is the most prominent vertcal accountng for 41% of revenue in FY13. The vertcal mix for FY2015 is expected to be led by
BFSI at 40% followed by Hi-Tech/Telecom at 17%, manufacturing at 16%, retail at 11% and healthcare at 6%.
Duty Structure
Personal Computer - -
=
Personal computers 12.4 12.4
=
CD-ROM and other storage
devices
- -
+
CD-ROM and other
storage devices
6.2 6.2
=
Motherboards - -
+
Motherboards 12.4 12.4
=
Printers, keyboards,
scanners, mouse
- -
+
Keyboard, Mouse 12.4 12.4
=
Microprocessors - -
+
Microprocessors 6.2 6.2
=
Routers, Modems - -
+
Routers, Modems 12.4 12.4
=
*the above carry a Countervailing Duty (CVD) of 10% and Special Additonal Duty (SAD) of 4%. # inputs/components used in the manufacture
of personal computers exempt from special additonal duty of 4%
39
Proposal and Impact
Exempton from special additonal duty from 4% on
inputs/components for PC manufacturing
Presently, an inverted duty structure prevails with efectve tax
rate on fnished product less than tax on imported components.
However, the proposal for exempton of SAD is likely to boost
domestc producton and reduce the dependence on imports.
Impact on Companies
HCL Infosystems
+
Exempton of 4% SAD is expected to improve domestc producton and reduce
dependence on imports.
TCS
=
Infosys
=
Firstsource Solutons
=
40
Media and Entertainment
Industry Snapshot:
The Media and Entertainment (M&E) industry is highly fragmented and is classifed into various
segments namely, Television, Print, Film, Radio, Music, Out of Home, Animaton and VFX, Gaming,
and Digital Advertsing. As per FICCI KPMG estmates, the M&E industry grew at 11.8% yoy in CY13
to Rs.918bn backed by digitsaton, increasing penetraton in Tier 2 and Tier 3 cites, regionalisaton
and new media business. Television (45%), Print (26%) and Film (14%) contnue to be the major contributng sectors to the
industry. The contributon of advertsing revenues to the overall M&E industry revenues has increased from 38% in CY08 to
39.5% in CY13. Television and print media accounted for 84% of the total advertsing revenues garnered by the industry.
CARE Research believes that Indian M&E industry is facing the heat of slowdown in advertsing spend on account of sluggish
growth and falling margins for corporates. Advertsers are shifing from print and television to niche media like digital media
which is cheaper and more focused. Hence CARE Research expects the growth in CY14 to be around 8-10% CAGR. However
over CY15-CY17, CARE Research expects the industry to grow at 10-12% CAGR, given the impetus introduced by digitzaton,
contnued growth of regional media, ongoing state level electons, strength in the flm sector and fast increasing new media
businesses. Besides growth in the long run will also be driven by favourable demographics, rising disposable income and
increased spend on discretonary items.Challenges for the sector like piracy and inadequate industry measurement systems
leading to revenue leakages are being addressed albeit gradually.
Duty Structure
Service Tax (%) Before Afer Impact
Online and Mobile Advertsing NIL 12%
-
Proposal and Impact
Levy of service tax on online
and mobile advertsing
Likely to have a marginally negatve impact on the digital advertsing industry. Given the increased
cost of digital advertsing, the advertsers may resort to alternate traditonal media channels.
41
Mining and Minerals
Industry Snapshot:
The mining and metallurgical sector remains vital to the development and economic growth of the
developing countries and India remains geologically endowed with a number of mineral resources.
Currently, India produces around 87 minerals which include 4 fuel minerals, 10 metallic, 47 non-
metallic, 3 atomic and 23 minor minerals. However, the mining sector in India in dominated by coal
comprising around 80 percent of the mined reserve while the balance 20 percent comprises various other minerals which
includes copper, iron, lead, bauxite, zinc, gold, uranium, etc.
Although the country is more or less self reliant in respect of a number of minerals, a signifcant gap exists with regards
to a large number of critcal minerals and metals such as coal, uranium, copper ore etc. for which the country is partly or
largely dependent on imports. Various inefciencies in the sector including policy lacuna, politcal interference, stringent
government regulatons, environmental issues, lack of infrastructure and fnancing mechanism have hampered the growth
of the sector. Accordingly, the share of Indian mining and quarrying sector (around 2 percent of its GDP) vis--vis other
mining natons (around 5-6 percent of its GDP) has remained signifcantly low. Further, exposure of various illegal practces
being prevalent in mining sector has led to closure of a number of mines, which in turn resulted in atractng increased
vigilance and Govt. regulatons for the sector.
In this backdrop, the Govt. in the 12th fve-year (2012 to 2017) plan is focussing on exploraton, search of strategic, scarce,
and defcit minerals to reduce imports. Further, the Ministry of Mines has recently framed a new draf Mines and Minerals
(Development and Regulaton) Bill, 2011 which would replace the MMDR Act 1957 and emphasizes on beneft sharing and
local area development which would lead towards sustainable development of the sector amidst environmental security
and industrial growth.
Duty Structure
Iron ore 2 2
=
Coking Coal 0 2.5
-
Bauxite 2.5 2.5
=
Manganese Ore 2.5 2.5
=
Chrome Ore 2.5 2.5
=
Limestone 5 5
=
Proposal and Impact
Increase in export duty of bauxite from 10 % to 20 %.
The same is likely to have a negatve impact on the bauxite mining
companies exportng the ore.
