Interim Budget 2014 15

Analysis of
Interim Budget
2014-15
Credit Rating, Research & Information Services
1
Table of Contents
Macro economy................................................................ 2-4
Sectors
Automobile .......................................................................... 5
Banking ................................................................................ 6
Capital Goods and Power Equipments ................................ 7
Constructon / Real Estate ................................................... 8
Consumer Durables ............................................................. 9
Industry General ............................................................... 10
2
Macro economy
The interim budget 2014-15 laid emphasis on fscal consolidaton and the need for India to focus on manufacturing
to steer the economy’s growth. The budget did not announce any major new expenditure for the coming fscal and
sought to contnue with the expenditure levels of the previous fscal. Similarly no new sources of revenue too have
been outlined for FY15.
Noteworthy has been the containment of the fscal defcit to below the target levels and the reducton in the current
account defcit. The country’s economy although on a decline is seen as more stable than two years ago going by
the decline in infaton, increase in exports, stability in exchange rate and moderaton in fscal and current account
defcit. All this is largely atributed to the concerted eforts by the government and the monetary authority (RBI).
Summarized below is the current state of the economy and key highlights of the interim budget.
Overview of Economy
• GDP growth estmated at 4.9% for FY14
• Agri sector growth impressive at 4.6% in FY14
• Deceleraton in manufacturing growth owing to lower investments
• Infaton on a decline - WPI from 7.3% in Jan’13 to 5% in Jan’14 and Core infaton from 4.9% in Jan’13 to 3%.
Food infaton down from 13.8% to 6.2%
• Fiscal defcit has been contained at 4.6% of GDP for FY14, below the target 4.8% for the year
• Revenue defcit at 3.3% (FY14)
• Current account defcit is estmated to decrease to $45 bn in FY14 from $88 bn in FY13
• Recovery in exports. Exports are estmated to have increased to $326 bn in FY14 from $304 bn in FY13 (growth
of 6.3%)
• Foreign exchange reserve to grow by $ 15 bn in this Financial Year
• Food grain producton has increased to 263 mn tonnes in FY14 from 255 mn tonnes in FY13
• In FY13, savings rate was 30.1% (30.8% in FY12) and investment rate was 34.8% (35% in FY12)
• Infrastructure created in the 9 months period of FY14 - 29, 350 MW of power capacity, 3, 928 kms of natonal
highways, 39, 144 kms of rural roads, 3,343 kms of new railway track and 217.5 mn tonnes of port capacity
per annum
Interim Budget FY15
Fiscal
• Fiscal defcit is budgeted to decline to 4.1% of GDP in FY15
• Revenue defcit to decline to 3% in FY15 (from 3.3% in FY14)
• Plan expenditure to be retained at the budgeted level of FY14 i.e. Rs. 5,55,324 crs
• Non-plan expenditure is estmated at Rs. 12,07,892 crs in FY15
3
• Gross Market Borrowings in FY15 are estmated to be Rs. 5,97,000 crs , 5.9% higher than the revised estmates
of FY14
• Disinvestment proceeds are budgeted to be Rs. 56,925 crs in FY15. In FY14 the revised estmates put the
disinvestment proceeds at Rs. 25,841 crs (the budget estmate for FY14 was Rs. 55,814 crs)
Tax Proposals
• No change in the rate of personal income tax and the rate of tax for the domestc and foreign companies for
income earned in FY14. The surcharge on personal income tax and corporaton tax to contnue
• No major changes are proposed in the duty structure or rate for indirect taxes
• Reducton in excise and customs dutes across segments to boost domestc manufacturing & producton
(details in later secton)
Policies and Reforms
• ADR/ GDR scheme to be revamped with scope of depository receipts to be increased
• Capital infusion of Rs.11,300 crs to Public Sector Banks
• Liberalizaton of rupee denominated corporate bond market
• Strengthening of currency derivatves market to help corporates forex risks
• Proposal to amend the Forward Contracts (Regulaton) Act
Agriculture
• Farm loans interest subventon scheme which is to contnue i.e. efectve rate of interest on farm loans to be
4 percent including subventon of 2 percent and incentve of 3 percent for prompt payment.
