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Post Budget Analysis 2012-13

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Post Budget Analysis 2012-13

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What does a Finance Minister do - when his party is perceived to have lost 3 state elections; inflation is raising its head again; tax revenues are falling short of expectations; subsidies are ballooning; and when those saner voices, who should seek fiscal consolidation, are advocating another populist measure (read the Food Security Bill) that might sink the economy altogether? Pranab Mukherjee, or Pranabda, does nothing in particular. Or, perhaps, he does! He avoids anything remotely controversial altogether. Budget 2012-13 was the last chance of the UPA-II to write up anything substantial on the pro-reform side of its report card. The next Budget will come on the eve of the general elections and will be totally voter catchy. There was complete unanimity among all about this. Though no one was sure what he could do given the lefter-than-the-Left Mamata's track record of objecting anything seen to be business friendly. Besides, issues like slow economic growth and high global oil prices were also adding to the gloomy scenario. The Budget only reinforced the gloom.

It lacked major reforms and future direction. On the whole, it tried to appease many but was not a bold and forward looking one, as Mr. Mukherjee's colleague Dinesh Trivedi, the railway minister proposed in his rail budget. Many experts believe that the growth projections in the budget are on the optimistic side and the fiscal deficit target of 5.1 per cent of GDP is unlikely to be met. The bond market reacted adversely with a 9 basis point rise in the 10 year benchmark yield, 6 bps rises in the 5 year rate and 7 bps in the 1 year rate. Easing of funding for stressed sectors through the ECB route, lower customs duties and increase in personal tax cheered the markets. Doubling the amount of recapitalization at public banks and making interest of Rs.10, 000 on saving bank accounts tax free were seen as some good measures by Bankers. The Rajiv Gandhi equity scheme and STT reduction were seen among few positives to enhance retail investor participation in equity markets. The agriculture sector received a big push from the North Block in terms of increased outlay and reduced interest rates for the farmers. However, lack of clear roadmap on fiscal consolidation, on subsidies and strong reforms to bring India's growth to 8% had raised investors' concerns that caused more than a per cent fall in SENSEX and NIFTY. There was nothing much for the manufacturing and service sectors to cheer about. The lack of new steps for manufacturing was an unpleasant surprise given the government's stated objective to enhance its share in GDP from the current near 16% to 25%. The transition in the Service Tax regime to move from a positive list to a negative list is a step towards introduction of GST, and make unviable the prospect of keeping services like those of lawyers from out of service tax net, without any justification, save for the political clout of lawyers. The fertilizer sector has gained the most with cheaper farm credit, increase in subsidies and cutting down of import duties. There airline industry received the much needed push with direct import of aircraft turbine fuel (ATF) being permitted. Textile sector received a further boost with a number of major clusters proposed to be set-up in states of Andhra Pradesh and Jharkhand. Post Budget Analysis 2012-13 Page 3 of 18