Increase in clean cess from Rs.50/tonne to Rs.100/
tonne
Per tonne increase in cost of mining owing to increase in clean
energy cess
Proposed to increase the royalty rate, which is due for
revision in order to ensure greater revenue to the state
governments
Royalty rate is the rate, which the miners pay to the state
governments. Increase in Royalty Rate will increase the liability of
the mining companies towards the state governments.
42
Impact on Companies
NMDC
=
The Union Budget 2014-15 has proposed to increase the Royalty Rate. Furthermore,
it is also proposed to increase the clean energy cess from Rs.50/tonne to Rs.100/
tonne. The export duty on bauxite is proposed to be increased to 20% from the
existng 10%, which will restrict miners from exportng bauxite. While there is a
likely increase in the cost of mining, CARE believes the mining companies would
be able to pass on the increase in cost to its end-users.
SesaSterlite
=
OMDC
=
MOIL
=
43
Non-ferrous Metals
Industry Snapshot:
Demand and prices for non-ferrous/base metals are directly correlated with the industrial producton.
The base metal industry is bearing the brunt of the downward revision in global macroeconomic
outlook. Muted industrial actvity along with sluggish demand outlook from the developed economies
and the persistng concerns of the slowing Chinese economyare putng pressure on the overall demand
and subsequently the prices of these metals.
Fundamentally, the prices of all base metals depend upon the rate of demand growth and the underlying inventory positon
of a partcular base metal. Decrease in the prices of the base metals in the last one year can be atributed to the muted
demand growth on the global front and sufcient inventory holding of the underlying base metal. However, the changing
socio-economic conditons and expected recovery of demand from the developed and theEuropean markets is likely to
stabilize the demand for these metals in the long-run.
CARE expects prices of all base-metals to remain volatle on the back of the ongoing macroeconomic development in the
Euro zone and the US, Chinese economic outlook and the strengthening of the US dollar vis-a-vis the other major currencies
in the world.
Duty Structure
Bauxite 5 5
=
Alumina 12 12
=
Aluminium Scrap 5 5
=
Caustc Soda 12 12
=
Alumina 5 5
=
Aluminium Ingots 12 12
=
Caustc Soda 7.5 7.5
=
Copper Concentrates 12 12
=
Aluminium Ingots 5 5
=
Refned Copper 12 12
=
Copper Concentrates 2.5 2.5
=
Zinc Concentrates 12 12
=
Copper Scrap 5 5
=
Refned Zinc 12 12
=
Refned Copper 5 5
=
Lead Concentrates 12 12
=
Zinc Concentrates 2.5 2.5
=
Refned Lead 12 12
=
Refned Zinc 5 5
=
Non-Coking Coal 12 12
=
Lead Concentrates 2.5 2.5
=
Petroleum Coke 12 12
=
Refned Lead 5 5
=
Calcined Petroleum Coke 12 12
=
Steam coal 2 2.5
-
Petroleum Coke 2.5 2.5
=
Calcined Petroleum Coke 0 2.5
-
44
Proposal and Impact
Increase in export duty of bauxite from 10 % to 20 %.
The same is likely to have a marginally positve impact on the
aluminium-manufacturing players not having captve sources of
bauxite. However, the export volume is not signifcant and as such,
the impact is not much.
Exempton in basic customs duty is being provided on
fat copper wire for use in the manufacture of Photo
Voltaic ribbons (tnned copper interconnect) for solar
PV cells or modules
This is likely to have a marginally positve impact on the copper
value-added products manufacturers.
The customs duty on steam coal is being raised from
2% to 2.5%
This is likely to have a negatve impact on the non-ferrous metal
producers due to increase in cost of producton.
Increase in Clean Cess from Rs.50/tonne to Rs.100/
tonne and the likely upward revision of Royalty Rates
This is likely to have a negatve impact, as the cost of captve raw
material products, which are mined, is likely to increase.
Impact on Companies
Hindustan Zinc Ltd
-
Increase in customs duty on steam coal to increase the cost of producton for zinc
manufacturers.
Hindalco Ltd
=
Increase in customs duty on steam coal to increase the cost of producton for
aluminium manufacturers, however, the increase in export duty of bauxite will
help in procuring bauxite.
NALCO
-
Increase in customs duty on steam coal to increase the cost of producton for zinc
manufacturers. In additon, likely increase in the royalty rate will further increase
the cost of captve bauxite mined.
45
Oil and Gas
Industry Snapshot:
Indian Oil & Gas sector comprises of primarily three segments, namely Exploraton & Producton
(upstream), Midstream and Downstream (Refning & Marketng). The size of the oil and gas industry in
terms of turnover stands at about US$ 180bn, contributng about 15 per cent to the natonal GDP. In
India, oil and gas sector is dominated by few large players, mainly Public Sector Undertakings (PSUs)
and is highly regulated by the government. The sector caters to the energy needs of the economy and hence is directly
linked to the economic actvity of any country or region.
Prices of sensitve petroleum products (Diesel, LPG, Kerosene) are regulated by government hence oil marketng companies
(OMCs) incur huge under-recoveries. The under-recovery during FY14 stood at Rs 1,399 billion. The contnued incurrence of
under-recoveries by OMCs adversely impacts their fnancial and liquidity positon.
Indias oil import dependency was at 85 per cent in FY14 indicatng the economys high dependence on imported crude
oil. Indian crude oil demand is expected to grow at a steady rate of 2-3 per cent. However, domestc crude oil supply is not
expected to keep pace with rising demand, making India vulnerable to not only internatonal crude oil prices but also to
exchange rates.