• Agriculture credit by Banks for FY15 is Rs.8,00,000 crs (target for FY14 was Rs.700,000 crs)
Subsidies
• Marginal increase in amount of subsidies (for food, fertlizers & fuel) from the revised estmate of Rs. 245,453
crore in FY14 to Rs. 246,472crs in FY15
• Subsidy bill for FY15 is expected to be 2% of GDP, lower than the 2.3% of FY14
• Petroleum subsidy for FY15 has been lowered by 25%.
• Fertlizer subsidy has almost been retained at previous levels while food subsidy has been increased by 25%
to Rs.1,15,000 crore in FY15
Rscrore FY13 (A) FY14 (RE) FY15 (BE)
Subsidies 2,57,079 2,55,516 2,55,708
Fertlizers 65,613 67,972 67,970
Food 85,000 92,000 1,15,000
Petroleum 96,880 85,480 63,427
Source: Ministry of Finance
4
Allocatons
• 10% increase in allocaton towards Defence (compared to budget allocaton in FY14)
• Moratorium on educatonal loans taken upto 31 March’09 and outstanding on 31 Dec’13. The government to
bear the interest burden as on 31 Dec’13. Rs. 2600 crs provided for this in FY14.
Snapshot: Interim Budget 2014-15
Rscrore FY13 (A) FY14 (RE) FY15 (BE)
Revenue Receipts 8,77,613 10,29,252 11,67,131
Tax Revenue 7,40,256 8,36,026 9,86,417
Non – Tax Revenue 1,37,357 1,93,226 1,80,714
Capital Receipts 5,32,754 5,61,182 5,96,083
Borrowings 4,90,597 5,24,539 5,28,631
Total Receipts 14,10,367 15,90,434 17,63,214
Non Plan Expenditure 9,96,742 11,14,902 12,07,892
On Revenue Account 9,14,301 10,27,689 11,07,781
Interest Payments 3,13,169 3,80,066 4,27,011
On Capital Account 82,441 87,214 1,00,111
Plan Expenditure 4,13,625 4,75,532 5,55,322
On Revenue Account 3,29,208 3,71,851 4,42,273
On Capital Account 84,417 1,03,681 1,13,049
Total Expenditure 14,10,367 15,90,434 17,63,214
Revenue Defcit 3,65,896 3,70,288 3,82,923
% of GDP -3.6 -3.3 -3.0
Fiscal Defcit 4,90,597 5,24,539 5,28,631
% of GDP -4.9 -4.6 -4.1
Source: Ministry of Finance
Impact – Macro economy
• The excise and custom duty cuts across sectors is a positve and could help boost/revive growth.
• The government market borrowing programme (of Rs. 5,97,000 crs) can be absorbed by the system. G-secs
yields are unlikely to be driven by this. Markets would be awaitng the main budget.
• The capital infusion (Rs 11,300 crore) in PSU banks would add to theircapital base. Declining capital positon
of the public sector banks has been a mater of concern with the banks having to make higher provisioning
owing to increasing non-performing assets (NPAs). With the economy expected to revive in FY15, banks would
require funds to meet their lending requirements. Also, with new banks entering, competton in the banking
sector would increase. Thus, this increased capital infusion by the government would help PSU banks build a
healthier balance sheet. The capital infusion would however need to be scaled up going forward.
5
Automobile
Industry Snapshot:
Indian automobile sector is amidst one of the most turbulent phases as the segments such as PV and CV are witnessing
signifcant decline in demand since second half of FY12. Moreover, TW industry demand has also moderated during
the mentoned period, especially the voluminous motorcycles segment is the worst hit. 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.
Interim budget 2014-15 has provided the much needed impetus to automobile sector as excise rates have been
reduced notably which would in turn lower vehicle prices and thereby induce growth in demand.
Duty Structure
Excise Duty Before Afer Impact
Small Cars* 12% 8% Positve
Mid-size Cars@ 24% 20% Positve
Large Cars# 27% 24% Positve
SUV 30% 24% Positve
Buses 12% 8% Positve
Trucks 12% 8% Positve
Two Wheeler 12% 8% Positve
Three Wheeler 12% 8% Positve
Note:
*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
4,000 mm and ground clearance 170 mm and above
All rates applicable up to 30th June, 2014
6
Banking
Industry Snapshot:
The Indian Banking Industry has witnessed moderaton in credit growth, even as deposit mobilizaton has outpaced
expectatons; largely due to the factors of economic cyclicality. In additon, the asset quality issues plaguing the
sector are a serious threat to future proftability. The Interim Budget has laid out plans to infuse fresh liquidity into
the Public Sector Banks, and expressed hope of containing NPAs, improving recovery, and ensuring good health of
the advances. With requirements of Basel III regulatons coming into force in a staggered manner, future capital
infusions are likely to be determined by the twin-play of asset quality and minimum capital requirements as per the
guidelines.