The budget proposal to hike excise duty to 12 per cent from 10 per cent is likely to increase steel and non-ferrous metal, pharmaceuticals and paper prices with the end burden being passed onto the consumer. Increase in excise duty and customs on the automobiles will make automobiles dearer for the middle class. Increase in cess on production of crude oil will make domestic oil production dearer. The education sector saw a few positive announcements like exemption from service tax which will make education affordable. Infra funding and housing proposals will boost cement demand. The 2 year waiver of duty on imported coal will also aid the power sector. The budget missed important opportunities to set a clear roadmap for implementation of GST. But he did take baby steps towards stepping a framework for Central GST by bringing both excise and service tax rates at par. The road map for implementing DTC is still not clear. Major policy reforms like FDI in retail are still awaited. The budget mentioned a lot about improving the infrastructure. The doubling of issuance of tax-free infrastructure bonds to Rs 60,000 crore to be issued by the infrastructure sector will reduce funding constraints and boost investments. The access to viability gap funding for irrigation projects is expected to facilitate private sector participation in the sector. Increased allocation towards NHDP will favourably impact road construction companies. It is believed that the revenue growth projections in the budget are on the optimistic side and the subsidies may increase on account of oil due to price spike and food due to the Food Security Act. Thus the expected fiscal deficit target of 5.1 per cent of GDP seems unrealistic. Much like the Budget last year, where a domestic slowdown caused actual revenue collections fall short of targets and a more than expected hike in oil prices bled oil companies dry. But there are international pointers today that may gladden the FinMin's heart. American employment is highest in three years. And the trend is expected to continue. The 5 state elections are expected to add half a percentage point to the GDP growth, given the bad habits of our politicians and voters alike!! Euro seems to have sorted out its mess, at least for now. Till it again reaches breakpoint, Pranabda can solve other problems of the government. The election of the President and Vice President, Mamata's tantrums, Rahul Gandhi's launch, Narendra Modi's possible re-election in Gujarat, replying to the BJP's taunts about inaction on black money can occupy his mind space. Or perhaps he could just sit down with Dr. Manmohan Singh and talk about the drift this government finds itself in. Three years ago, the superb performance of the Congress in Lok Sabha elections was attributed to the PM. Maybe Da could tell him that this slog over of his 2nd term as PM is his final chance at redemption. Either the government willingly performs and boldly reforms the economy, or Dr. Singh risks proving true the BJP's attack of his being the weakest PM ever. We have covered some of the important sectors in our analysis and have tried bringing you a wholesome picture of impact of various announcements made by Pranabda. We invite your valuable suggestions and feedback at financeclub@scmhrd.edu. Abhishek Maheshwari Anshu Saboo Jatin Gajwani Samira Vemparala

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Sectors Covered
Coal Energy Education Taxation Telecom Pharmaceutical Retail Steel Cement Automobile IT & ITES Infrastructure Aviation Agriculture Banking Power 6 6 7 8 9 9 10 11 12 12 14 14 15 16 17 17

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The 2012-13 budget has been favourable to coal industry though doesnt give any major boost to coal industry. Announcements and Impact The tax on imported coal of 5.1% has been waived off for a period of 2 years to boost coal imports and meet the growing energy demands. However, coal industry players feel that it will not raise imports significantly due to high price differential between domestic and international coal prices, which cannot be passed onto the consumers. The waiving off tax will reduce revenue for the government and thus, may add to fiscal deficit. The budget has also been generous to power sector, which consumes maximum of coal for generation of power. The import tax waiver will boost power sector which has received favourable initiatives such as additional depreciation on new machinery, 100% profit based deduction and also reduced tax withholding rates on interest on ECB from 20% to 5%. Coal India aims to produce 464 million tonnes of coal in 2012-13 from 440 million tonnes in 2011-12. The budget also proposes to provide full exemption from basic customs duty and a concessional CVD (Countervailing Duty) of 1% to steam coal for a period of two years till March 31, 2014. This would increase the import of non-coking coal by around 1 million ton. According to

the Planning Commission, the demand-supply gap for coal in the ongoing year is likely to touch 142 MT, with domestic availability being only 554 MT against the requirement of 696 MT.

Saurabh Singhania Yashwardhan Goenka Vibhu Gangal Jyoti Sharma Harichandana Madira

Announcements and Impact The provision for cash subsidy provided to state-owned oil firms by the government for selling fuel below cost has been revised to Rs. 65,000 crores in current fiscal which was at the level of Rs. 20,000 crores in the previous years. Raised compensation will result in the government paying oil marketing companies like Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp for selling diesel, domestic LPG and kerosene to Rs. 65,000 crore for current fiscal as against Rs. 20,000 crore provisioned in the budget estimate for 2011-12. Currently the crude producing companies in India pay a cess of Rs. 2,500 per ton of crude produced to the government which is at these levels from the year 2006-07 when it was last revised in the budget. Now they have to shelve out Rs.. 4500 per ton for the same which is an increase of 80 percent. This increase in cess will be reflected in the cost of production of crude in the country which is likely to go Page 6 of 18