Indias natural gas industry is also characterized by a supply defcit due to low domestc producton and inadequate
distributon infrastructure. Domestc gas producton has been on a declining trend partcularly due to fall in Reliance
Industries KG-D6 producton. Decline in most of the countrys ageing felds has further compounded the supply defcit.
Going forward, domestc gas supply is expected to grow at a CAGR of 6% in the next two fscal while gas demand to grow
at a CAGR of 17% during the same period; thus, aggravatng the defcit situaton. India is expected to contnuously rely on
expensive imported LNG to meet its energy needs. LNG imports are antcipated to grow at a CAGR of 29% during the same
period to partally meet the shortall.
Duty Structure
Crude oil 0 0
=
Diesel Rs 3.5/litre Rs 3.5/litre
=
Ethane, Propane, Ethylene,
Propylene, Butadiene and
Ortho-xylene
5 2.5
+
Petrol Rs 9.2/litre Rs 9.2/litre
=
LNG 5 5
=
Branded Petrol Rs 7.5/litre Rs 2.35/litre
+
Proposal and Impact
To develop 15,000 km gas pipeline grid by
using appropriate PPP model
The increased pipeline network would increase the usage of both domestc
as well as imported gas. In the long term, this could be benefcial in reducing
the dependence on one energy sources. This would be positve for gas
distributon companies like GAIL and GSPL
Usage of PNG to be rapidly scaled up
Natural gas being green gas and cheap in comparison to liquid fuel would
reduce cooking fuel subsidy. This would be positve for CGD players like IGL,
Gujarat Gas Company, Mahanagar Gas, GAIL Gas, Adani Gas.
46
To accelerate producton and exploitaton of
Coal Bed Methane (CBM) reserves
Positve for companies allocated with CBM blocks like Great Eastern Energy
Corporaton, Essar Oil, RIL, ONGC. This will increase the domestc producton
of gas.
To revive aged or closed wells
Fields of ONGC and Oil India have aged and producton from such felds has
declined over the span. The government plans to use modern technology to
revive such closed and aged well would be positve. Any additonal producton
from such well will contribute to the overall domestc producton.
Impact on Companies
GAIL , GSPL
+
Increased pipeline grid connect their customers well
IGL, Gujarat Gas
+
Scale up in PNG usage would overall increase the sales volume of CGD players
RIL, ONGC, Oil India
+
Government plans to revive aged and closed wells
RIL, Essar Oil
+
Accelerate CBM producton
47
Pipes
Industry Snapshot:
The Indian pipe Industry is one of the top manufacturing hubs globally with a presence across all
categories of pipes viz steel, cement and plastc. Also, owing to its locatonal advantage and quality of
products, India has centred itself as a major steel pipe exporter to destnatons like the USA, Europe
and the Middle East.
Demand for pipes depends on the level of economic actvity as pipes derive their applicaton from diverse industries such
as chemicals, agriculture, constructon, oil & gas, etc.
The pipe industry is highly raw material (RM) intensive; RM cost accounts for about 75-80% of total cost for steel pipe companies
whereas, it consttutes around 70-75% of total cost for plastc pipes companies. The key RMs used for manufacturing steel
pipes is HR Coil, steel plates and Billets. For plastc pipes, Polyvinyl Chloride (PVC), High-Density Polyethylene (HDPE) and
Ethylene are the major raw materials used.
During the last two fscals, pipes industry has tread a difcult path owing to moderaton in domestc as well as global
economy. However, CARE expects that the demand for the Indian pipe industry is expected to remain healthy in the long
term, on the back of increasing demand arising from oil and gas, infrastructure, water supply and sanitaton projects. Also,
the lower oil and gas pipeline penetraton level in India provides huge opportunity for laying new pipeline infrastructure in
the country, considering its vast geographical area.
Duty Structure
Steel pipes 10 10
=
Steel pipes 12 12
=
Plastc pipes 10 10
=
Plastc pipes 12 12
=
Cement pipes 10 10
=
Cement pipes 12 12
=
HR Coils 7.5 7.5
=
HR Coils 12 12
=
Polyvinyl Chloride (PVC) 7.5 7.5
=
Polyvinyl Chloride (PVC) 12 12
=
High-Density Polyethylene
(HDPE)
7.5 7.5
=
High-Density
Polyethylene (HDPE)
12 12
=
Proposal and Impact
Allocaton of Rs.1,000 crore for irrigaton via Pradhan
Mantri Krishi Sinchayee Yojana (PMKSY) scheme
This will drive the demand for SAW (Submerged Arc Welded), DI
(Ductle Iron) and plastc pipes required for laying the pipeline
infrastructure for water supply to farms and houses.
Natonal Rural Drinking Water Programme alloted
Rs.3,600 crore to provide safe drinking water in
approximately 20,000 habitatons afected with
arsenic, etc
Government is planning to cover every household with
total sanitaton by year 2019
As per census 2011 data, out of 25 crore households in India around
46% have sanitaton facility within their premises. Covering the
remaining 54% household in the next 5 years will require huge
pipeline infrastructure leading to a robust demand opportunity for
plastc and cement pipes in India.
48
The budget has proposed to create additonal 15,000
km of pipelines using PPP (Public Private Partnership)
model to complete the gas grid across the country and
increase the usage of domestc as well as imported gas.