Proposals and Impact
Budget Proposals Impact
Capital infusion in public sector banks proposed, amountng to Rs. 11,200 crores
in 2014-15 (Rs. 14,000 crores in 2013-14, and Rs. 12,517 crores in 2012-13)
Positve. However, FY15 budgeted allocaton
is lower than previous years’.
7
Capital Goods and Power Equipments
Industry Snapshot:
The Vote on Account for 2014-15, has reduced the excise duty on capital goods and related electrical machineries to
10% from 12% earlier. This would provide relief to the domestc Industry players to become more compettve in the
medium to longer term. The lack of clarity on tarif hike proposal in case of imported coal and coal block allocatons
have hurt the power equipment sector. Currently, the domestc power equipment sector is reeling under stress
due to waning demand from private IPPs. This excise duty cut is applicable tll 30th June, 2014 i.e. tll the tme Final
Union Budget 2014-15 is presented.
Duty Structure
Excise Duty Before Afer Impact
Capital Goods (Chapter 84) 12% 10% Positve
8
Constructon/Real Estate
Industry Snapshot:
Constructon is an integral part to support the country’s growing need for infrastructure and industrial development.
In the last six years, constructon as a percentage of GDP has been in the narrow range of 7.8-8.1%. In the last couple
of years, the economic slowdown coupled with the policy impediments, high interest rates and liquidity concerns etc.
hampered the investment climate. Amid the challenging economic environment, many manufacturing companies
had deferred their expansion plans and new project announcement across various infrastructure segments had also
slowed down. Consequently, the growth in constructon GDP declined to 4.3% in FY13 as compared to the growth
of 10.2% registered in FY11. Considering frst half of FY14, the constructon GDP grew by 3.5% on a y-o-y basis as
compared with the growth of 5.1% registered in the corresponding period of the previous year.
Proposals and Impact
Budget Proposals Impact
Allocaton of Rs.6,000 crore has been provided for the Rural Housing Fund. The contnued focus of the government
on infrastructure development and rural
& urban housing will prove benefcial for
the constructon and allied industries.
Allocaton towards urban housing has been set at Rs. 2,000 crore.
The allocaton towards drinking water and sanitaton has been set at Rs.15,260
crore.
9
Consumer Durables
Industry Snapshot:
Consumer durables industry, comprising electrical machinery and equipment and parts thereof, size was about
Rs 400 billion during FY13 and was essentally fat as compared to the FY12 level. In a view to boost the consumer
demand, 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.
Duty Structure
Excise Duty Before Afer Impact
Electrical machinery and equipments and parts (Chapter 85) 12% 10% Positve
10
Industry - General
Industry Snapshot:
The Interim Budget has provided a few positve proposals for some segments of the industry.
Proposals and Impact
Budget Proposals Impact
Setng up Research Funding Organizaton to fund projects selected on
compettve basis
Positve from promotng research &
development actvites in the country
Restructuring of excise duty rates on mobile handsets to 6% (with CENVAT
credit) or 1% (without CENVAT credit)
Positve for domestc manufacturing of
mobile handsets
Lowering of customs duty on non-edible grade industrial oils and its fractons,
faty acids and faty alcohols to 7.5 percent
Positve for domestc producton of soaps
and oleo chemicals
Exempton of CVD on imported machinery for specifed road constructon is
withdrawn
Positve for domestc manufacturers of these
specifed road constructon machinery
Exempton of loading, unloading, packing, storage and warehousing of rice
from service tax
Positve for rice processing companies
Exempton to cord blood banks from service tax Positve for stem cells segmentsw
Allocaton of Rs. 2,600 Cr towards moratorium of all educaton loans taken up
to March 2009 and outstanding as on December 2013. The Government will
take over the liability for outstanding interest as on 31st December 2013 but
the borrower would have to pay interest for the period afer 1st January 2014.
Positve for students
Allocaton of Rs. 1,000 Cr towards Natonal Skill Certfcaton and Reward
Scheme (NSDC)
Positve for students undertaking the
programme
All rates applicable up to 30th June, 2014
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