Post Budget Analysis 2012-13

up by $ 5 -7 per barrel. It will further add pressure on the public sector Oil Manufacturing Companies (OMC) which is also impacted by sharing of under recoveries of oil marketing companies. OMC are currently incurring daily under recovery of Rs. 474 crore on sale of diesel, kerosene and LPG. Full exemption from basic customs duty and a concessional CVD of 1 per cent to Steam coal for a period of two years This excise duty reduction seeks to address the coal shortage affecting the power and steel sectors; government has announced a slew of measures for enhancing its availability in the Budget. Coal imports unlikely to spike despite tax cut as Global coal prices are about 40% more than domestic price, so imports will still be far more expensive than domestic coal. Liquefied Natural Gas import tax has been abolished. This move still may not spur imports due to limited infrastructure to get the fuel to power plants. Pay for gas now, get money back later The gradual roll out of a scheme that would make people pay market rates for LPG cylinders and then receive partial payments in their accounts depending on the subsidy they are eligible for. It will allow direct transfer of subsidies to the needy and allow the government save wasteful expenditure on subsidies. Lower budgeted fuel subsidy for 2012-13 at Rs..43, 000crores reduced by Rs..25, 000croresto bring subsidy to 1.7% of GDP in next 3 years. Reduction in fuel subsidy hints towards deregulation of petroleum product prices, especially diesel. Ankit Maggu Nitin bansal Rachit Jain Ravi Matalia

A lot of announcements were made for the education sector to boost the level of literacy in the country. Announcements In 2012-13 INR 25,555 crore provided for Right to Education Act-Sarva Siksha Abhiyan (RTE-SSA) representing an increase of 21.7 per cent over 2011-12. 6,000 schools proposed to be set up at block level as model schools in Twelfth Plan. To ensure better flow of credit to students, a Credit Guarantee Fund proposed to be set up. INR 3,124 crore provided for Rashtriya Madhyamik Shiksha Abhiyan (RMSA) representing an increase of 29 per cent over BE 2011-12 INR 1000 crore allocated for National Skill Development Fund in 2012-13. In order to incentivize companies to invest on skill development projects in the manufacturing sector, it is proposed to insert a new provision in the Income-tax Act to provide weighted deduction of 150 per cent of expenses (not being expenditure in the nature of cost of any land or building) incurred on skill development project.

Impact A thumbs up to the Government for being more concerned towards the aim of educating everyone in the country! Focus on RTE, SSA gives a hope of literacy campaign of the government. Page 7 of 18

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The allocation to the National Skill Development Fund will help in capacity building and developing a quality workforce to meet its ever growing demand. Also, the setting up of the Credit Guarantee Fund will be a boost for students across the country as guaranteed access to finances will ensure that no deterrents hinder their progress, especially the economically weaker sections of the society.

increasing foreign participation in the Indian market. These new taxation measures are to mop up net additional revenue of Rs. 41,440 crore (which is coincidently around the figure the RBI has released into the economy with the reduction in the CRR to avoid the liquidity crunch this year due to the advance tax). Direct Taxes The basic slab for income tax has been proposed to be raised to Rs.. 2 lakhs from the current Rs.. 1.8 lakhs. Introduction of new tax slabs. Unexplained money will be at taxed at the highest rate of 30% Tax exemption of Rs. 5000 for expenses incurred on preventive health check-up Corporate taxes have been left untouched. While this is good for corporate profits, a moderate increase would have been very good for fiscal deficit and that could have lowered interest rates.

But the budget failed to address few concerns like Industry expectation to grant infrastructure status to education sector, no focus on quality education and higher education and Education sector allocation to GDP is still low comparing to other developed countries.

Jimit Shah Chandni Chaterjee Debi Prasad Dash Satyabrata Pal

Indirect Taxes

In his Budget for 2012-13, presented to Parliament amid hope of reforms after a year of policy stasis, the Finance Minister has increased tax rates in almost every area with the aim of controlling the fiscal deficit and his only form of relief has been for the individual tax payers. The other area for which much needed reforms have been presented is the stock market trading where all the processes (Foreign Investments) have been simplified and costs for trading have been reduced. The Finance minister has introduced measures for

Central excise duty rate up to 12% 17 services on negative list STT cut by 20%

This was an intelligent more by the finance minister as raising excess revenue from indirect taxes does not require Parliamentary approval. Scheduled for later this year DTC Bill to be enacted at the earliest after expeditious examination of the report of the Parliamentary Standing Committee. Drafting of model legislation for the Centre and State GST in concert with States is under progress. Page 8 of 18