The proposed pipeline infrastructure will lead to more demand
for steel pipes in India. However, availability of gas is an important
prerequisite towards efectve implementaton of this proposal.
Slurry pipelines for the transportaton of iron ore
allowed investment-linked deducton
This proposal is expected to boost investments in this sector and
would in turn increase the demand for SAW pipes.
Impact on Companies
Welspun Corp Ltd.
+
The company operates in HSAW and LSAW pipe segments. The demand for the
companys products is likely to increase due to proposals in the budget towards
encouraging gas and slurry pipelines.
Jindal Saw Ltd
+
The company operates in HSAW, LSAW, Seamless and DI pipe segments. The
allocaton to drinking water and sanitaton projects will drive the demand for DI
pipes while the demand for HSAW pipes will get a boost due to the completon of
gas grid proposed.
Indian Hume Pipe Co. Ltd.
+
The company primarily deals in cement pipes. The proposal in the budget to
provide sanitaton facility to every household in fve years will drive the demand
of cement pipes for the company.
Jain Irrigaton Systems Ltd.
+
Jain Irrigaton Systems is engaged in manufacturing of micro irrigaton systems,
PVC pipes, HDPE pipes and other agricultural inputs. The fnance ministers
proposal to provide assured irrigaton via PMKSY scheme will increase demand for
its plastc pipes and other irrigaton products.
49
Ports
Industry Snapshot:
India has 7,517-km long coastline with 13 major ports and 187 non major ports, which handle around
90% of Indias total internatonal trade in terms of volume and 70% in terms of value. The total volume
of trafc handled by all the major Indian ports during FY14 (refers to the period April 1 to March 31)
was about 555 million tonnes as compared with about 546 million tonnes handled in FY13, a Y-o-Y
growth of about 2%.
The key challenges faced by the sector are full utlizaton of capacites at the major ports, draf constraints and operatng
inefciencies. On the other hand, development of new minor ports have been afected by inadequate connectvity with the
hinterland, the absence of mult-modal connectvity to and from ports and the diferental royaltes and revenue sharing
among ports.
As a result of allowance of the 100% FDI in the port sector, the port privatzaton has gained momentum. While in the past,
most of the private initatve in ports was restricted to development of container terminals, the past couple of years have
witnessed signifcant investment in the minor ports, dominated by bulk capacites added in Gujarat and the eastern coast,
predominantly through PPP projects.
The Planning Commission has estmated the total trafc growth at about 14% during the 12th Five Year Plan (2012 to
2017). However, given the plethora of issues surrounding the projects in the power, steel and coal sectors coupled with
the slowdown in overall economic growth, CARE expects the total annual trafc at all ports to grow at a CAGR (Cumulatve
Annual Growth Rate) of 6.2% and reach a level of 1,232 million tonnes by FY17.
Duty Structure
Port Projects 5 5
=
Port Projects 10 10
=
Proposal and Impact
Proposed to award 16 new port projects in FY2015 and
has also allocated Rs.11,635 crore for the development
of outer harbour project in Tutcorin.
This is expected to enhance the overall capacity of the Indian
port sector, thereby decongestng the existng ports and improve
turnaround tme.
Impact on Companies
Gujarat Pipavav Port Ltd
+ Both these existng port operators having signifcant track record
are expected to bag some of these projects.
Adani Ports and Special Economic Zone Ltd
+
50
Power
Industry Snapshot:
The all-India installed capacity stood at 248.5GW as on 31st May, 2014. In FY2014 (period refers to
April 1st to March 31st), India added 17.3GW of capacity. In FY2013, the base power defcit was 8.7%,
which shrunk 450bps to 4.2% in FY2014, while peak defcit also narrowed by 550bps to 4.5% over the
same period.
Despite the record capacity additon of 17.3GW in FY2014, the sector is plagued by 1) fuel constraints i.e. coal and (lack
of) gas adversely impactng the operatng levels of various power plants and 2) weak fnancial health of power distributon
companies.
Encouraging policy framework in renewable energy (RE) sector has resulted in rising share of capacity additon for RE from
5.9% (7.7GW) in FY2007 from 12.9% (31.7GW) in FY2014.
Duty Structure
Non-Coking Coal 2 2.5
-
Forged steel rings 12 NIL
+
Countervailing Duty on
Non-coking coal
2 2
=
Machinery and
equipments for Solar
power plants
12 NIL
+
Clean Energy Cess Rs50/
Tonne
Rs100/
Tonne
-
Raw material for
Manufacturing (back
sheet and EVA sheet)
12 0
+
Forged steel rings 10 5
+
Machinery and
equipments for Bio Gas
Plants
12 NIL
+
Machinery and equipments
for Solar power plants
7.5 5
+
Raw material for
Manufacturing (back-sheet
and EVA sheet)
10 0
+
Machinery and equipments
for Bio Gas Plants
7.5 5
+
Parts and components
required for the
manufacture of wind
operated electricity
Generators
4 0
+
51
Proposal and Impact
Extension of 10-year tax holiday (u/s 80IA) tll FY17
The Power companies contnue to enjoy lower tax rate tll FY2017.
Since, the power generaton capacity additon is expected at 18-
20GW per year in the next two-three years, it will beneft power
generators and transmission (PGCIL) companies.
Launch of feeder separaton scheme in rural areas
It is likely to aid distributon sector (DISCOMs) where it would
strengthen transmission and distributon in rural areas and is likely
to improve the service levels.