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GST network to be set up as a National Information Utility and to become operational by August 2012

The finance minister has done a good job of balancing the rebates and levies. He has given rebates on personal tax at the cost of levying higher taxes on all the commodities. Anshu Saboo Gunjot Singh Parmesh A V Tanvi Choudhary Tejasvini Vijayaraghavan

The budget for the year 2012-13 has had its share of good and bad news for the telecommunication industry. The second largest telecom industry in the world continues to be seen as a revenue earning sector by the Indian Government. The trend set by the previous year budget seems to continue with an emphasis on growth in the rural sections of the country. However, this has been coupled with fixed network for telecoms and towers coming under eligible sectors for viability gap funding, thereby providing an incentive for telecom companies. Announcements and Impact Budget 2012 also proposes a law asserting the states right to retroactively tax cross-borders share sales in which the underlying asset is located in India. This comes as a move against the Supreme Courts recent ruling in support of Vodafone. Overall, the impact is expected to be neutral or mildly positive. Focus on the rural economy could improve rural connectivity, which could drive up sales of the telecom companies.

This will increase rural penetration of telecommunication services and serve the social cause and aim of the budget. Service tax hike will be seen a slight negative for the sector. It is already highly taxed and the costs will go up. It is expected that this will increase costs for mobile phone users. With inclusion in viability gap funding, telecom infrastructure will improve and chances of more investments will increase. This will contribute to further growth of the sector. The exemption from customs duty on mobile phone parts could boost the mobile handset industry. This will make mobile phones cheaper and hence, contributing to further market penetration. Anshu Saboo Aparna P Haripreetha P Nandini Shweta Shukla

The overall impact is neutral on Pharmaceutical Industry and growth is likely to depend on the exports only. Announcements and Impact The concessional 5 per cent basic customs duty has been extended to six life-saving drugs/vaccines and to bulk drugs used to manufacture the said drugs. Impact is likely to be neutral. These drugs account for a small proportion in the Indian Page 9 of 18

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pharmaceutical market, so it is not likely to affect the market. Increase in the excise duty on formulations from 5 per cent to 6 per cent and increase in the excise duty on bulk drugs from 10 per cent to 12 per cent. There will be no significant impact. Pharmaceutical players will pass on the duty increases to consumers. 200 per cent weighted deductions for in-house R&D expenses are extended for 5 years. It is assumed to be of little benefit to the pharmaceutical players, as R&D expenditure forms less than 5 per cent of their net sales. Saurabh Singhania Smit Shah Bhaveka Arora Divya Katre

Provision has been made for subsidies directly to farmers. Unbranded jewellery will be subject to excise duty levy of 1 per cent. Removal of education cess on CVD component of customs duty will result in reduction in effective rate of customs duty. The basic customs duty on wool waste and wool tops would be reduced to 5 per cent from 15 per cent, currently.

Impact Increase in service tax to 12 percent is likely to have an adverse impact on the already wafer-thin margins of retail companies, especially since service tax is not offset-able against VAT. The service tax increase will cause a rise in price of products such as apparel, luggage, electricity and even electronic appliances. Prices of electronics items are likely to increase by 2-4% amid the slowdown in the demand also. Similarly, increase in standard excise duty from 10 percent to 12 percent may increase the prices of products. Branded garments will become cheaper despite hike in its excise duty as a result of the government raising the abatement from 55 per cent to 70 per cent. Thereby the effective excise duty would stand reduced to 3.6 per cent from 4.5 per cent. However, the benefits are expected to be minuscule. If the concept of making subsidies available directly to the retailers and farmers is realized, a substantial amount of money that is otherwise lost to the middlemen (and probably invested in other sectors including real estate) would be available in the Page 10 of 18

Announcements While the decision on FDI in the multibrand sector has been suspended, the government has gone ahead with increasing foreign investment level in single-brand retail to 100 per cent from the earlier 51 per cent. Similarly, no announcements regarding the roll out of GST were made. Increase in standard excise duty from 10% to 12%. Excise duty on branded apparels would now be levied after an abatement of 70% on MRP instead of 55%. However, there will be a reduction in excise duty on soya food products to 6%. Increase in the service tax rates from existing 10% to 12% and introduction of negative list in service tax.

Post Budget Analysis 2012-13

hands of the farmers. Going by some of the estimates of this amount, it could be significantly large and impact the consumer product companies very positively. This would lead to an increase in consumption in small towns and villages, strengthening an already burgeoning buying class in the rural areas. Prices of gold and platinum jewellery are set to go up by at least 2%, making them that much costlier for the consumer. Jewellers also fear that the increase in basic customs duty would increase the likelihood of smuggling in gold. Reduction in basic customs duty on pro-biotic from 10% to 5% would benefit the likes of Amul. However, the increase in excise duty on icecream and flavoured milk from 1% to 2% at the onset of the summer season may not augur well for the largest maker of ice-cream. From a direct tax perspective, no significant announcements have been made to meet the expectations of the retail sector. Though increase in the basic exemption limit for individuals to INR 2 lakh is likely to marginally increase the disposable income in the hands of the consumers which could benefit the retailers. The message that this Budget really carries is that there will be a lot of opportunities in rural markets in the long term. Several measures such as providing subsidies directly and reduction of interest rates in some areas will mean additional income for rural consumers. This calls for a strategy of penetrating this segment through better reach and the right set of products.

Announcements Steel sector of India has a Favourable budget this year, with Expected cut in duties and protecting the interests of Domestic steel Producers. Propose to reduce basic customs duty on plant and machinery imported for setting up or substantial expansion of iron ore pellet plants or iron ore beneficiation plants from 7.5 per cent to 2.5 per cent. This move will encourage enrichment of low-grade iron ore, of which India has huge reserves, Basic customs duty on coating material for manufacture of electrical steel has been reduced from 7.5 per cent to 5 per cent Budget has reduced basic customs duty on nickel ore and concentrate and nickel oxide/ hydroxide from 2.5 per cent or 7.5 per cent to Nil Enhance export duty on chromium ore from INR 3000 per tonne to 30 per cent ad valorem Enhance basic customs duty on nonalloy, flat-rolled steel from 5 per cent to 7.5 per cent. The move would discourage imports and thus and go a long way in protecting the interests of the domestic industry

Ashok Reddy Y Niladri Dey Rishi Shah

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Announcements Excise Duty has been raised from 10% to 12% Specific duty component has been reduced from Rs.. 160 to Rs.. 120 per tonne for non-mini cement plants There is no change in VAT and custom duty on the raw material. Goods and Services tax (GST) will be operational by August 2012

vehicles, utility cars, commercial vehicles, goods carriers, two wheelers and three wheelers etc. The automobile sector of the country has a critical role to play in Indias external trade sector which also has made a significant impression as the fourth largest auto exporter in the world, behind South Korea, Thailand and Japan Announcements Basic Excise duty hiked to 12 per cent from 10 per cent Budget 2012. Excise duty on large cars from 22 per cent to 24 per cent. Large cars to attract up to 27 per cent duty, MUVs, SUVs enhanced Hybrid Vehicles Components Gets Tax Sops Custom Duty on CBU (Completely Built Unit) Imported Cars Increased From 60% to 75% Income tax exemption limit raised to Rs.. 2 lakh Customs duty on bicycles and parts increased Standard excise duty rate raised from 10 per cent to 12 per cent, to add additional revenue of Rs. 18,650 crore No extra tax for diesel vehicles,

Impact Price Hike in cement will come in effect very soon Property prices are expected to rise in the coming days The net impact will vary for each company based on the extent of its dependence on imported coal. The proposal to exempt imported non-coking coal from basic customs duty (earlier at 5 per cent) to have a positive impact of 1-1.5 per cent on the cement industrys operating profit. Jimit Shah Rishu Sukhija Maithili Kolamkar Pooja Singh


The automobile sector is one of the fastest growing sectors in the country. Though largely dominated by the small cars segment, the auto sector is characterised by the presence of large variety of different types of vehicles which includes passenger cars, multi-purpose