Increase in clean energy cess
Increase in clean energy cess from Rs50/tonne to Rs100/tonne
is expected to raise Rs30 bn for the purpose of Natonal Clean
Electricity Fund for FY2014-2015.
Reducton in basic customs duty for machinery and
equipment for Solar power plants
The reducton in customs duty and excise on imported machinery
and domestc for solar power plants will reduce the costng for solar
power plants (per MW cost) thereby boostng the power capacity
additon in Solar sector.
Impact on Companies
NTPC, PGCIL, Adani Power, Tata Power JSW
Energy other GENCOs, TRANSCOs, DISCOMs
+
Extension of 10-year tax holiday (u/s 80IA) tll FY17 is likely
to beneft power generaton, transmission and distributon
companies
Adani Power, JSW Energy, JPL and other
merchant players
-
Merchant Power plants would be adversely impacted since
increase in coal cost would not be a pass-through.
Orient Green Power Limited (OGPL) and other
Renewable Energy Companies
+
Increase in corpus of Natonal Clean Energy Fund is likely to be
utlized for various renewable-based projects.
OGPL and Solar Independent Power Producers
(IPPs)
+
The reducton in customs duty on imported machinery and
domestc for solar power plants will reduce the costng for
solar power plants (per MW cost) thereby boostng the power
capacity additon in Solar sector.
Various Power IPPs
+
Allocaton of funds towards Solar UMPPs.
52
Real Estate
Industry Snapshot:
The demand for the Indian real estate industry can be categorized mainly into three segments, viz,
residental, commercial and retail. It contributes around 5-6% to the gross domestc product and it is
also amongst the highest employment generatng sector. In the past few decades, rising populaton,
increasing trend of urbanisaton, rising income levels of a growing middle class, nuclearisaton of
families and tax incentves provided momentum to the demand for housing. The demand for commercial real estate is
mainly driven by IT/ITES (Informaton Technology Enabled Services), BSFI, FMCG and telecom sectors.
The real estate sector in the country is highly fragmented with many regional players who have a signifcant presence in their
respectve local markets. The key risks associated with the real estate sector are mainly the cyclical nature of the business,
interest rate fuctuatons and changes in government policies. Currently, the industry has been marred by liquidity concerns,
rising inventories and sofening volumes. The demand for real estate has remained sluggish on account of the slowing
economy, apprehensions in the job market, stcky infaton and high interest rates that deterred buyers from making their
purchase decision. Also, delay in approvals in certain major/ micro markets afected the progress of ongoing projects and
fresh launches, thereby dragging down the sales further.
Banks/fnancial insttutons have been cautous in lending to the sector due to high perceived risk while capital markets have
remained unfavorable. Lower cash accruals and increased input costs due to infaton have forced many leveraged players
to sell non-core assets and ofer discounts.
CARE expects gradual recovery in the real estate sector with improved buyer sentment and expectatons of reversal in
interest rate cycle.
Duty Structure
Steel 12 12
=
Cement 12% ad-valorem*+120 12% ad-valorem*+120
=
*An abatement of 30% has been notfed on the Retail Sale Price of content.
Proposal and Impact
REITs (Real Estate Investment Trust) would be given a
tax pass-through status to avoid double taxaton
This would give a boost to REIT market India. It would pave way for
increased funds in the sector and provide access to investors the
beneft of regular income and appreciaton from real estate.
Increase in deducton limit from Rs.1.5 lakh per annum
to Rs.2 lakh per annum on account of interest on loan
in respect of self-occupied house property
This would provide an impetus to overall housing sector.
Reducton in built up area from 50,000 sq mtr to 20,000
sq mtr, and minimum capitalizaton from USD 10 million
to USD 5 million for smart cites
The reducton in built-up area and size of projects will allow mid-
sized and smaller developers beter access to FDI.
Smart Cites Rs.7,060 crore for development of 100
smart cites
This would provide thrust for real estate and infrastructure
development and creaton of new cites.
53
Impact on Companies
DLF Ltd
+
Incentves for REITs and low cost housing (allocaton of Rs.4,000 crore
for Natonal Housing Bank), development of 100 smart cites, increase
in deducton of interest on self-occupied propertes, and inclusion of
slum rehabilitaton under CSR will beneft real estate developers as these
measures will create a favorable environment that will boost housing
sector in the country.
Sobha Developers Ltd.
+
Unitech Ltd
+
HDIL
+
Mahindra Lifespace Developers Ltd
+
Orbit Corporaton Ltd
+
Indiabulls Real Estate Ltd.
+
54
Roads & Highways
Industry Snapshot:
Road transport plays a pivotal role in the economic development of the country. In India, roads carry
about 65% of the total freight trafc and 80% of the total passenger trafc. As of June 30, 2014, India
has a road network of about 4.2 million km the second largest in the world. The road network in India
comprises of Natonal Highways (NHs), Expressways, State Highways, District roads and Rural roads.
NHs and state highways together consttute about 5% of the total road network in the country while 95% comprises rural
and district roads.
Over the years, Government of India has emphasized on enhancing countrys road network through various programs such
as Natonal Highway Development Project (NHDP), Pradhan Mantri Gram Sadak Yojna (PMGSY), Special Accelerated Road
Development Programme for the North-Eastern Region (SARDP-NE). The road sector witnessed investment to the tune of
about Rs.1,526 bn during the Tenth Five Year Plan (2002-2007), which increased to more than two fold in the Eleventh Five
Year Plan (2007-2012). However, in the Twelfh Five Year Plan (2012-2017), the investment in the road sector is expected to
be around Rs.9,150 bn with 33% of the investments contributed by the private sector. Apart from NHDP, state projects are
likely to drive the investments in the road sector as the focus of state governments on strengthening the road infrastructure
has gathered momentum with expected rise in the economic actvity.