Basic Excise duty hiked to 12 per cent from 10 per cent Budget 2012.The announcement means that the profitability of the transport sector will reduce further. Also it is likely that the Indian auto companies may increase their prices in order to pass on the hike in excise duty to the customers. This will add additional burden on customers which will lead to a drop in automobile sales. The truck sales will also get a hit. The Auto Page 12 of 18

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Component Manufacturers Association (ACMA) has announced that the excise hike will add to input costs due to excise hike on flat rolled steel. Excise duty on large cars from 22 per cent to 24 per cent. Large cars attracted an excise duty of 22% earlier, now they will attract a duty of 24% which is 2% higher which will roughly increase the price of most cars in sedan segment and above by about 2%. For a car which coasted about Rs.. 10 Lakhs before budget will approximately cost Rs.. 20,000 more post April 2012.this will have a negative impact on the international brands trying to expand in India. Mixed Excise Vehicle Excise Increased From 22% + Rs.. 15000 to 27%Cars which attracted mixed excise rate of 22% + Rs.. 15,000 will attract higher tax rate of 27% which will increase the price of larger cars and SUVs. Hybrid Vehicles Components Gets Tax Sops Import of components for development and manufacturing of Hybrid vehicles like Lithium ion batteries etc. has been provided exemptions from excise and import duties to promote the use of hybrid and eco-friendly cars in India. The excise duty on specified parts of hybrid vehicle is being reduced to 6 per cent from 10 per cent. Custom Duty on CBU (Completely Built Unit) imported cars increased from 60% to 75%CBU or completely built units or cars which are imported into India completely assembled from abroad will attract more duties and taxes which will increase the price of most high end luxury cars in India. This is done to encourage more of

local assembling of the cars and promote Indian automobile industry. The matter of relief is that there has been increase by 15%. Income tax exemption limit raised to Rs.. 2 lakhAlthough, the excise duty hike has taken a wrong turn in the auto sector, an increase in income tax exemption limit to Rs.. 2 lakh may be of some sort of relief by improving the per capita income which should in turn increase the two/four wheeler sales. No extra tax for diesel vehicles :This comes as a relief for the customers and the manufacturers. With no tax on diesel cars, it is likely that the companies will consider increasing investment on diesel side now as demand on diesel vehicles remains robust. No impact on auto components as well as tyres industries Auto component and tyre manufacturers are expected to fully pass on the increase in basic excise duty. Further, a reduction in the excise duty on replacement batteries for electric vehicles from 10 per cent to 6 per cent, and decrease in the customs duties for specified parts of hybrid vehicles will have no major positive impact on demand for auto components, given the low population of eco-friendly vehicles in India.

As predicted, the reduction in excise duty from 10 per cent to 6 per cent on specific parts supplied to manufacture of electrical and hybrid vehicles will promote the growth of environment friendly cars. Excise duty on lithium ion battery packs for supply to electric vehicle or hybrid vehicle manufacturers has also been reduced to 6 per cent from 10 per Page 13 of 18

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cent. Also, the new budget has bought changes in the tax slabs as predicted. The taxable income has now increased to Rs.. 2 lakhs. Jimit Shah Rakesh Kumar Singh Vishal Jojowar

precedent for many such projects in the future. Advance Pricing Agreement which was long overdue will help on more clarity on Transfer pricing front and give a respite from the tax woes faced by the IT firms.

Announcements No changes to Minimum Alternative Tax (MAT). No extension of the tax holiday for Software Technology Parks of India (STPI) units under section 10A and 10B. Allocation of Rs. 14000 crore for Unique Identification Authority of India (UIDAI) for FY12 for enrolment of 40 crore Indians by June 2013. Advance Pricing Agreements to be introduced Faster refunds of service tax and scope for input credits for service tax. Impact The MAT was hoped to be decreased so as to give the bleeding IT & ITES a competitive advantage, but a status quo means companies will have more impact on the bottom line; the smaller firm being most hit. The STPI will end on March 31 2012; bring to an end the heavy incentives given to the sector. The non-renewal of STPI and MAT are likely to nullify any incentive received by the sector due to SEZs and DTC. More allocation to UID-Aadhar project is likely to translate more into revenues for this sector and act as a

Overall the Budget 2012-13 was a very mediocre one for the IT & ITES sector. There were a lot of expectations on areas like STPI, MAT and DTC which were not fulfilled and tax still continues to be a major factor in the development in IT & ITES sector. Saurabh Singhania Ajit Yadwadkar

Announcements During Twelfth Plan period, investment in infrastructure to go up to Rs..50 lakh crore with half of this to be from private sector. More sectors added as eligible sectors for Viability Gap Funding under the scheme Support to PPP in infrastructure. Tax free bonds of Rs..60, 000crore to be allowed for financing infrastructure projects in 2012-13. IIFCL has put in place a structure for credit enhancement and take-out finance for easing access of credit to infrastructure projects. Allowing ECB for low cost housing projects and setting up of a credit guarantee trust fund.

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Impact Credit enhancement will ease financing constraints faced by certain infrastructure segments. Viability gap funding will help improve private sector participation. Measures for housing to address the shortage of housing for low income groups in major cities. Moves to reduce withholding tax on interest payments for ECBs from 20 per cent to 5 per cent will be a positive for the roads and ports sectors. Tax free bonds will boost investment in this sector and will help improve retail investor participation.

working capital requirements for a period of one year. A proposal to allow foreign airlines to participate up to 49 per cent in the equity of an air transport undertaking in the form of FDI is also under consideration. Airline is one of the sectors in which the rate of withholding tax on interest payments on ECBs is proposed to be reduced from 20 per cent to 5 per cent for three years. This has been done to provide low cost funds to this distressed sector. The central plan outlay for Civil Aviation Ministry in 2012-13 is estimated at Rs. 7,293 cr. and a demand for plan allocation of Rs. 4,000 cr. to Air India in the next financial year has also been proposed in the budget.

Announcements Unlike the last years budget, this year the FM gave a sigh of relief to the aviation sector. This sector which has been in distress since a long time, with most of the airlines in the red; this budget will definitely help ease out some pain. The highlights with respect to the Airlines and Aviation Sector (incl. Civil Aviation):


The airline industry is facing financial crisis. The high operating cost of the sector is largely attributable to the cost of Aviation Turbine Fuel (ATF). To reduce the cost of ATF, Government has reiterated direct import of Aviation Turbine Fuel (ATF) for Indian carriers as actual users. To address the immediate financing concerns of the Civil Aviation sector, it has been proposed to allow aviation companies to raise money (up to US$1bn) through ECBs for their

India has potential for establishing itself as a hub for third-party Maintenance, Repair and Overhaul (MRO) of civilian aircrafts. To realize this potential, a proposal to fully exempt companies from basic customs duty on parts of aircraft and testing equipment imported for this purpose. As a measure of support to the airline industry, it is also proposed to fully exempt both new and retreaded aircraft tyres from basic customs duty and excise duty.


Companies, such as Spice Jet, with relatively healthy balance sheets and good repayment history may be benefitted from this. This has come as a disappointment for companies under severe financial stress, as they were relying on FDI to raise capital for running their operations because FDI is still kept under consideration.

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1. 2.



This move is positive for aviation companies, as it would reduce ATF cost, which accounts for 50% of the total operating cost of a company. However, this development has a low probability of benefiting aviation companies in the short term, as we believe companies do not have the required infrastructure or capital to build the infrastructure required to import and store ATF directly. third party maintenance, repair and overhaul of civilian aircraft. Direct import of Aviation Turbine Fuel permitted for Indian Carriers as actual users. ECB to be permitted for working capital requirement of airline industry for a period of one year, subject to a total ceiling of US $ 1 billion. Proposal to allow foreign airlines to participate up to 49 per cent in the equity of an air transport undertaking under active consideration of the government. Akshay Narang Harshal Patkar Vikas Gupta

Plan Outlay for Department of Agriculture and Co-operation increased by 18 per cent. Outlay for AshtrayKrishiVikasYojana (RKVY) increased to Rs..9,217crore in 2012-13. Target for agricultural credit raised by Rs..1, 00,000crore to Rs..5, 75,000crore in 2012-13. Interest subvention scheme for providing short term crop loans to farmers at 7 per cent interest per annum is to be continued in 2012-13. Additional subvention of 3 per cent available for prompt paying farmers. Kisan Credit Card (KCC) Scheme to be modified to make KCC a smart card which could be used at ATMs. A new centrally sponsored scheme titled National Mission on Food Processing will be started in 2012-13 in co-operation with State Governments. Allocation for AIBP in 2012-13 stepped up by 13 per cent to Rs..14, 242crore.