Whilst there are positves in terms of thrust from government to clear the backlog of the under implementaton projects and
premium restructuring for few high value projects, introducing enabling clauses for easy exit to developers, the challenges
in the form of delay in clearances and cumbersome approval processes for projects under implementaton phase, has led to
contnued slower progress. As a result, in the medium term, the private sector partcipaton is likely to remain muted and
the proporton of investment from the Government is expected to be higher than envisaged.
Duty Structure
Cement
Retail
12 * + Rs.120 per tonne 12 * + Rs.120 per tonne
=
Bulk Cement 12 ad-valorem# 12 ad-valorem#
=
Steel 12 12
=
*An abatement of 30% on the Retail Sale Price and is on ad-valorem; #ad-valorem
Proposal and Impact
Target of NH constructon of 8,500 km to be achieved
in FY15
Contnued thrust from the government for the development of
roads with the priority on the executon rather than awarding of
new projects with the emphasis on EPC mode.
An allocaton of Rs.37,880 crore for road development
in NHAI and State Roads which includes Rs.3,000
crore for the north east. Allocaton of Rs.14,389 crore
towards PMGSY
55
To develop more nuanced models of contractng
in order to remove the rigidites in contractual
arrangements and develop quick dispute redressal
mechanism, an insttuton called 4P India will be set up
with a corpus of Rs.500 crore.
The intent is to boost the private partcipaton in the road sector in
the long term which has remained subdued in the past one year.
This is viewed positve.
Work on select expressways in parallel to the
development of industrial corridors to be initated.
For the purpose of project preparaton, NHAI shall set
aside a sum of Rs.500 crore.
The industry players shall have more clarity before taking up the
projects on expressways, which is likely to result in minimal setbacks
during executon phase.
Banks to be permited to raise long-term funds
for lending to infrastructure sector with minimum
regulatory pre-empton such as CRR, SLR and Priority
Sector Lending (PSL).
The banks shall be able to extend longer tenure credit to the
infrastructure sector including roads, which is a mutually beneftng
propositon. Besides the infrastructure developers would also be
able to access alternate source for long-term funding which in turn
will propel growth in the road sector.
A modifed REITS type structure for infrastructure
projects is introduced as Infrastructure Investment
Trusts (InvITs), which would have a similar tax efcient
pass through status for PPP and other infrastructure
projects.
Increase in the corpus from Rs.5,000 crore to Rs.50,000
crore under Pooled Municipal Debt Obligaton Facility.
Impact on Companies
IRB Infrastructure Developers Ltd.
+
The increase in the budgetary allocaton, target for NHs and the
availability of long-term funds shall be benefcial for the players.
IL&FS Transportaton Networks Ltd.
+
Reliance Infrastructure Ltd.
+
56
Shipping
Industry Snapshot:
With the greater proporton of world trade being routed through the sea, the shipping business remains
positvely co-related to the developments in the global economy. Also, globalizaton of producton
processes has resulted in increase of merchandise trade which in efect has resulted in growth in trade
of intermediate goods & components, extending the global supply chains across countries. As a result,
any decline in economic actvity has a negatve efect on volumes of shipping business.
In line with the buoyant economic growth during FY04 FY08, the countrys sea-borne trading volumes witnessed a Y-o-Y
growth in the range of 11-16 percent. However, with the onset of the global fnancial crisis and, thereafer, the slower-than-
expected growths in the recent past, the countrys sea-borne trading volumes were adversely afected. In FY08, the Y-o-Y
growth in GDP was recorded at 9.3 percent and the growth in sea borne trade was as high as 15.8 percent, whereas, the
GDP growth in FY13 was a subdued 4.4 percent and the growth in sea borne trade stood at a dismal 2.1 percent.
Going ahead, CARE Research expects the global feet size to increase from about 1,170 million GT in CY14 to about 1,322
million GT by the end of CY18, implying a CAGR of 3.1 percent. With global sea-borne trade estmated to increase at a
Proposal and Impact
Introducton of Indian controlled tonnage
This would encourage foreign fag liners controlled by Indian owners
to register in India and get all tax benefts and cheaper credit that
foreign fag carriers enjoy over domestc carriers. This in turn would
increase the natonal tonnage.
Impact on Companies
Mercator Limited
=
No Impact
GESCO Limited
=
SCI Limited
=
Essar Shipping Limited
=
57
Steel
Industry Snapshot:
India has about 95 million tonnes of installed steel capacity with per capita steel consumpton of 57.8
kg in 2013. The per capita consumpton is nearly one-fourth of the global average of 225.2 kg in 2013.
Due to slowdown in infrastructure investment in last two-three years, domestc steel demand grew by
0.6% in 2013-14 vis-a-vis GDP growth of 4.7% during the similar period.
Steel industry has been reeling under the impact of slowdown in demand from the major end user industries like automobiles
and real estate & constructon on one hand and increase in cost of producton on the other due to the contnued disrupton
in availability of iron-ore and coal impactng capacity utlisaton. The sector has sufered de-ratng since 2011-12 due to
various factors like weak macro environment, higher infaton, volatlity in raw material prices, depreciatng rupee, delays
in allocaton of coal blocks and iron ore mines for captve consumpton by GoI, delay in commissioning of projects and high
interest rates.