Announcements Basic customs duty reduced for certain agricultural equipment and their parts. Full exemption from basic customs duty for import of equipment for expansion or setting up of fertiliser projects up to March 31, 2015.

Impact Interest subvention for farmers will help lower the rate of interest of borrowing for farmers. A number of measures will increase demand for fertilizers and improve revenues and profitability for fertilizer players. KCC smart cards will help improve liquidity for farmers, by providing them more timely access for loans if implemented in a sophisticated manner. Experts believe that although a number of measures have been proposed for agricultural schemes, Page 16 of 18

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many of them are believed to be superficial and the need of the hour is to have better agricultural infrastructure to meet the challenge of rising input costs for farmers.

investments and credit growth in 2012-13.

Announcements A proposal to extend the sunset date for setting up power sector undertakings by one year for claiming 100 per cent deduction of profits for 10 years. Abolition of customs duty on steam coal and LNG. CVD reduced to 1% from 5% on steam coal. Both these reductions will be available till 2014. Full exemption from basic duty has been provided for certain fuels for power generation. There will be nonimposition of import duty on power equipments Allowance to part finance Rupee debt of existing power projects via ECB . Rate of withholding tax on interest payment on ECB to be reduced to 5% from 20% for 3 years. 80IA benefits to be extended by one year.

Announcements To protect the financial health of Public Sector Banks and Financial Institutions, Rs..15, 888crorehas been proposed to be provided for capitalisation. Possibility of creating a financial holding company to raise resources to meet the capital requirements of PSU Banksis under examination. As per the Union Budget 2012-13, Rs10, 000crore will be allotted to NABARD for refinancing of regional rural banks (RRBs). Official amendment to The Pension Fund Regulatory and Development Authority Bill, 2011, The Banking Laws (Amendment) Bill, 2011 and The Insurance Law (Amendment) Bill, 2008 to be moved in this session.

Impact Impact The capitalization of PSU banks will help them and take them closer to the goal of capital adequacy as proposed by BASEL III Norms. The refinancing of RRBs is a positive step in the direction of financial inclusion. RBIs ability to cut interest rates would be impeded by the high fiscal deficit which could negatively impact Easier access to funds, extension of 80IA and availability of cheaper fuel will benefit power suppliers and EPC players. No customs duty on imported equipments is a negative for some domestic players , but at the same time will help curb capital costs in this sector. Reduction of interest payments on ECBs will encourage funding. Page 17 of 18

Post Budget Analysis 2012-13

The Finance Club

The Finance Club of Symbiosis Centre of Management & HRD is a student initiative which started in 2005. The Finance Club functions as the interface between the student community and the financial world. Its objective is to enable prolific interactions among the student community, coupled with valuable inputs from the faculty, the academia and representatives from the industry. The club provides a platform for all students to come together and explore the field of finance, leading to awareness amongst students with respect to the current financial aspects surrounding the economy and the industry.

Activities of the Finance Club

Finalyst - The Monthly Finance Journal of the Finance Club Knowledge Series Bizfluence Pre Budget and Post Budget Analysis

Past Events First Academic Summit on Valuation and Financial Modeling - Nov 2010 Integrated Risk Management Seminar-2009 Banking Conclave-2005 Research Seminar on Commodity Market-18th Feb2012

Abhishek Maheshwari Anshul Sood Charul Mahajan Samira Vemparala Sumit Dawra Anshu Saboo Jimit Shah Ravi Matalia Saurabh Singhania Sudip Bain Surbhi Bhandari Taha Lanewala

Post Budget Analysis 2012-13

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