Amidst all challenges, it was in the last fscal that India turned out to be net exporter of steel for the frst tme in FY13 and
100% FDI through the automatc route was allowed in the steel sector. CARE expects the revival in demand from sectors like
constructon, infrastructure and automobiles to improve the long-term outlook for steel. With the government planning to
increase its infrastructure spending to US$ 1 trillion during the 12th Five-Year plan, taking 15% as steel component in the
total investment, then it can generate additonal demand worth US$ 75 billion of steel in the next few years, the future of
the Indian steel industry looks bright.
The short term outlook on the proftability of Indian steel players has improved, given the lenient price trends of key raw
materials. CARE expects that the adverse impact of a low volume growth will get neutralise from the benefts of lower raw
material cost in the near term, even if a part of the benefts of lower costs are passed on to customers to protect sales
volumes. However, in the long term, the volume growth would be critcal for improvement in capacity utlisaton levels and
proftability of steel players.
Going forward favourable economic policy, prudent regulatory process, broad ant-dumping measures and increased
investment in research and development are needed to provide impetus to the industry as a whole.
Duty Structure
HR Coils 7.5 7.5
=
HR Coils 12 12
=
Bars and Rods 5 5
=
Bars and Rods 12 12
=
Alloy Steel 5 5
=
Alloy Steel 12 12
=
Pig Iron 5 5
=
Pig Iron 12 12
=
Sponge Iron 0 0
=
Sponge Iron 12 12
=
Steel Meltng Scrap 0 0
=
Steel Meltng Scrap 12 12
=
Iron Ore 2.5 2.5
=
Iron Ore 12 12
=
Forged Steel Rings 10 5
+
Forged Steel Rings 12 Nil
+
Stainless Steel Flat products
(CTH 7219 and 7220)
5 7.5
+
Bituminous Coal 0 0
=
58
Dolomite & Limestone (
Steel Grade)
5 2.5
+
Steam Coal 0 0
=
Anthracite Coal & Other
Coal
5 2.5
+
Coking Coal Nil 2.5
-
Bituminous Coal 2 2.5
-
Steam Coal 2 2.5
-
Metallurgical coke Nil 2.5
-
Countervailing Duty (CVD) (%) Before Afer Impact
Anthracite Coal & Other Coal 6 2 +
Coking Coal 6 2 +
Proposal and Impact
Increase in custom duty of coking coal, bituminous
coal, steam coal and metallurgical coke
Increase in customs duty on coal (bituminous coal, steam coal and
coking coal) and metallurgical coke is likely to result in increase in
cost of producton of steel manufacturers, who import coal & coke
for producton of sponge iron & pig iron and use steam coal as a fuel
in captve thermal power plants.
Decrease in customs duty of anthracite coal and
countervailing duty (CVD) on anthracite coal and
coking coal
The cost of producton of pig iron players will be moderately
impacted due to reducton of custom duty & CVD on anthracite coal
and reducton of CVD on coking coal.
Increase in custom duty on stainless steel fat products
The domestc producers of stainless steel fat products are expected
to enjoy beter price realizatons based on the higher landed costs
of imports due to hike in customs duty of imported stainless steel
fat products from 5% to 7.5%.
Decrease in excise duty on forged steel rings
The producton of forged steel ring will get an impetus with the
aboliton of excise duty (earlier 12%).
Impact on Companies
SAIL Ltd.
-
Increase in customs duty on coal (bituminous coal, steam coal and coking coal)
and metallurgical coke is likely to result in increase in cost of producton of steel
manufacturers, who import coal & coke for producton of sponge iron & pig iron
and use steam coal as a fuel in captve thermal power plants.
Accordingly, while the margins of sponge iron players will be negatvely impacted
that of pig iron players will be moderately impacted due to reducton of custom
duty & CVD on anthracite coal and reducton of CVD on coking coal.
Tata Steel Ltd.
JSW Steel Ltd.
Essar Steel Ltd.
Bhushan Steel Ltd.
Usha Martn.
59
Sugar
Industry Snapshot:
Sugar which was a highly regulated industry witnessed partal decontrol in April 2013, during which,
the Government lifed the levy obligaton of 10% and abolished the regulated release mechanism.
However control on cane procurement cost contnues. The sugar mills in general have sufered losses
on account of high cane prices set by State Governments. For most part of FY14, realisaton from sugar
was below the cost of producton as abundant supplies had kept the sugar prices under pressure.
The competton in the sugar industry is intense as approximately 526 units are engaged in sugar producton in India, 41 per
cent of which are from co-operatve sector producing about 37 per cent of the total sugar output. Maharashtra and Utar
Pradesh are the two largest sugar producing states in the country.
ISMA estmates the sugar producton for SS 2013-14 at 24.2 million tonnes. (SS 2012-13: 24.7 million tonnes). This marks
the fourth consecutve season where Indias sugar producton surpasses consumpton. Recent moves by the government
including raising import duty to 40% from the present 15% and extending sugar export incentve of Rs.3300 per tonne to
contnue tll September 2014 is expected to help the industry manage the surplus sugar scenario.
Duty Structure
Raw Cane Sugar 40 40
=
Raw Beet Sugar 12 12
=
Refned Sugar 40 40
=
Raw Cane Sugar 12 12
=
Refned Sugar 12 12
=
Proposal and Impact
Pre-budget announcement of hike in customs duty
from 15% to 40% and Rs.4,400 crore additonal interest-
free loans to sugar companies to clear of cane arrears.
Higher customs duty is expected to reduce sugar import and help
manage the surplus stock positon in the domestc market.
Additonal interest-free loan is expected to ease the liquidity profle
of sugar companies.
Impact on Companies
K.C.P Sugars and Industries Corporaton Ltd
+
Pre-budget announcement of hike in customs duty and
Rs.4,400 cr of interest-free loan would help sugar companies
manage the surplus stock scenario and ease liquidity.
Bajaj Hindustan Ltd
+
Balrampur Chini Mill Ltd
+
Bannari Amman Sugars Ltd
+
60
Textles
Industry Snapshot:
The Indian textle industry is one of the major sectors of Indian economy and contributes almost 14
per cent of Indias industrial producton, 4 per cent of Natonal GDP and almost 17 per cent of Indias
export earnings. Being a manpower-intensive industry, it provides employment to about 35 million
people (both directly and indirectly).
The Indian textle industry can be divided into anumber of segments such as coton, silk, woolen, readymade, jute and
handicraf, however; it isskewed towards coton. It has come of age and is gaining acknowledgment on the world platorm
with excellent textles manufacturing base and easy availability of raw material. India is self-sufcient in coton, being the
second-largest producer in the world.
Technical Textles is one of the most promising sector of the textle industry in India, with a current market size of Rs.57,000
crores and a growth rate poised to take of from 11%, to almost 20% during the 12th Five Year Plan. Technical Textles are
material products used primarily for their functonal propertes.
Duty Structure
Raw Coton 0 0
=
Raw Coton 0 0
=
Coton Yarn 10 10
=
Coton Yarn# 12 12
=
Coton Fabric 10 10
=
Coton Fabric# 12 12
=
PTA 10 10
=
PTA 12 12
=
MEG 10 10
=
MEG 12 12
=
Polyester Chips 10 10
=
Polyester Chips 12 12
=
PSF 10 10
=
PSF 12 12
=
Viscose Staple Fibre 10 10
=
Viscose Staple Fibre 12 12
=
DMT 10 10
=
DMT 12 12
=
Manmade Yarn 10 10
=
Manmade Yarn 12 12
=
Manmade Fabric 10 10
=
Manmade Fabric 12 12
=
Branded RMG 10 10
=
Branded RMG 12@ 12@
=
@The companies may opt for zero excise duty route in additon to the CENVAT route now available
61
Proposal and Impact
Allocaton of Rs.500 crore for developing a Textle mega
cluster at Varanasi and six more at Rae Bareily, Lucknow,
Surat, Kutch, Bhagalpur & Mysore
Governments announcement to set up Textle clusters would
beneft the players operatng in the Textle segment.
Financial assistance for handloom/handicraf/other crafs
sector
Governments announcement to develop and promote
handloom products/other crafs would beneft the players
operatng in these sectors specially the un-organised segment.
Certain items have been added for duty-free import by
garment manufacturers for exports. Duty-free enttlement
for import of trimming & embellishments and other goods
used by garment manufacturer for export is increased from
3% to 5%.
These steps are expected to improve compettveness of Indian
garment exporters.
Excise duty at the rate of 2% (without CENVAT) or 6% (with
CENVAT) is being imposed on PSF and PFY manufactured
from plastc waste or scrap or plastc waste including waste
PET botles.
Likely to afect players making recycled PSF/ PFY
Service tax exempted on loading, unloading, storage,
warehousing and transportaton of coton, whether ginned
or baled.
Marginally benefcial for coton yarn players
Impact on Companies
Alok Industries Limited
-
No major impact
Mandhana Industries Limited
+
Positve for the company as it is into garment exports
JBF Industries Ltd
-
No major impact
62
Warehouse / Logistcs
Industry Snapshot:
The industry remains largely unorganized and fragmented with the share of organized players in the
industry accountng for mere 6 percent of the total industry size. The industry is characterized by
its capital- intensive nature with the capital being required for the establishment of logistc parks,
warehouses, CFS/ ICDs etc.
The demand of the Indian Logistcs and Warehousing industry is expected to remain upbeat in the long-run owing to
the increasing trade requirements of the Indian industries coupled with the rise in domestc consumpton backed by the
growth in the disposable income of the Indian households. Partcularly, factors such as increased government spending on
transport infrastructure, reforms in the government policy and increased partcipaton of the private players especially in
the development of ICDs, Free- trade warehousing zones (FTWZs), air cargo centers, integrated transport centers etc. augurs
well for the growth of the industry.
CARE Research expects the logistcs industry to grow in the range of 12-14 percent during FY14-18 period on CAGR basis
with the penetraton of organized logistcs players expected to increase from 6 percent to 12 percent by FY17.
Proposal and Impact
Set up of warehouse infrastructure fund and thereby
an allocaton of Rs.5,000 crore for the same.
This will increase the shelf life of agricultural produce and thereby
increase the earning capacity of the farmers.
Disclaimer
This report is prepared by Credit Analysis & Research Limited [CARE Ratngs]. CARE has taken utmost care to ensure accuracy and objectvity while developing
this report based on informaton available in public domain. However, neither the accuracy nor completeness of informaton contained in this report is
guaranteed. CARE is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of informaton contained
in this report and especially states that CARE (including all divisions) has no fnancial liability whatsoever to the user of this report.

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